To make an industrialist

How does one make an industrialist, if the industrialist does not make himself?

The government’s plan to “make” 100 black industrialists by means of preferential finance and procurement opportunities is a fantasy. Like entrepreneurs, industrialists are not made, they make themselves. They seek out neglected or undiscovered business opportunities; they create a viable, or at least, a plausible business model; they elicit capital, either through loan finance, or equity partnership, or both; they utilise the finance to create the enterprise; they employ staff and they commence their business. No part of that process is “created” by a benefactor, at least not if the enterprise is to achieve a reasonable prospect of enduring success.

If individuals with these essential characteristics are not spontaneously at work they will not be “made” by any effort of government or anyone else. How, for instance, is the government to detect the areas of industry where the neglected or undiscovered business opportunities are to be found, if the business community has not already made the discoveries on its own?

Is the answer perhaps that it is not new opportunities that will be sought, but ones already discovered and served by existing, successful enterprise? If so, will the “making” of the new black industrialists not merely be a process of transference of business from proven enterprises to new, untested ones; a process that will inevitably involve the wasteful duplication of scarce resources? The description of the proposed scheme appears to envisage precisely that: the government intends to use its voracious appetite for the procurement of various goods and services as an instrument to drive this policy.

The government’s scheme would result in competition between private enterprise and government-sponsored enterprise. The logical outcome of such a policy would be one whereby established enterprises, many of which had been built up over many years, and at great cost, might become unviable; some may be forced into insolvency, with corresponding losses of employment. It might also happen however that, as in the case of the unequal competition between Comair and SAA, the private enterprise remains viable, by dint of excellence, while the inept government sponsored industry requires unending sponsorship.

Why is the number restricted to 100? Surely it is far more desirable to have as many black industrialists as the economy can support? Why not 1000, or 2000? The economy would derive great benefit from the existence 1000 black industrialists if, in the process of their emergence, it were to grow accordingly. The answer, of course, is that the government’s intended programme would be prohibitively expensive if 1000 industrialists were to be created, and would confer no lasting benefit upon the economy. That demonstrates the perversity of the scheme.

The existence of industry is a sign of the prosperity within the economy – the more there are, the more prosperous the society. The fact that the government’s scheme for the creation of industrialists would become ever less viable as it seeks to create more, demonstrates the extent of the fantasy.

There is, of course, every reason to encourage the creation of black industrialists and entrepreneurs; no supporter of the free market system would contend otherwise. The critical requirement is that finance, at competitive rates, should be available to every aspirant industrialist with a good idea and a good business plan; these being the essential requirements for anyone who aspires to be an industrialist. The initiative can however come only from the individual, not from another, and never from the government.

The government’s policy is reflected in a recent statement of Oregan Hoskins, the president of the South African Rugby Union, that transformation is more important than winning. Is it any wonder that more and more Springboks are selling their skills in France, Japan, England and elsewhere?  Theirs is the equivalent of the emigration of business skills, experience and opportunity, and the cost is measured in money and money’s various measures. Standard and Poor’s, Fitch and others will all have taken note.

Transformation before effectiveness – that is the criterion at Eskom, and SAA, and the dysfunctional municipalities, the state hospitals, and the schools where, need one mention, the teaching of mathematics and science is of such an abysmal quality that South Africa remains firmly at the bottom of the international class of cohorts. Because transformation is more important than “winning” the requirements for passage through school are set so low that graduates are often now barely literate and numerate. The list of failures is, of course, much longer than this, but the point need not be belaboured. The government proposes now to increase the litany of disaster into the area of industry.

The Industrial Investment Corporation (IDC), which is intended to be the primary source of finance for the project, denies that this will be yet another example of cadre preferment:   “If it is not a commercially viable idea, the IDC does not and will not fund it”. That is, of course, an admirable sentiment but the question arises, what then is the purpose of the government programme if all applications are to be judged by this salutary principle? Why are black industrialists not already being created in sufficient numbers to satisfy the government’s demands? It must be that the government is intent upon the artificial acceleration of a programme that would not occur naturally.

If government intervention is to be implemented according to the methods employed in the past, it does not portend well for this programme.

GT Ferreira of FirstRand expressed his qualified support in this way: “It’s a good idea to be able to put some risk money behind people, but you’d like to see that they’ve proven themselves in even a little way first. Because not everyone can become an industrialist or entrepreneur… to just give money to people and say ‘go and become an industrialist’ simply won’t work. It’s never worked anywhere in the world.”

A variety of spokespersons have given assurance that this will not degenerate into a programme of patronage for the favoured insiders. Ms Malebo Mabitje-Thompson of the DTI has commented that the process of selection of eligible applicants will be done by a panel that will exclude politicians, and by a process that will be open and transparent. It would not, she said, be a “pension scheme for the rich”.

These are, to be sure, reassuring words, and are, no doubt earnestly intended. By now however South Africans have learned to know that reassurances on fighting corruption, accessible government, efficient administration and countless others besides amount to no more than hot air. The ongoing and enduring disgrace at SAA and the SABC is proof enough that government is not to be taken at its word. 

Author: Rex van Schalkwyk is a former judge of the Supreme Court of South Africa and author of numerous articles and three books. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the FMF. 

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