Month: February 2014

Cape Town: Opportunities for the economy and graduates

Cities have become far more important in the context of the economy in recent years (Frost and Sullivan) and they have responded. Watch this 20-minute video from Bruce Katz as he explains the measures US cities are taking to grow their economy.

Cape Town has similarly outlined their economic strategy and the city identifies that economic growth should leverage the cities core competencies whilst aligning with major international, continental and regional growth trends. It will also be a major focus to ensure that the growth occurs in sectors that have the possibility of creating numerous jobs for semi-skilled and unskilled workers.

Based on the need for the city to specialise and produce value-added products, it seems like the industries the city should pursue to push growth, because they meet the three criteria above, are high-tech industries within health, energy, telecommunications and agriculture. This falls in line with global growth and continental growth trends.

Due to the city also being the advertising and design capital of the continent, the manufacturing of consumer goods may be a also be a good sector to enter, as the retail and wholesale sector is doing well, and it has been found that an improved manufacturing sector,  will drastically improve the economy.

In the cities’ economic strategy document, it is stated that Cape Town needs to find a niche to specialise in, this niche should be entrepreneurship, as Cape Town already has 190% more entrepreneurial activity than South Africa’s average, and high-tech and manufacturing intensive entrepreneurship to be more specific. To drive this activity, there will need to be much better cohesion with the universities in the region. Students in the sciences should have a clear path for themselves to move from academia into a start-up business.

The “inventors” within the universities should be exposed to industry knowledge of key tech industries as well as students from other faculties, so that they will be able to conceptualise, design and commercialise or implement their ideas. If a structured programme is put in place, with the universities and city working together, Cape Town might just secure itself a growth rate of in excess of the so called “magic” 6%.

p.s. Something to look at is http://www.rcips.uct.ac.za/ip/overview/ , hopefully we will see the city getting far more involved in this initiative in future.

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Open the Funnel

In his State of the Nation address (SONA) ), Jacob Zuma said that the economy had been growing at an average rate of 3.2% per year between 1994 and 2012. But the problem with averages is that they hide the full story. Post-recession, South Africa’s GDP growth rate peaked at 4.8% Q/Q (or 3.7% Y/Y) in Q1 2011; which was fairly decent considering we averaged 5% growth between 2004 and 2007. However, since that brief peak, our GDP has gradually slowed down to 0.7% Q/Q (or 1.8% Y/Y) for Q4 2013. Much lower than the average. Take a look at the downward trend below.

SA GDP Growth

But slowed growth was to be expected in face of strike action, talk of nationalisation and general government mismanagement from the fishery industry to education. Ultimately, it leaves us sitting with an unemployment rate of 24% which just happens to be about the same unemployment that existed in 2010 when the New Growth Path (NGP) was unveiled by Ebrahim Patel. The NGP was to produce 5 million additional jobs by 2020. Then in the 2011 the National Development Plan was introduced, its aim is to create an additional 11 million jobs by 2030. See how the two tie into each other here.

In order for this to happen the economy has to grow at a rate of over 5% per year. One of the key growth drivers to help us achieve this will be development of the small business sector and the government thinks so too or at least they did. Back in 2011’s SONA Jacob Zuma said, “The small business sector is a critical component of the job creation drive.”

Since then work has been done, such as the the formation of The Small Enterprise Finance Agency to centralize funding, the reduction of documents required for exporting and important, the easing of the tax burden and simplifying the legislative requirements for registering a company. Go here for more detail on these.

It’s that last one though that I would like to make my final comments about; registering a company. Despite having simplified the process there is still room for improvement. According to the World Bank, the shortest possible period in which you can register a company in South Africa is around 19 days at a cost of R175 and after completing 5 procedures but that’s if everything goes your way.

All three of these elements, time, cost and the five separate procedures create a barrier to register. In fact our DB Rank for ease of registering a company dropped from 56 to 64 between 2013 and 2014 despite the simplification of legislative requirements. I propose that we look towards the likes of Rwanda and New Zealand who lead Africa and the World respectively.

Each makes use of an online registration process that combine several procedures in one. In New Zealand you can register a company in under a day at a cost of NZD160.22. But in Rwanda the cost of registering is wavered if done online and it will only take a day. This was a part of the reforms they implemented that resulted in them being acknowledged as a top global reformer in the World Bank Doing Business Survey 2010. The result of all their reforms was an average growth rate of 7% per year between 2003 and 2010. Read more about Rwanda’s performance here.

Now, I am not saying that making it easier to start a company is solely responsible for this growth but it is definitely one of the the first steps. If we need to develop the small business sector let’s not turn people away at the first step. After all, only a subset of small businesses actually drive growth. Finding and developing these high growth potential businesses is a numbers game and opening the size of the funnel is a smart move. It’ll be interesting to see if those delivering the post election State of the Nation address agree. Here’s holding thumbs that they do.

Metrics and Matrics

Education is key to the future growth of South Africa. However, when compared to other emerging markets, South Africa performed well in most indicators, but education, labour and innovation were pointed out as areas of poor performance. This makes Angie Motshekga‘s recent NSC (National Senior Certificate) 2013 report all the more disappointing, because as many people have written, the published results hide the real issues and this fails the youth.

But what is more disappointing than the results (like the over 50% dropout from Grade 1 to Matric) is the press coverage of the published results. Like the technical report released, journalists  stick to reporting on the results, and somehow seem to think that they have done the country a service by ‘exposing’ the poor performance. But all it results in is a lot of noise and very little productive discussion or accountability. Let’s face it, the Matric results are at the end of 12 years of schooling and tell us very little. They are what Eric Ries terms “Vanity Metrics” and to borrow a definition “Vanity Metrics: Good for feeling awesome, bad for action”. I would argue then that the matric results will only become valuable when compared with metrics associated with the inputs during those 12 years.

The key inputs can be described as; Grade 1 entrants (And their Grade 6 and 9 future-selves), Teaching, the Learning Infrastructure and the Governance of the system. Strangely enough, when we look at the Department of Basic Education’s Annual Report, we find a table (below) that has strategic goals for all of those inputs.

DBE Strategic Goals

But this wasn’t in the Technical Report, so can we really blame the press?…

So now we have a base to work off, the matric results now have become valuable, because we can see how they have progressed since starting Grade 1 in 2002, relative to the improvements in the other inputs. Then we can all start having productive conversations.

But what comes next?

Well, constant review and improvement of the metrics associated with the inputs and results and this is where the press will become productive and the Department of Basic Education will be held accountable for the improvement of the inputs, not the possible random variations in the results at the end of a 12 year system.

And there should be improvements to the metrics, for example, according to a McKinsey report, the most effective ways to improve an education system is through its instruction; Through the quality of the students entering the teaching profession, through quality training of teachers and ensuring all students have access to quality teachers. So let us start measuring those items for the “Teaching” input. So item 1.1 in the table above needs to be expanded from “Improve teacher capacity and practices”.

With this honest reporting and accountability, we may also find a proliferation of highly impactful not-for-profits as they will have a better idea where the education system needs the most help. A few NPO’s already addressing key areas are;

Numeric – A not-for-profit who have leveraged Khan Academy resources to creatively deliver better Math education to low-bandwidth areas. Learn more about it here

Partners for Possibility – Links principals with business leaders to empower principals, thereby improving school leadership and governance.

But no one, not even the Department itself will be able to achieve real impact without good data, the right metrics and the public availability of information to improve transparency and accountability, so hopefully next year when the results are released they won’t just contain vanity metrics, but maybe also a few actionable metrics for the press and public to chew on.