The demand-side of skills needed

Policymakers would do well to ask whether they are paying sufficient attention to the demand-side dynamics of the labour market. Urgent reflection is also needed on whether the government approach is not, in fact, becoming more of an obstacle to young people finding employment.

Business continues to struggle to find adequate skills in South Africa, despite government’s extensive reforms to the national skills development and training system that have taken place over the last decade. This is as a result of government’s focus on building supply-side interventions such as sector skills councils, qualifying frameworks, grading of qualifications, and funding based on these, rather than acting to create the skills the country demands.

Since policymakers have largely bypassed the private sector, which should be instrumental in creating jobs for graduates from Further Education and Trainingcolleges (FET) and should therefore participate in shaping the current regulatory environment, employers have not sufficiently bought into the reforms.

It is supposed that the South African economy needs intermediary skills and colleges are best suited to support this demand. However, government may be laboring under a misinterpretation of what business requires, believing that training for the “knowledge economy” should supersede the creation of intermediary skills because it will have a negative impact on low-paid, semi- and unskilled work.

In addition, bycentralising skills development policy within the department of higher education, government may find itself locked into a narrow approach that limits the development of alternative strategies to boost skills development.

The Global Competitiveness Index (which measures the ability of institutions to create a globally competitive nation), demonstrates that the national skills development crisis is causing the country to slip down the rankings, and inward investment prospects are being harmed by the perceived shortage of required skills.

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SMME: accessing finance a challenge

Accessing finance remains a key challenge to SMMEs. A recent snap survey by Fetola shows that 93% of small businesses are uncertain about where and how to access finance.

This finding was confirmed in the 2014 GEM report released by the University of Cape Town’s Graduate School of Business. The Report found that a key challenge to small business development is not a lack of available finance per se, but the knowledge to access it.

Key for Success

This lack of financial nous seems to be a common theme for many finance providers. Many fairly robust businesses struggle to gain finance for similar reasons – their recordkeeping is poor, they are deemed too risky, they are still in a start-up phase or don’t fit BEE lending criteria.

The businesses that do succeed in attracting finance seem to share some common traits, and the most important of these is an understanding of what finance partners require from applicants before they will part with their cash. Sound recordkeeping is another non-negotiable.

Money is available

It appears that available money for investment in new and emerging enterprises is not the problem, and some research would bear this out. While accessing start-up finance from commercial banks does indeed remain out of reach for many entrepreneurs, an increasing number of ‘angel investors’, venture capitalists, government-aligned funding agencies and other potential sources of finance seem to be filling the void created by the more conservative lending policies of the major finance houses since 2008.

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Discounts to be calculated properly

Discounts are to be calculated carefully. Sales people tend to allow discounts to push sales but what about the profit they’re giving away?

If a product has a profit margin of 30% and salespeople give a 10% discount to make the sale, a company loses a massive one-third (33.33%) of the available profit. After a salesperson has made a sales presentation, customers who respond by saying that the prices are too high often leave the salesperson scrambling for a response, and they then resort to giving the customer a lower price. Buyers are savvy in using this tactic, but salespeople don’t have to resort to automatically dropping their prices.

Discount Centre (Photo credit: Wikipedia)

It’s possible for business owners to work 50% less and earn the same income from selling if they have a grasp on the value of profit margins, which get quickly eroded by discounting. If a company earns R3 000 in net profit from a product that is sold at a full price of R10 000, a 10% discount on that product’s selling price would mean that 50% more units need to be sold to earn the same amount of profit than if the units were sold at full price. This means that for a 10% discount, someone in the company has to work 50% harder to earn the company the same amount of money, which can be demotivating for sales staff and business owners.

Business owners and their salespeople must protect their price and margins. It’s important for businesses to invest in teaching sales people not to hesitate or stumble when a buyer insists on a lower price and to rather equip them with negotiating tactics that will help them hold firm on their prices. In spite of this, some people might still think that if they don’t give discounts, they will lose sales, particularly if it is an industry norm to give them. While this may be true, companies that hold fast to their sales prices can often afford to walk away from discounted sales and still make the same or more profit through other sales opportunities.

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NDP on the back seat

Team South Africa has arrived in Davos and is geared to promote South Africa as a premier investment destination, armed with the National Development Plan (NDP) to again try to convince foreign investors to invest in the South African success story.

Investment bait

It is however not crystal clear what Zuma’s investment message will be. He stood on the steps of his presidential jet and proudly announced that Team South Africa has a clear economic roadmap in the NDP. The problem is that Zuma also used the NDP as his investment bait last year… and in 2013.  Foreign investors may look for something new and a bit more concrete than a strategy document, especially one that the government appears to only pay only lip service to.

Despite the acceptance of the NDP as the blueprint for economic development at the ANC’s policy conference in 2012, very little of it has been implemented. One of the reasons may be the strong resistance by Cosatu and other trade unions to the plan.

For example, nothing has come from proposed labour market reform and virtually no ground has been broken on the infrastructure projects that were detailed in the plan. Other apparent failures include projects to increase exports and local beneficiation, increased support for small businesses, the reduction of regulations in industries where the private sector is the main investor and the improvement of efficiency in the public service.

The plan also calls for greater collaboration and an improvement in relations between government, labour and the private sector. Unfortunately, little progress has been made in this arena: labour relations and the levels of trust between these stakeholders are at an all time low.

Electricity crisis

The local economy has also taken a step back since the launch of the plan. Unemployment is higher, economic growth has stalled and it appears that little is being done to curb corruption and improve government efficiency.

The economic ramifications of the electricity supply crisis grow bigger by the day. It seems unlikely that the situation will improve in the short to medium term.

What is more worrying is the seeming change in the government mindset. In 2012, a confident government was determined to craft a long-term future for the country. It had 2030 in mind. These days the attention is firmly focused on dousing short-term political fires – no time to tackle with the future.

Off the radar

Apparently, government shows no appetite for the implementation of the NDP. It has virtually disappeared from the radar screen. In fact, some may even argue that the NDP has become just another acronym, a bit like GEAR, RDP and Nepad.

Zuma’s opening address at the ANC’s Manguang elective conference in 2012 referred to the NDP no fewer than 14 times during his address, and committed his party to the swift implementation thereof. It was one of the highlights of the conference. In stark contrast, he only referred to the NDP twice during his 75 minute State of the Nation address in June last year.

The NDP has clearly dropped off the top of the agenda.

Back on the agenda?

It is good that the NDP is back on the international agenda. Hopefully it will be back on the national agenda too.

The plan is a good one, but to succeed the president will have to take unpopular decisions and force through reforms, which will more than upset his union and communist friends. Within the current political environment, this is unlikely.

Hopefully the NDP will not (once again) be left behind in the seat pocket of Zuma’s plane when he returns from Davos.

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