Media Release

Two women in black sits on chair near table

Prof Anita Bosch partakes in round table held by women-led WDB Investment Holdings

USB News

Prof Anita Bosch partakes in round table held by women-led WDB Investment Holdings

Two women in black sits on chair near table

  • April 7
  • Tags Our news, Women in business

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Prof Anita Bosch, Research Chair: Women at Work at the University of Stellenbosch Business School (USB), was recently invited to participate at a round table on the future of women at work. This virtual seminar was hosted by Women’s Development Business (WDB) Investment Holdings and the International Women’s Forum South Africa (IWFSA). The event was attended by leading female executives and gender rights campaigners.

Prof Bosch conveyed contextual issues relating to women in leadership and the gender pay gap in South Africa, as well as reasons for persistent gendered patterns in South African workplaces.

She said: “It must be stated that South Africa remains a deeply patriarchal society with cultural norms, upheld by both men and women that place men as leaders and women as caregiving supporters. Whilst this ordering may be useful in some households, it does not contribute to women’s economic advancement.”

Corruption and unemployment on SA’s economy

She said the state of the South African economy has seen the biggest annual fall in economic activity since 1946. “According to Stats SA, economic activity for the entire year decreased by 7, 0% in 2020 compared with 2019.

“I do not need to remind you of the extremely damaging effect that corruption has had on our country’s ability to grow economically. According to the Quarterly Labour Force Survey (QLFS) 2020, the fourth quarter statistics indicates the official unemployment rate at 32, 5% – the highest since the start of the QLFS in 2008,” she added.

Gender transformation

Prof Bosch said a very real issue that gender transformation continues to face is the notion of the replacement of men instead of adding women to the economy.

“Whilst there are always limited positions open at the top of the leadership pyramid and replacement of male for female CEOs, for instance may be inevitable, economic growth could also create opportunities for new businesses to emerge with women CEOs at the helm.”

She said  the Commission for Employment Equity Report 2020 provides figures for people that work for designated employers. “These statistics are helpful in understanding people promotion, new hire, and development patterns.

“There has been a 1% decline, year-on-year in the white male population group in representation at the top and senior management, as well as professionally qualified levels. The latter category (professionally qualified) has nearly reached gender parity with about 47% women in this category. Women’s representation in top management is growing by about 1% annually and is now at 24% (76% men). In senior management women are faring slightly better at 35% (65% men).”

She added that the gender pay gap is a hotly debated topic. “Its measurement has been contested, however, no matter whether you do the analyses on national or organisational data, a gap remains and only administrative work delivers a gap for men – women out earn men in this occupational area.  A gap of 28, 8% is reported for hourly earnings and 30, 3% for monthly earnings,” she said.

The way forward

The University of Stellenbosch Business School, under the auspices of the Research Chair for Women at Work, will embark on a research project on gender pay governance this year. Prof Bosch and her team will also continue with their work on pay transparency – where they compared systems in 16 other countries.

“The King Codes should provide more explicit guidance on measures for gender pay parity. And unless legislation has teeth, gender pay parity will remain elusive. Pay certification by employers may be another avenue to equalise pay,” Prof Bosch suggested.

“Measures such as The Workplace Gender Equality Agency of the Australian government should be considered, however, we should also be mindful of the culture of punishment that we may be cultivating over time by merely placing legal obligations on companies without incentivising good transformation practices sufficiently. Pushing through with policy measures that have not been deliberated from all stakeholder perspectives may not be helpful,” she said.

She also added that “whilst the South African constitution does not allow for quotas, numerical targets should be driven with greater focus, similar to procurement targets from women-owned businesses”.

Prof Bosch said all South African women are not the same. “Our structural positioning in present day practice and lived experience should be taken into consideration when crafting policy. It is not only women board members and leaders that need policy support but indeed all the women – from the ones that take care of households to the ones that have reached the highest echelons of workplace


Prof Anita Bosch is the convenor of a short course offered by the University of Stellenbosch Business School Executive Education (USB-ED) and GetSmarter on Women in Leadership. The short course will start in April 2021 and will help you explore the core strengths of female business leadership and how it can be used to bolster the performance of organisations. For more information, visit https://www.getsmarter.com/products/usb-ed-women-in-leadership-online-short-course

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Gray wooden computer cubicles inside room

Has working from home made the office redundant? Not yet.

USB News

Remote work and employee engagement in Covid-19

Gray wooden computer cubicles inside room

  • April 6
  • Tags Media release, Covid-19, Research, remote working

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Down-scaling or even closing physical office spaces might look like the way of the future, but a University of Stellenbosch Business School (USB) study found that the future of work more likely lies in a blend of remote and office-based work.

Has working from home made the office redundant? Not yet.

After more than a year in which millions of office workers around the globe were forced to work from home for months during national lockdowns and did so (mostly) successfully, businesses are faced during the gradual return to ‘normal’ with the question of whether this year heralds the end of the physical office.

Down-scaling or even closing physical office spaces might look like the way of the future, but a University of Stellenbosch Business School (USB) study found that the future of work more likely lies in a blend of remote and office-based work.

MBA graduate Mandi Joubert conducted the research at the height of South Africa’s national lockdown to combat the spread of the novel coronavirus and found that while employees experienced many positives in working from home, they missed the interaction and support of an office environment.

…a University of Stellenbosch Business School (USB) study found that the future of work more likely lies in a blend of remote and office-based work.

She said previous studies had shown that employees with flexible work arrangements, able to blend office and remote working, had higher levels of engagement than employees who were either firmly office-based or worked exclusively remotely, and the lockdown had provided the ideal “laboratory” to investigate this among a group of employees forced to work exclusively from home.

“Globally it is anticipated that Covid-19 will have far-reaching impact on the future of work and especially remote working. The rapid change in ways of working forced by the spread of Covid-19 provide opportunities for organisations and managers to redesign their workspaces and physical footprints to accommodate new ways of working, both in flexitime and ‘flexiplace’, enabled by new technology.

“However, the research also showed that participants were not ready for a complete shift to remote work – a physical office space to allow face-to-face personal interaction within teams and within the broader organisation will remain a requirement.

A physical office space to allow face-to-face personal interaction within teams and within the broader organisation will remain a requirement.

“A combination of office- and home-based work in future could be the best route to greater employee engagement, productivity and performance, benefiting both the individual and the company.”

Joubert recommends companies consider blended and flexible working arrangements, enabling employees to work from home or remotely for two to three days a week.

Joubert recommends companies consider blended and flexible working arrangements, enabling employees to work from home or remotely for two to three days a week.

Employee engagement – where employees feel connected to their work, are energised, mentally resilient, dedicated and involved – is important, she said, because it has been shown to influence customer satisfaction and profitability, and because it is seen as the opposite of employee burnout, which in turn impacts negatively on business results.

Joubert’s research echoed the findings of the Global Work from Home Experience Survey[i] which found that 76% of respondents would want to work from home at least one day per week, an increase from 31% before the pandemic.

Some companies that have seen the benefits of remote working are already implementing lessons from lockdown, she said, with one employer in the study introducing more flexible working arrangements and remote working options once employees could return to the office when hard lockdown restrictions were eased.

Some companies that have seen the benefits of remote working are already implementing lessons from lockdown…

Another had closed down a satellite office during lockdown because of the cost-savings achieved by having teams all work from one office, on a rotation system where they worked partly remotely and partly in-office.

“These are positive signals of employers seeing the benefits and acting on them, but they would also need to weigh up the cost savings of reducing office space against the costs of properly equipping staff for remote working,” Joubert said.

Her research showed that companies providing the resources to work effectively from home significantly contributed to a positive experience and greater productivity. These included access to computers, internet connections, company networks and data, as well as physical resources such as office chairs, with one participant reporting that their employer had delivered office chairs and headsets to all their staff.

Organisational culture also makes a difference – employees’ work-from-home experience was much more positive when managers’ expectations were clear and they felt they were trusted to get on with their work. Employees valued companies that provided support such as online platforms for regular team check-ins and forums for information sharing and to raise concerns and complaints.

Organisational culture also makes a difference – employees’ work-from-home experience was much more positive when managers’ expectations were clear and they felt they were trusted to get on with their work.

Joubert said participants said they experienced improved work-life balance, with the flexibility to attend to family, personal and work commitments as they arose, as well as time and costs saved on commuting.

While there were distractions in working from home, participants said these balanced out with the lack of the usual office distractions.

The key disadvantage was the lack of human interaction.

“Video calls and online meetings were a positive for keeping in touch with colleagues but didn’t replace in-person interaction – the informal workplace chats that are part of the social nature of work, that provide encouragement and motivation and often get things done more efficiently than formal meetings, as well as the non-verbal cues, body language and facial expressions that aren’t always possible to read in online meetings, especially with many suffering Zoom-overload and getting into the habit of turning off cameras,” Joubert said.

Working exclusively from home means “eating, sleeping, working, living all in the same space” and the lack of variety and human contact became “mentally and emotionally demoralising” for some participants, while the volume of online meetings can become overwhelming.

“There is a negative impact on communication and opportunities for spontaneous collaboration when people are not all working in the same space, where it is possible to get quick answers, solve problems quickly in person rather than waiting for response to emails or messages, or call quick meetings or brainstorming sessions to work out a problem.”

Joubert said it was especially significant that remote working, where the focus was mainly on the job of one’s own team, caused employees to feel they had lost sight of the company’s “big picture”, of what was happening in the business overall.

Joubert said it was especially significant that remote working… caused employees to feel they had lost sight of the company’s “big picture”, of what was happening in the business overall.

Working full-time from home also meant that employees lost out on the informal training, learning and mentoring that happens between junior and senior colleagues in an office set-up.

“All of these downsides of a lack of physical, face-to-face interaction were the key reason for participants want to alternate home and office work. None preferred a 100% full-time return to office-based work, but they definitely wanted some office time at least.

“Ideally, they wanted to be able to manage their own diaries and schedules and how they achieved set targets and deadlines.”

Joubert’s recommendations for managers and companies considering new ways of working in a post-Covid-19 world include:

  • Review existing flexible work arrangement (FWA) policies and consider allowing employees to work remotely for two – three days a week, or alternatively allow employees to manage their own time and only work from the office when needed.
  • Exclusive work from home is not encouraged, as regular human interaction is beneficial for employee engagement.
  • If an FWA policy is adopted, expectations and deliverables should be clearly communicated.
  • Prioritise employee wellness and introduce formalised wellness programmes. Ensure that employee wellbeing is being practiced as well as preached. Prioritise diversity and inclusion.
  • Reconsider physical office space. Reconsider the amount of office floor space needed in accordance with the applicable remote work policy.
  • Allow dedicated opportunities in meetings to focus on employees and their wellbeing instead of only focusing on operational discussions.
  • Adopt a policy of cameras on during meetings to ensure employees can benefit from non-verbal communication and are able to pick up on social cues.

“The sample size was small, with 14 participants, but they did represent nine different industries and different organisational levels. The circumstances of a global pandemic brought with them particular anxieties and uncertainties, companies weren’t necessarily well-prepared for a sudden shift to remote working, and employees had additional challenges such as a lack of childcare and domestic support which might not be there in more normal circumstances.

…the results of the study made it worth exploring the relationship between remote working and employee engagement further.

“On the plus side, the weight of the findings is strengthened by the fact that all participants were able to report on their remote working experiences ‘in real time’ rather than theoretically or after the fact, since they were all working from home at the same time and in the same context of the Covid-19 pandemic.”

She said the results of the study made it worth exploring the relationship between remote working and employee engagement further.

[i] https://globalworkplaceanalytics.com/global-work-from-home-experience-survey

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Grayscale image of elderly sitting on street

The business of welfare is everyone’s business

USB News

The business of welfare is everyone’s business

Grayscale image of elderly sitting on street

  • February 23
  • Tags Media release, Social impact

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A growing and unsustainable “welfare gap” that has widened during the Covid-19 pandemic has forced many non-profit organisations (NPOs) to make tough business decisions on survival over service – raising questions on the “business” of welfare.

At the same time that the pandemic-induced national state of disaster has seen the need for the social welfare and support services of NPOs increasing, their public and private sector funding sources are under pressure and their own fundraising activities have been curtailed by Covid-19 restrictions.

This puts strain on the social contract between the public, private and non-profit sectors, by which society’s most vulnerable and disenfranchised are cared for, and highlights the real extent of the “welfare gap”, the shortfall between government and private sector grants and subsidies and the actual cost of services to communities that NPOs have covered in the past.

Dr Armand Bam, Head of Social Impact and senior lecturer on Business in Society at the University of Stellenbosch Business School (USB) said the recent announcement by the Cape Peninsula Organisation for the Aged (CPOA) of closure of three of its welfare homes for the elderly, which was met with widespread outrage from the community and politicians, had drawn attention to the worsening state and plight of many non-profits.

“At the start of the pandemic and as we moved into strict lockdown, we expected that the survival of many NPOs would come under threat and the most disenfranchised would pay the greatest price. The CPOA closures are a clear example of this and have highlighted what has been hidden for a long time, the actual costs associated with running welfare homes,” he said.

Dr Bam said the CPOA’s reported loss of R33.5 million over the past five years should not come as a surprise, and that further losses would be compounded by the pandemic’s impact on business and government in terms of trade and tax collection.

“Operating welfare homes, or any NPO in fact, is not easy nor cheap and reliance on pensions and restricted government subsidies just does not go far enough.”

“Tough decisions have to be made and these include the closure of operations and service delivery to many communities in need. Operating welfare homes, or any NPO in fact, is not easy nor cheap and reliance on pensions and restricted government subsidies just does not go far enough.”

He said it could be asked how an organisation like the CPOA, that runs a profitable “business” on the one hand, can have its “welfare business” fail on the other.

“The simple answer is the power of privilege,” he said.

While approximately one million people of retirement age in South Africa receive private pensions and are “most likely willing and able to invest in ensuring they live in comfort in their aging years”, a further four million are reliant on government support through pensions and grants in their old age.

“At the top end of the CPOA offerings it provides life right retirement apartments at a cost of R2 million rand per unit. In simplistic terms, this is easy money in the sense that the facilities cater to a niche market, or selected privileged portion of our society, who can cover this cost.

“It can reasonably be accepted that an option like this is provided because there is a demand.”

The proceeds from re-sale of these life rights retirement options are meant to be used to “give back to society” in the form of five welfare homes run by the CPOA, but in practice, Dr Bam said, “it appears that the welfare gap to be covered in arears such as Bonteheuwel, Heideveld and Bishop Lavis has just got too wide to cover and resources are now limited”.

“Those in need now suffer, families are displaced and a disinvestment in these specific communities occurs,” he said.

Sustainability vs purpose to serve

Dr Bam said questions around the motivation and morality of closing homes in the three areas and relocating residents to other homes in the CPOA portfolio raised the issue of “the business of welfare” and the relationship between an NPO’s business of sustaining itself and its moral purpose to serve.

“Does an NPO’s social mission supersede its imperative to remain financially secure, and is it reasonable of stakeholders to hold this expectation? Is the CPOA in the business of sustaining itself or in the business of providing welfare to those in need in the communities in which they come from? Is it reasonable to expect that these two aspects are mutually exclusive when applied to non-profits, but not when applied to other organisations?”

Dr Bam said the question of “where morality, the good or bad, meets purpose” was relevant not only to NPOs but for business and government, because “it is all of our ‘business’ that those reliant on welfare can be taken care of.

He refers to NPOs as “the glue that binds society”, providing the social safety net and supporting advancement of social justice and socio-economic inclusion, to the benefit of all the role-players in the social contract – business, government and communities.

“Unless we want to see inequality grow, action must be taken by those in power.”

“Profit maximisation for shareholder benefit is self-serving when other sectors of society start to collapse. The reality is that the burden of covering the welfare gap that is becoming ever-more visible in 2021, will eventually shift towards the public and private sector. Unless we want to see inequality grow, action must be taken by those in power,” he said.

Dr Bam said while it was encouraging that the community had voiced their outrage at the planned closure of a community resource, he also called on citizens to get involved in serving and sustaining community organisations.

“There is another side to community-based organisations that we forget to cherish. These are our organisations and we have a responsibility to ensure they succeed, whether by volunteering our time, finances, or other resources. We should not let them fail.

“How often do we take the time to step inside of these organisations and ask what it is we can do to help? Whether they are faith-based, charitable or skills-directed, we must not only be ready to benefit from them but be ready to serve them before they disappear.”

Dr Bam said the CPOA’s offer to donate the vacant buildings of the three welfare homes would “hopefully bring about unique opportunities to contribute to the upliftment” of the affected communities, with emphasis on the care needed for the elderly and frail.

While it is not the sole responsibility of government to provide financial resources to sustain NPOs, Dr Bam said they could do better.

“While people’s lives are impacted, some politicians have attempted to utilise this opportunity to disparage each other. This is not the time.

“The reality is that the funds available to be distributed to do the work that non-profits do are not enough. It never was.”

“The reality is that the funds available to be distributed to do the work that non-profits do are not enough. It never was. On both sides of the aisle in power or opposition, at a national or provincial level, politicians should look to themselves as the guardians of the public purse and answer how this is the case.”

Impact of Covid-19 on non-profits’ durability

He said businesses needed to understand the impact of the pandemic on non-profits’ sustainability, with finances in a dire situation as few NPOs had been able to maintain fundraising activities under lockdown.

For both business and government, the ease and speed of accessing funding is critical and should be reviewed, he said, particularly where NPOs are encouraged by potential funders to spend time and resources on preparing funding applications, with cumbersome application protocols to be followed, only to be turned down.

Dr Bam said business also needed to reconsider its approach of not funding NPO salaries if the sector was not to sink further, close doors and shed jobs.

“Businesses don’t pay their employees with new computers or furniture; they pay them with money. Why then when considering support to NPOs is the approach any different? Corporate social investment initiatives need to accept this reality and release themselves of this constraint and address the funding shortage for posts before it is too late. The CPOA and other organisations will otherwise share this burden of not having staff to perform the services being funded.”


References

CPOA press statement, 26 January 2021. https://www.cpoa.co.za/update-regarding-the-closure-of-3-cpoa-welfare-homes/

CPOA press statement, 11 February 2021. https://www.cpoa.co.za/update-regarding-the-closure-of-3-cpoa-welfare-homes-2/

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Silver and Gold Coins

Budget Speech 2021: Cooperation, timeliness and the fiscal multiplier in times of recession are a necessary short-term measure

USB News

Budget Speech 2021: Cooperation, timeliness and the fiscal multiplier in times of recession are a necessary short-term measure

Silver and Gold Coins

  • February 23
  • Tags Media release, Economics

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Averting a prolonged crisis in a South African economy already fragile before the outbreak of Covid-19 will require fiscal relief more directly targeted at individuals, small businesses and local governments, along with greater macro-economic policy coordination, in order to steer an inclusive post-pandemic economic growth path.

Finance Minister Tito Mboweni’s national budget would do well to take a cue from the “unprecedented measures” taken by governments and central banks to aid economic recovery after the 2009 global financial crisis, says development economist Dr Nthabiseng Moleko, senior lecturer in managerial economics at the University of Stellenbosch Business School (USB).

“Cooperation between central banks, national treasuries and legislators was key to resuscitation in Europe, USA and Asian economies post-2009. Governments offered guarantees for banks, there were national bailouts and interest rate cuts, central banks financed governments at low nominal yields, because in the quest for recovery nations were looking for cheaper finance and needed to actively counter the economic slowdown. Institutional arrangements and improved macro-economic coordination widened the economic impact of increased government spending.

“The inclusive growth needed now in South Africa is a national imperative, but for recovery to happen in a time of crisis when private sector funds are contracting and disinvestment is a reality, the fiscal space is the real source of stimulus,” she said.

Dr Moleko argued that improvement in South Africa’s economic performance should not be measured only by international agencies’ credit ratings, but also by the ability of national initiatives to build a post-Covid economy measured by reduction in unemployment, poverty and inequality, the growth of small businesses and improved socio-economic development outcomes.

The economic shocks from Covid-19 emanate directly from government-imposed lockdown measures, both domestically and globally, she said, and averting these requires assessment of the stabilizing measures in the fiscal stimulus package announced in the supplementary budget of June and medium-term budget policy statement (MTBPS) of October last year.

Dr Moleko pointed to South Africa’s unprecedented fall in economic output, with the contraction by 7.2% in 2020 the greatest dip since the Great Depression of the 1930s, and the budget deficit widening from 6.8% to 15.7%, more than doubling from R370 to R761 billion.

The contraction in economic output worsened the debt-to-GDP ratio from 65.6% to 81.8% in 2020, and this is forecast to increase to 86% this year.

Austerity measures were reported in the October MTBPS of R250 billion over the next two years widening to a longer five-year period to reach the targeted primary surplus, she said.

“Unless we see economic expansion and revenue-enhancing growth measures, the over R4 trillion gross national debt as a proportion of GDP will remain at over 80%.

“It is important to assess whether the economic recovery plan has been enough to stem the tide of continued economic collapse. Timing and the design of the fiscal expenditure is even more crucial as this will determine whether enough was done to avert the freefall.”

Dr Moleko said South Africa’s R500 billion fiscal stimulus of approximately 10% of GDP has “only really been an exercise of fiscal reprioritization and moving within the current budget”, while downward revisions in the Budget Review continue as Treasury targets a budget surplus.

“Meanwhile, other equally important numbers – the worsening unemployment levels, widening inequality and increasing poverty – remain largely ignored in measuring the success of the country’s economic policies.  South Africa didn’t need a crisis to reach 42% unemployment, it was already in that state of its own accord.

Dr Moleko argued that the post-lockdown economy should not use the pre-crisis baseline as a source for recovery.

“Given the already sluggish growth, a slower U-shaped recovery was to be expected versus a more rapid V-shaped recovery, but the outcomes of South Africa’s economic interventions and various economic indices display that there has been no recovery. Instead, we are still hemorrhaging.

“Job losses reported in Q3 and Q4 of 2020 show no recovery, Q3 and Q4 output remained poor, and both public and private sector investment as a percentage of GDP continue downwards. Parallel to short-term economic stabilizers, long-term structural reforms that improve the contribution of manufacturing value added (MVA) as a proportion of GDP, and transform the value chains and investment pathways to productive investments, remain important to avert South Africa returning to the pre-crisis crisis,” she said.

While South Africa’s long term macro-economic policy response to the low growth trap and worsening per capita income has remained largely unchanged since the late 1990s and the advent of GEAR economic policies, Dr Moleko said it would be useful to examine how the fiscal multiplier had been used in other economies as a short-term intervention.

“The fiscal multiplier has shown high impact for low-income households who need to borrow more to meet basic needs when income is low, with a high multiplier of up to 0.67 while the rest services debt or is saved. There is also a smaller marginal propensity to consume with tax rebates, showing higher impact on resuscitating household aggregate demand for unemployed individuals.”

By way of example, she said, in 2020 the USA supported household, government and enterprise consumption as means to resuscitate revenue and stabilise the economy, distributing 12% of GDP. The response was targeted at direct transfers to individuals (23%), increased government expenditure (24%), transfers to local governments (12%), support for local business (29%) and tax provisions (11%).

“The world’s economies have accepted the short-term impact of fiscal responses leading to rising deficits as a trade-off in the attempt to bolster future revenues, with the size of fiscal stimulus packages rising between 2 to 5% of GDP in America and Europe,” she said.

After the financial crisis of 2009, China’s fiscal stimulus package was 12.5% of GDP, the largest globally. The allocation was largely to boost public investment, with 38% into power and transport infrastructure, 25% into construction, 10% into housing, 9% into rural village infrastructure. Rural projects formed a key part of economic revival, however priority in the fiscal stimulus was given to profits and corporates versus workers and welfare outcomes.

The effect of the local multiplier through transfers to local governments shows a strong short-term and even higher long-term impact on economic stimulus, Dr Moleko said.

“Evidence has shown high fiscal multipliers from unemployment income transfers, and household and business transfers, and that local economies exhibit the larger multipliers during economic recessions. By contrast, South Africa’s approach has had low impact – looking at the allocation of the R500 billion stimulus package, a mere R18 billion of the R200 billion credit guarantee scheme and only an estimated R15 billion of the tax rebates of R70 billion have been used, less than 4% each of the total stimulus effort.

“The allocation towards social security of R50 billion (10%), and wage relief of R55 billion (11%), are perhaps the biggest relief areas.

However, these are grant finance and do not deal with the fundamental macro-economic challenges faced in the economy.”

Dr Moleko said the high fiscal stimulus exhibited by local municipal transfers has not received sufficient focus, particularly in rural areas.

“South Africa has seen a contraction in transfers to local governments with R20 billion in support reported, mainly from reprioritized municipal expenditure. Poor municipalities require urgent support not only to prevent imminent economic collapse, but to forge measures that will not only improve service delivery but open new revenue generating paths.

The first response to the Presidential Economic Recovery Plan and the fiscal policy was negative, with a credit rating downgrade from international agencies and the continued negative outlook by credit rating agencies is unlikely to change with the waning of fiscal and economic strength.

“However, the improvement of economic performance has to move beyond improving the view of international agencies’ rating of a nation’s probability to default on its sovereign debt, and rather to rebuilding a post-Covid-19 economy that emphasises inclusive growth, improves development outcomes and transforms the growth trajectory from the capital intensive, oligopoly-led industries towards SMMEs.

“The economic recovery of the nation is embedded in the political economy of South Africa, with various interest groups in this melting pot. In serving the much-anticipated budget of 2021, one of the questions we need to answer is, whatever the form of economic recovery, whose tastebuds are we tantalising? In any menu, several dishes can be selected. Whom do we continue to serve?”

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Turned-on Monitor Displaying Frequency Graph

Prof André Roux: For SA’s economy, things will have to get worse before they get better

USB News

Prof André Roux: For SA’s economy, things will have to get worse before they get better

Turned-on Monitor Displaying Frequency Graph
Source: Lorenzo | Pexel

  • January 27
  • Tags Media Release, Development Finance

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This opinion piece written by Prof Roux, economist and head of USB’s Futures Studies programmes, appeared exclusively in Business Day.

After recording a horrific 16% contraction in GDP during the second quarter (compared to the first), there were tentative signs that the worst might be over for South Africa.

The number of daily new Covid-19 cases and Covid-19-related deaths had declined significantly, a vaccine roll-out was apparently imminent, and the harshest constraints imposed by the hard lockdown had been removed. By and large, the much-beleaguered health care sector had – perhaps unexpectedly – seemed to have coped fairly well with the demands imposed on it.

We know, of course, that we have since been engulfed by the “second wave”, stretching the capacity of both public and private hospitals to unprecedented extremes. The numbers of daily new Covid-19 cases and deaths are higher than ever before, and the acquisition of the vaccines has been delayed. Moreover, there is uncertainty about the efficacy of the current crop of vaccines against a mutating virus. Lockdown level 3 was announced at the end of December, imposing renewed restraints on our social and economic mobility and interaction. In addition, the commencement of the new school year has been postponed by almost three weeks.

Sadly, therefore, South Africa’s near-term socio-economic outlook is bleak. Even without the disastrous impact of Covid-19, the local economy was floundering in the wake of a toxic blend of – mainly self-induced – structural flaws. These included negative economic growth, chronically high unemployment, a yawning income and wealth gap, and a poverty rate that is unacceptably high for an upper-middle income nation.

This litany of woes was created individually and collectively by, inter alia, high and rising levels of public and household indebtedness; unabashed and unpunished rent-seeking behaviour in the public and private sectors; an inefficient labour market; education and health care dysfunctionalities; an unreliable supply of electricity; an infrastructure backlog; and a general air of apathy, and an unfathomable appetite for mediocrity and ineptitude.

For now, two issues will have a major bearing on the short-term performance of the economy:

  • The effectiveness of the health sector response in the next few weeks and months.
  • The extent and effectiveness of (mainly) government-driven stimuli to galvanise both the supply side (production) and demand side of the economy.

Regarding the health sector response, it remains to be seen whether the recent hardening of lockdown measures will be sufficient to cope with the current and future demands for intensive care. Presently, the received wisdom discounts this possibility.

Meanwhile, the economic stimulus packages have been underwhelming. Thanks to its historically conservative stance, the Reserve Bank has been in a position to meaningfully relax monetary policy. The same cannot be said about fiscal interventions. Past fiscal indiscretions have created very limited scope for any meaningful injections. In fact, thus far, the Covid-19 stimulus package amounts to barely 2% of GDP. By comparison, the United Kingdom, France and the United States have injected resources totalling more than 10% of GDP into their economies.

The finance minister is scheduled to read his budget speech in a few weeks’ time. Normally, one would expect a government to adopt a stimulatory fiscal stance during times of severe economic hardship. Now, however, the “wriggle room” for substantive stimulating measures is virtually non-existent.

“This year’s budget must show a serious and plausible intent to, at the very minimum, curb the accumulation of debt.”

In fact, this year’s budget must show a serious and plausible intent to, at the very minimum, curb the accumulation of debt. This requires a marked narrowing of the budget deficit by restraining the growth in government spending and/or raising tax revenue. The former will compromise the well-being of the poorer members of society. Given the very low economic growth expectations, the chances of organic growth in tax revenue are slim; this means that government will only be able to generate higher revenue through (upward) adjustments to existing tax rates.

All things considered, therefore, the weight of evidence points toward a disheartening combination over the next few months of a drained health care system, and rather innocuous economic interventions. This will undoubtedly leave in its wake an indelible mark on the economy. To be sure, we might record an economic growth rate of 3% this year (2021), but coming on the back of an expected 8% contraction in 2020, this means that the economy (GDP) will still be significantly smaller by the end of this year than at the end of 2019.

After that, barring any major shock, a growth rate of barely 2% is on the cards. At best, therefore, aggregate economic activity will be restored to its pre-2020 (mediocre) levels towards the end of 2023/ early 2024 – a hard landing is virtually unavoidable.

“Given all the available evidence, therefore, we should prepare ourselves for a period of severe economic hardship.”

Given all the available evidence, therefore, we should prepare ourselves for a period of severe economic hardship. The economy will not come to a complete standstill, but we will see some awful numbers over the next few years; such as intermittent negative quarterly growth rates.

Amidst all of this, a number of tough and, in some circles therefore unpopular, initiatives need to be taken. For instance, fiscal realism is called for, with consumers, the business sector, workers, and the unemployed paying the price for past fiscal recklessness, foolishness, and indiscretions. In addition, the country’s leadership needs to deal firmly and decisively with the legacy of the first decade of this century. Included here are:

  • The restoration of the autonomy and integrity of our democratic institutions (e.g., the Public Protector, the National Prosecuting Authority, the criminal justice system).
  • Improving the country’s stock of social capital (trust, goodwill, shared values).
  • Not just paying lip service to the notion of stamping out endemic corruption.
  • The rebooting of state-owned enterprises (SOEs) – especially Eskom.

“Things will first have to get worse for a while before they get better.”

Difficult trade-offs will have to be made (especially in trying to balance efficiency with equity), and immediate results are unlikely to materialise. And the challenges are exacerbated by the reality of factionalism within the ruling party.

Things will first have to get worse for a while before they get better. But if the right strategic decisions are made with conviction and clarity of purpose and intent, 2021 might just be the year in which we learn from the home truths starkly exposed during the last few months.

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we are Open sign

Short-term low growth is “new normal” but longer-term view holds positive signs

USB News

Short-term low growth is “new normal” but longer-term view holds positive signs

White signage to show business is open
Source: Tim Mossholder | Pexel

  • January 27
  • Tags Development finance, Media release

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Guest lecturer in Corporate and Development Finance Jason Hamilton points to slow signs of recovery in global economic activity.

As the impact of the Covid-19 pandemic continues to ripple through 2021 and South Africa faces economic contraction and high levels of business risk, there are some positive signals that suggest business should be playing it safe for now while keeping an eye on the long game.

“When travelling over rough terrain it is often better to keep your eyes on the horizon as opposed to becoming obsessed with every pebble or rock in front of you,” University of Stellenbosch Business School (USB) guest lecturer in corporate and development finance, Jason Hamilton said.

Covid-19 could not have happened at a less opportune time for South Africa, already suffering from high consumer, corporate and sovereign debt, with credit ratings below investment grade, low savings rates and high unemployment. Although they were necessary, economic support and stimulus measures dipped the country deeper into deficit and lockdowns amplified the economic woes but there are reasons for optimism despite this negativity, he said.

Hamilton pointed to slow signs of recovery in global economic activity, with emerging market currencies strengthened by rising demand and commodity prices, and the rand, while still undervalued, expected to remain stable with some signs of strengthening in coming months.

“…we expect to see an increased appetite by global asset managers for emerging market fixed investment.”
– Jason Hamilton

“Inflation is expected to remain within the SA Reserve Bank’s target range and interest rates are likely to remain stable for this year. Globally, there has been an uptick in capital flows to emerging markets, which bodes well for South Africa, and we expect to see an increased appetite by global asset managers for emerging market fixed investment.”

Hamilton, a director at First River Capital, said the African Continental Free Trade Area (AfCFTA) which came into effect on 1 January 2021 was set to be a key driver of growth for the continent, a market of 1.3-billion people and a trading bloc worth at least $3-trillion – “an opportunity not to miss”.

On Covid-19 and low short-term growth

“The full impact of Covid-19 on global markets, the economy and society is yet to be experienced and understood. While the timelines and ability of vaccine roll-out plans remain unclear, it is expected for large-scale procurement and delivery by mid-2021. Until herd immunity through a vaccination programme has been achieved, not likely before 2022, the virus will continue to hamper growth.”

Pre-pandemic, key markets were already exhibiting major fault lines, said Hamilton, with rising debt and muted growth in the USA, the Brexit-embattled EU facing low inflation and economic activity, and “even China underperforming against expectations”.

“Lockdowns and global supply chain disruptions wreaked havoc, forcing governments to launch significant stimulus measures.”

“The impact of Covid-19 was profound. Lockdowns and global supply chain disruptions wreaked havoc, forcing governments to launch significant stimulus measures. According to the World Bank, the global economy contracted by 4% during 2020. There is expectation of a recovery with a forecasted 4% in 2021, primarily from emerging markets led by China, but the looming crisis as a result of the second wave of the virus and the challenges related to the roll-out of vaccines means that it is really unclear what 2021 may hold.”

South Africa’s economy contracted by 8% in 2020, one of the deepest globally, Hamilton said, and growth estimates for 2021, at about 2% are “not too great, especially coming off a low base”.

On market fundamentals: Focus on the long-term

Hamilton said that although global economic activity had started to show signs of recovery, a closer look at the global Purchasing Managers’ Index (IHS Markit) data indicates that “this remains precarious, and there has been continued slowing in many markets”.

South Africa’s PMI data (December 2020: Absa) is similarly positive, “but our fortunes will be tied to markets such as the US, EU and Asia, and will be impacted by a stunted global economic recovery”.

Local economic activity will also be hampered by continued electricity supply issues.

“On a positive note, inflation is expected to remain within the target range of the SARB, which affords greater fiscal and monetary policy wiggle room. Expected stable interest rates may even allow the Reserve Bank to lean against inflation if required. This is something we do not generally see globally, where rising production costs and Covid-19 stimulus has seen many markets running hot – something central banks are happy with over the short run, but the longevity of this approach is uncertain. There are clear signs of policy fatigue in the US and EU.”

Hamilton said this combination of factors made an exact determination of GDP growth difficult to achieve while South Africa’s economy remained sensitive to global market changes.

“A longer-term view may be required to gain a clearer understanding of the future.”

Market analysts Fitch Solutions expect emerging markets (excluding China) to take about two years to recover to pre-pandemic levels, while South Africa is projected to take as long as five years, and this lagging behind other emerging markets is a major concern that would contribute to greater social instability and could see capital flow to more attractive investment destinations.

However, Hamilton said, for context, developed economies such as France and the UK are also expected to take around five years to return to pre-pandemic levels.

“What we expect is an increased appetite by global asset managers for emerging market fixed investment, given the low yields found in the EU and US – but the preference may still remain with the Asia region given its better containing of the virus.

“All markets will have to consider two factors: The short-term recovery from the pandemic and the long-term position of the economy post-recovery. It is more prudent to work from the long-term position as an investor as opposed to try and predict and respond to a highly volatile and dynamic short-term view,” Hamilton said.

On the business environment

Reason to be optimistic over the long-term is tempered by expected “extremely tough” trading conditions for most companies over the next five years.

“As combatting the virus faces serious practical constraints, many markets can be expected to remain closed or partially-closed, continuing to limit the movement of goods and people for the coming 12 to 18 months.”

Hamilton said that companies that have weathered the storm so far have done so with significantly more debt, depleted financial resources and possibly diluted equity positions, seriously impeding their ability to access further funding for possible growth-oriented capital allocations.

“We can expect to see an increase in liquidations and business rescue filings in 2021 as the pandemic drags on.”

“Those with the deepest pockets and strongest balance sheets – thus larger companies – are best placed to access further local and global capital to survive and possibly thrive. But we can expect to see an increase in liquidations and business rescue filings in 2021 as the pandemic drags on.

“This will require companies to simultaneously take both a conservative and a pragmatic view in plans and budgets for 2021 – incorporating careful risk analysis and developing contingency plans – while also devoting capital to future growth opportunities.”

Hamilton said a rebound in merger and acquisition (M&A) activity was being seen globally, with the US posting record high levels, but this had not yet flowed over to emerging markets.

“We expect these figures to rise in emerging markets during 2021 as larger firms embark on consolidation drives and others seek to off-load non-core assets and manage debt levels. Companies will need to restructure their balance sheets in order to maintain a base from which to embark on growth paths and limit job losses.

“The risk is naturally for overleverage, which creates the opportunity for funding from venture capital or private equity funders to fill the gap of traditional equity and lenders. This is especially the case in the buy-out market, where we see great opportunities.”

Hamilton said investors globally retained appetite for those industries least impacted by the pandemic, such as pharmaceuticals, health, essential industries with low demand elasticity such as food retail, and others able to continue operating under lockdown conditions, with technology a “major winner”.

“The outlook on these industries (tourism, travel, alcohol and tobacco) remains negative until the virus has been brought under control.”

“In South Africa, the tourism and travel industries as well as the alcohol and tobacco industries have been hard hit by the pandemic and government measures to contain the virus. The outlook on these industries remains negative until the virus has been brought under control. In addition to the winners in healthcare and technology, locally we can also expect agriculture, energy, renewables and infrastructure to enjoy strong growth in the coming years.”

While the uptick in capital flows to emerging markets bodes well for South Africa, this is a highly competitive market and the country is competing for investment against China, India, Brazil and Mexico – “so the fundamentals remain that South Africa should focus on improving its attractiveness as an investment destination,” said Hamilton.

On the launch of African Continental Free Trade Area (AfCFTA) and Africa embarking on making itself a more attractive investment destination, Hamilton said the goal was to boost intra-Africa trade which remained extremely low compared to similar trade areas in Asia, Europe and the Americas.

“AfCFTA will be a key driver of growth for all nations on the continent and companies must ensure that they are in a position to benefit from this.”

“Africa is a market of 1.3-billion people and a trading bloc worth upwards of $3-trillion, but only 16% of current African exports are to other African countries, compared to 68% in Europe and 59% in Asia.

“AfCFTA will be a key driver of growth for all nations on the continent and companies must ensure that they are in a position to benefit from this. It is certainly not without practical and political concerns and issues, but a key investment drive should be made by local and global markets and companies to ensure that this agreement is successful. It is an opportunity that is too important to miss.”

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photo of train track subway

Implications of Covid-19 on infrastructure finance in Africa

USB News

Implications of Covid-19 on infrastructure finance in Africa

photo of train track subway
(Source: anna-m. w.)

  • November 24
  • Tags Media release, Covid-19, Development finance

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There is a significant infrastructure finance gap in Africa that is likely to widen due to the Covid-19 pandemic unless countries consider alternative financing techniques, says Dr Ashenafi Fanta, senior lecturer in Development Finance at the University of Stellenbosch Business School (USB.

“Infrastructure provides useful economic benefits and we need infrastructural development to achieve economic transformation in Africa. Many African countries are now looking at transforming their economies to reduce poverty and to create jobs.

Infrastructure provides useful economic benefits and we need infrastructural development to achieve economic transformation in Africa.

“We have three major economic sectors, namely the agricultural sector, the service sector, and the industrial sector. When countries develop, the usual path would be a shift from the agricultural sector to the service and industrial sector,” he says.

If we want to grow the industrial sector in Africa, we need to invest in the energy sector, transport infrastructure, ICT infrastructure and other critical infrastructural sectors.

“Structural transformation is very critical and infrastructure provides essential input into structural transformation. If we want to grow the industrial sector in Africa, we need to invest in the energy sector, transport infrastructure, ICT infrastructure and other critical infrastructural sectors.”

Dr Fanta says economic transformation also entails increasing labour productivity in all three sectors and achieving labour productivity can be done through infrastructural development, which is critical for economic transformation and economic recovery in Africa.

Impact of the pandemic on the global economy

Economic growth across global regions has decreased. “Many African countries have been experiencing fast economic growth so for these countries experiencing a decrease of 2, 8% is a big loss. There had been positive developments in poverty reduction across the globe but with the contraction of outputs, it’s going to reverse.

Investment in infrastructure can help in job creation and in boosting private sector activities.

“The health and economic consequences of the pandemic are likely to be worse in countries with widespread informality. This is a big concern for us in Africa because we have a large segment of the economy in the informal sector. The blow is the hardest in countries that rely on global trade, tourism, commodity export, and external financing. Investment in infrastructure can help in job creation and in boosting private sector activities,” he says.

State of infrastructure in Africa

Dr Fanta says the availability of infrastructural services and access of the population to infrastructure services in Africa is very low. Looking at the state of infrastructure for each sector reveals a gloomy picture:

  • In the energy infrastructure sector, a combined power generation capacity of 44 countries of Sub-Sahara Africa with a population of about 800 million is 92,27 GW (in 2012) less than that of Spain with a population of about 45 million, which is 105,27 GW. More than 640 million Africans have no access to energy, giving an electricity access rate of just over 40% for African countries – the world’s lowest.
  • In the transport sector, only 208 kilometres of roads in Africa are available per 1000 square kilometres of land area, compared to the world average of 944 kilometres per 1000 square kilometres.
  • In the water infrastructure sector, only 61% of Africans had access to clean water and 31% to adequate sanitation (in 2010).
  • The ICT sector, which is very critical for economic transformation, only has 19 million broadband internet subscribers in the entire sub-Sahara Africa region – about 6% of the total number of telephone subscribers.

“The financing deficit in Africa is also very large and according to a report by the Africa Development Bank from 2018, Africa’s total infrastructure needs amount to $130-170 billion a year, with a financing gap in the range of $68-108 billion,” says Dr Fanta.

Public finance is the primary source of funding infrastructural development in Africa. “However, there is increased pressure on public finances due to the bigger health expenditure following Covid-19 responses; governments had to make welfare payments to vulnerable households, and there was a loss of tax revenue as governments had to provide help to businesses that are struggling to stand on their own feet during the pandemic.

“Covid-19 had an impact on both the revenue and expenditure side of public finance and money that governments were going to put forward for investment in infrastructure will no longer be available,” he says.

Alternative sources of funding

Dr Fanta says borrowing money is not the answer. “Governments have already reached their borrowing limits. There had been a concern by international financial institutions including the International Monetary Fund (IMF) and the World Bank that many African governments are facing a debt crisis. As a result of Covid-19, many countries had to borrow a massive amount of resources from international as well as local markets and this has pushed the public debt beyond what governments can handle.

Many countries had to borrow a massive amount of resources from international as well as local markets and this has pushed the public debt beyond what governments can handle.

“The IMF already identified about 17 African countries that are in high debt risk. This is a concern because any further accumulation of debt will be detrimental to the countries,” he warns

Dr Fanta suggests the following alternative funding mechanisms to provide funding to infrastructural development that will be useful for economic transformation as well as economic recovery:

  • Infrastructural bonds: This is a debt but they will be linked to specific infrastructural projects and not added to public debt. These bonds are designed to attract funding specifically to a particular infrastructure, for instance in the energy or transportation sector without placing further pressure on public finances.
  • Development impact bonds: These are bonds where private sector entities contribute funding to kick start an infrastructural activity or investment. They will agree to generate return only if a particular development goal is met. If a development goal is met then donors will pay out the private sector entities the principal plus return or principal plus
  • Commodity-backed loans: Private sector entities are invited into infrastructural investments programmes with expectations that in the event the infrastructural asset fails to generate a return, then the commodities can be used in settling.
  • Tapping into pension funds: These funds in Africa are not well-developed except in a few countries including South Africa, Nigeria, and Kenya. Pension funds are very cautious in investing in infrastructure. There are initiatives in Nigeria where credit guarantees are made available to entice pension funds to invest in infrastructural facilities.

 

***

USB is a triple-accredited business school and offers a cluster of internationally accredited Development Finance programmes – PGDip, MPhil and PhD – to implement sustainable solutions to develop Africa where it matters. All programmes are offered via its immersive, flexible Blended Learning format from 2021.

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Dr Lee-Anne Steenkamp USB

First woman at USB to obtain sought-after research rating

USB News

First woman at USB to obtain sought-after research rating

Dr Lee-Anne Steenkamp USB

  • November 19
  • Tags Our news, Research, women

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Dr Lee-Ann Steenkamp obtains coveted NRF rating after rigorous process

Dr Lee-Ann Steenkamp, head of the University of Stellenbosch Business School’s (USB) Postgraduate Diploma in Financial Planning, was the first female academic of the business school to acquire the National Research Foundation (NRF) rating. The NRF is an independent government agency and the rating system is a useful tool for benchmarking the quality of South African researchers against the best in the world.

“It’s really an honour to join the ranks of other rated researchers.”

“I am very proud, but at the same time incredibly humbled, to be the first female academic at USB to receive an NRF rating. It’s really an honour to join the ranks of other rated researchers, especially the precious few (men and women) at the Economic and Management Sciences Faculty of Stellenbosch University,” says Steenkamp.

Prof Mark Smith, USB Director, added: “I am delighted that Dr Steenkamp has obtained this prestigious status. It is a sign of the quality of her research and the impact she has. Furthermore it demonstrates the fruits of the investment the School has made in building our research capacity over recent years. Like all pioneers, Lee-Ann is the first but will not be the last – she has paved the way for other women to follow.”

The process explained
The NRF rating is an onerous and very competitive process to go through, but ultimately it gives recognition to those researchers who constantly produce high-quality research outputs. The application process itself takes about a year, as the university has many internal deadlines to do various quality checks and help guide you. There are different rating categories which are allocated by an independent panel of local and international scholars. This is based on your research output of the previous six years, which includes papers in peer-reviewed journals, conference proceedings, and masters and doctoral students supervised.

Says Lee-Ann: “At the time I submitted my application, I was 36 years old and was therefore considered young enough to obtain a Y-ranking for promising young researchers under 40 who have held the doctorate or equivalent qualification for less than five years at the time of application.”

She says after the application it takes about another year to get the NRF’s formal feedback. “This process is repeated every six years to maintain or improve one’s ranking. It’s one thing to get the initial ranking, it’s quite another to keep it!”

“This rating means a great deal, as it is a stamp of approval that I’m on the right track with my research.”

The ranking system is independent and objective. “There is no special treatment based on personal demographics (for example, gender) – the panel only evaluates the quality and quantity of your research output. Being a researcher requires a tremendous amount of patience and endurance, which are not personality traits that come naturally to me. So this rating means a great deal, as it is a stamp of approval that I’m on the right track with my research and that many years of hard work is starting to bear fruit,” she says.

Staying motivated
Steenkamp says the support she received from the Early Career Academic Development (ECAD) programme of Stellenbosch University was a real game-changer from which she benefitted enormously.

“Having this accountability partner keeps me motivated and focused, and inspires me to reach even higher.”

“When you join the programme as a mentee, you are partnered with an experienced academic who mentors you on your journey to become an established scholar. I’m very grateful that Prof Stan du Plessis agreed to be my mentor (although I have no idea how he manages to fit our regular meetings into his schedule).

“It makes a big difference to have someone to bounce ideas with and who understands the rigours and demands of research. Having this accountability partner keeps me motivated and focused, and inspires me to reach even higher,” she says.

Prof Leslie Swartz, academic coordinator of the ECAD programme, expressed the programme’s delight and admiration at Steenkamp’s achievement.  According to Swartz, the aim of the ECAD programme is to support the university’s new academics as best they can, and, as Swartz put it, “it is extremely gratifying for us when our academics do well.  The achievement is all theirs, and we are lucky to play a part in supporting them.  We could not do this without the work of the mentees themselves, like Dr Steenkamp, or without the mentors, like Prof du Plessis in this case”.

Her research focus
Steenkamp’s PhD was in climate change law and her research focus for the next five years will be on carbon pricing mechanisms and ‘green taxes’ (environmental taxes). “South Africa enacted the Carbon Tax Act 15 of 2019 last year, so there are many opportunities for conducting comparative analyses with other countries who’ve either implemented a carbon pricing mechanism or adopted an emission trading system.

“From a business school perspective, it’s quite interesting to supervise MBA students who study the impact of the carbon tax on their own companies or sectors and develop strategies to mitigate for this,” she says.

“My goal is to work towards the next NRF rating opportunity in six years. This requires sustained and cohesive output as you need to demonstrate that you have built a focused body of work. I’m excited about building research partnerships and have embarked on numerous collaborative research projects with colleagues and graduates from the business school,” she says.

Dealing with criticism
Steenkamp says criticism is an integral part of the peer-review publication system. “Over time you learn to separate constructive from negative criticism. The former is a helpful and necessary component for developing one’s research ideas and enhancing the quality of the final product (be it a thesis, conference presentation or article in a journal). I serve as a peer reviewer for several academic journals and appreciate the time and effort that goes into providing this sort of feedback,” she says.

“I still haven’t developed a thick enough skin for the negative criticism, though. But I’m getting there. I’ve recently read an excellent book written by Cal Newport, wherein the key message (and title) is to be “so good they can’t ignore you”. I believe this is the best way of dealing with setbacks and criticism.

“I think every researcher has a curious mindset and it’s the endless possibilities of learning and discovery that keeps you going.”

“I think every researcher has a curious mindset and it’s the endless possibilities of learning and discovery that keeps you going. Ultimately, it’s knowing that your research is making a positive impact and that you are playing a small part in advancing knowledge in service of society,” she concludes.

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New report launched: Bold steps to stimulate a changed economy and renewal of South Africa’s growth trajectory

USB News

New report launched: Bold steps to stimulate a changed economy and renewal of South Africa’s growth trajectory

  • October 13
  • Tags Media release, Development Finance

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An alternative economic strategy for South Africa, proposed by Dr Nthabiseng Moleko and Prof Mark Swilling, could see GDP doubling in 10 years, 10 million people moving out of poverty, and unemployment cut by two-thirds to 12% by 2030.

South Africa’s response to the Covid-19 crisis is an opportunity to reconfigure, restructure and rebuild the economy by departing from more than two decades of post-apartheid economic policy which has seen lacklustre growth and not achieved significant gains in economic equality, says a report released by the University of Stellenbosch Business School (USB) and the Centre for Complex Systems in Transition at Stellenbosch University.

Continuing on the current path, reliant on “mainstream economic thinking and use of existing micro-economic solutions” is unlikely to deliver different outcomes in the future, while the proposed alternative strategies are geared to diversifying the economy to support inclusive economic transformation, labour-intensive growth and a globally competitive and sustainable economy.

Titled New wine into new wineskins: An alternative economic strategy for South Africa’s economic reconstruction, the report and proposed alternative economic framework are a collaborative effort by policy-makers, economists and academics from diverse public, private and research institutions convened under the Social Justice M-Plan by Prof Thuli Madonsela, the Law Trust Chair in Social Justice at Stellenbosch University.

To overcome the stagnation of the economy, which has been deepened by Covid-19 and the national lockdown, the South African government must boldly look to drafting new economic policies that can deliver on the vision set out in the National Development Plan (NDP), the report says.

Following workshops in Stellenbosch in late 2019, an economic working group led by Prof Mark Swilling, Distinguished Professor of Sustainable Development in the Stellenbosch University Centre for Complex Systems in Transition, and Dr Nthabiseng Moleko, Development Economist and Senior Lecturer: Managerial Economics and Statistics at USB, developed the proposed strategic interventions to support the emergence of an inclusive, equitable and sustainable economy.

The alternative economic framework is driven by strategic interventions in industrial policy with a target of doubling the contribution of manufacturing to GDP, prioritising labour-absorbing sectors, and boosting domestic food production and rural development. The framework envisages shifting policy on investment and mobilising domestic capital, fiscal policy aggressively targeted at higher economic growth, building state capacity for innovation and governance, and re-shaping empowerment policies to achieve real growth through redistribution.

Sluggish economic growth and the triple crisis of unemployment, poverty and inequality have worsened during the Covid-19 pandemic, but the strategic interventions proposed in the alternative economic framework have the potential to use the current crisis spending to generate inclusive growth, the report says.

Dr Moleko said Covid-19 and lockdowns around the world could trigger an economic disaster worse than the global financial crisis of 2008, with South Africa’s economy expected to contract 7.2% in 2020.

“How government chooses to allocate relief funds in efforts to support economic recovery and longer-term growth can either deepen existing systemic structures or liberate South Africa’s people and the real economy to drive transformative economic change.”

Dr Moleko said the collaborative, multi-stakeholder exercise had produced alternative solutions to South Africa’s economic challenges packaged in seven strategic policy interventions and had used economic modelling techniques to develop scenarios and analyse the potential impact of the interventions on achieving the growth targets of the NDP.

While the “business as usual” scenario for the next decade sees the economy stuck in low growth with continued high rates of unemployment, poverty and inequality; modelling of the impact of the recommended policy interventions indicates “an inclusive growth path that will deliver real and significant benefits to the private sector and working-class and poor families”, she said.

“It shows that a significant portion of the poor would be able to improve their living conditions, that unemployment would decrease significantly and that the private sector would benefit from a significant expansion of the domestic market. Direct benefits accrue to government through a declining debt-to-GDP ratio and an increasing average investment-GDP ratio. Indirect benefits include a growing sense of social cohesion that could promote stable capital accumulation.”

Strategic interventions summarised

The alternative economic framework proposes a new model of the state, “enabled by enhanced coordination and supported by domestic capital mobilisation with a reduced reliance on external capital markets and financial flows”.

Industrialisation as a key growth driver
On industrialisation as a key growth driver, the report recommends the establishment of an Industrial Council to enable coherent planning across the various institutions falling under the Department of Trade, Industry and Economic Development. Although under a single umbrella, agencies such as the Industrial Development Corporation, Small Enterprise Finance Agency and the National Empowerment Fund use different incentives and policy instruments, leading to fragmented and ineffective programmes.

The alternative framework sets a target of doubling the contribution of manufacturing to GDP by shifting from primary sector activities to high-value-added goods and processing of agricultural products.

A phased approach would initially develop highly labour-intensive sectors, adopting a more capital-intensive growth path over the longer term and transitioning to technology-based industrial development.

Labour-absorbing strategies
Arguing that South Africa’s unemployment challenges are due to ineffective interventions rather than lack of funding, labour-absorbing strategies are proposed to address the lack of unskilled and semi-skilled jobs and the mismatch between skills production and labour demand.

Sectors with potential to absorb large numbers of unemployed people – including agro-processing, plastics, metals, construction machinery and the transition to renewable energy – should be prioritised, with education and skills programmes aligned to their needs.

Sectors that do not hold the potential to absorb much more labour – chemicals, machinery and equipment, and agricultural and transport machinery, for example – but that still play a key role in value chains should be supported through employment-generation conditions in state procurement programmes.

Rural development and domestic food production strategies
Alternative rural development and domestic food production strategies are needed to address high levels of economic inactivity, unemployment, food insecurity and dependence on social grants in rural areas, and to grow the share of black farmers in the agricultural sector.

Alternative strategies would link the rural farming economy to upstream and downstream value chains, and improve access to markets, including by providing state-subsidised credit to small-scale farmers.

Investments, domestic resource mobilisation and private sector participation
A “radical shift in approach” to investments, domestic resource mobilisation and private sector participation is proposed to support expansion of manufacturing sectors and stimulate long-term economic growth.

The new approach would include reconfiguring the role of the Public Investment Corporation, development finance institutions and public and private pension funds to mobilise domestic financial resources and drive growth through redistribution and structural reform.

Enabling debt instruments that will grow industrial and productive capacity and generate positive social outcomes are recommended, along with imposing a tax on “idle capital” to encourage corporations to reinvest rather than stockpiling capital.

Strategic fiscal measures
Strategic fiscal measures should link government expenditure to economic output and the impact on poverty, inequality and unemployment, while fiscal stimulus packages would revive supply side sectors, boost industry and drive competitiveness.

Advancing economic recovery can be achieved through inflation targeting, quantitative monetary easing and lower interest rates, rather than by increasing public expenditure and tax cuts.

Fiscal stimulus should focus on sectors such as energy and those that can generate greatest socio-economic impacts over both short- and long-term, achieving poverty alleviation alongside growth. Non-debt fiscal stimulus interventions are also recommended, including redirecting the investments of the PIC and development finance institutions, zero-rating certain items, increasing grants and restructuring the tax system.

Build state capacity
A new paradigm to build state capacity is needed to reverse the “hollowing out” of already limited capacity due to state capture and create a successful developmental state. This should focus on enabling effective relationships of trust between the state and stakeholders, particularly private business and civil society, and shifting to “good enough governance” that can adapt to changing dynamics.

Government officials should be supported and rewarded for innovative risk-taking (for the right reasons) and be able to work through partnerships to achieve their mandates.

Economic growth through redistribution
State-led transformation interventions such as Broad-Based Black Economic Empowerment (B-BBEE) have failed to achieve equitable participation in the economy, and the alternative framework proposes a number of strategies for economic growth through redistribution.

An empowerment model should be driven by the Preferential Procurement Policy Framework Act to encourage and provide fiscal support to rural and township enterprises to participate in national and provincial procurement programmes.

Land transfers for agricultural and manufacturing use should be finalised in order to support the emergence of a new class of farmers and industrialists, while amendments to the Competition Act are recommended for fast-tracking to limit oligopolies and open access for locally-owned retailers in small towns, villages and townships.

“The recommended interventions aim to stimulate, stabilise and strengthen the economic framework to realise a socially just and sustainable economy. Shifting the economy will require the consistent implementation of stimulus-orientated policies that aim to expand aggregate demand and supply while growing productivity, employment levels, and income and expenditure at the business and household levels. This provides the foundation for enhanced participation in the economy, particularly by the most marginalised,” Dr Moleko said.

Click here to download the report.

The M-Plan is a Marshall Plan-like initiative aimed at catalysing progress towards ending poverty and reducing inequality by 2030, in line with the National Development Plan (NDP) and Sustainable Development Goals (SDGs).

The name is in honor of Palesa Musa, an anti-apartheid activist who at the tender age of 12 was one of the school children that were arrested, detained and tortured for challenging the apartheid government.

The M-Plan seeks to foster social accountability and social cohesion, mobilise corporate and civil society resources to fund socio-economic inclusion and foster civic responsibility.

It aims to leverage data analytics to enhance the state’s capacity to pass laws that reduce poverty and inequality and to foster a culture of data based decision-making, focusing on assessing and predicting the likely social justice impact of planned policies, legislation and plans as well as those already in operation.

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Prof Nicolene Wesson Virtual Inaugural Lecture 2020

Will mandatory audit firm rotation reduce audit market concentration in South Africa? | Prof Nicolene Wesson Virtual Inaugural Lecture 2020

USB News

Will mandatory audit firm rotation reduce audit market concentration in South Africa? | Prof Nicolene Wesson Virtual Inaugural Lecture 2020

Prof Nicolene Wesson Virtual Inaugural Lecture 2020
(Source: Supplied)

  • October 05
  • Tags Our news, inaugural lecture, audit market concentration, annual reports, accounting

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Prof Nicolene Wesson, who lectures Accounting and Taxation at USB, recently presented her inaugural lecture during a virtual presentation on whether mandatory audit firm rotation (MAFR) will reduce audit market concentration in South Africa.

She was the first woman to be promoted to full professorship at the business school in 2018.

She says an inaugural lecture is generally quite a daunting task. “The Covid-19 pandemic definitely added a new dimension to my experience, but I am grateful that I had the opportunity to share my research and that Stellenbosch University has put measures in place to allow for the continuance of the inaugural process.”

The topic of MAFR is contentious and limited research has been done on the topic in South Africa. “Being a chartered accountant myself, I am specifically interested in this field and want to contribute to knowledge by providing evidence-based research on a topic that is often debated based on anecdotal (unscientific) evidence.

“Mandatory audit firm rotation will come into effect in South Africa on 1 April 2023. Mandatory audit firm rotation in this country aims to enhance auditor independence, accelerate transformation and enable deconcentration in the audit profession. In my inaugural lecture I explored the effect of mandatory audit firm rotation on one of the focus areas of MAFR, namely audit market deconcentration,” she says.

Wesson used annual report disclosures on audit firm identity and audit firm tenure (with audit firm tenure only available as from 2016) to describe the audit market concentration over a nine-year period (2010-2018) and to provide insights into the possible effect of MAFR on audit market concentration.

On her findings she says: “My results confirmed that the Big 4 audit firms (namely PwC, Deloitte, KPMG and EY) dominate the South African audit market and that one of the Big 4 audit firms has a monopoly within the audit market. Increased audit market concentration (based on number of clients and audit firm rotation trends) was evident subsequent to the date that audit firm tenure disclosure came into effect. This disclosure on audit firm tenure is seen as to represent evidence of an auditor’s ‘independence in appearance’ and may have influenced companies’ decision to replace their auditors in anticipation of MAFR.

“Based on the Big 4 audit firm dominance and the sheer scale of audit firm rotations to be carried out in anticipation of MAFR, this study identified the possible impairment of audit quality and an increase in costs as unintended consequences of MAFR. The study proposes remedies to address these unintended consequences prior to 2023. Future research on MAFR-related topics – specifically focussing on audit quality and audit costs – is imperative to ascertain whether MAFR (in its proposed format) is the solution for South Africa,” she says.

Watch the full inaugural lecture here: https://www.youtube.com/watch?v=MoPHGzPr8yU

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