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Why We Need ‘Hard Cash In The Economy’

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Busi Mabuza, the Chairperson of the Board of the Industrial Development Corporation, on the BRICS summit and why we need to start talking as an African bloc.

If there’s one person who knows what’s good for investment, it’s Busi Mabuza, the Chairperson of the

Industrial Development Corporation (IDC), a national development finance institution promoting economic growth and industrial development in South Africa.

Exactly a month after the BRICS Summit, which brought together Brazil, Russia, India and China to South Africa in July, we met with Mabuza for her views on why such forums are key for Africa:

What, according to you, was the biggest outcome of the BRICS Summit?

The countries’ focus was on attracting investment, so we had presidents of the BRICS countries coming with goody bags to the country, especially President Xi Jinping who made quite a substantial commitment to investment in South Africa. What I liked most though was the ‘BRICS Plus’ approach. The invite to other African countries to be part of some of the sessions of BRICS, because with the Continental Free Trade Area Agreement, I think we need to start talking as an African bloc.

South Africa has a minute population compared to the other BRICS countries for us to be an attractive preposition to those large economies….we have to speak with the voice that talks for the rest of Africa as well. I also liked the fact that there was conversation in a concerted [way] at a BRICS women’s forum…I didn’t see the evidence of it taking shape yet, but the fact that it was a topic of discussion, that there were initiatives around it…I think is very promising and exciting.

One of the conversations at the conference was the focus on an open economy, what would that mean for South Africa and the rest of Africa?

We should have free trade between the BRICS partners and South Africa, precisely because South Africa is quite a small economy compared to the BRICS partners.

We export raw material to those countries, they export into South Africa finished goods. So the trade still needs to be developed. We need to migrate upwards in terms of our trade mix and portfolio mix, so that if the economies are open, if the trade is open and the tariff barriers are done away with, then it shouldn’t be to the detriment of one economy. There has to be a win-win complementarity.

The other aspect I think very important is the movement of people. We have visa requirements sometimes which are quite onerous and I think there was a lot of time dedicated to talking about those obstacles. People find that when they have investments in South Africa and bring professionals to the country, they can’t stay for a long enough period for them to actually get the business up and going before they go back in order to meet the visa requirements. I think the government is making a concerted effort on that front in trying to make sure visa requirements are not as stringent and do not become an obstacle for our trading partners.

As African countries, we now need to start working towards bringing down all the tariffs, trade tariffs and the non-tariff barriers between exchanging goods and services amongst the different African countries. It’s going to take long because some of the issues are quite complex…So that would be my understanding of opening up the economy. I think there are risks on the one side and opportunities on the other side. What’s important is we move in an orderly fashion and ensure that as we do so, there is a win-win proposition for all countries.

How important are summits such as BRICS for South Africa?

It feels as though we are reintegrating into the rest of the world. I think we were almost at some stage a pariah state but I think the fact that we have been received so warmly since the new president [Cyril Ramaphosa] early this year is a great positive because it means there’s a lot of goodwill in the rest of the world for us.

South Africa’s economy has been sluggish, mainly because of lack of investment. There are other challenges. Our unemployment rates are shocking. I was looking at the statistics compared to our BRICS partners – we are at 27% officially…The need is for us to attract not just the political goodwill of the BRICS partners, but their hard cash into the economy. Not just the portfolio flow – we are not looking for people who are going to buy shares on the stock exchange and sell them as quickly as they bought them if things go wrong – we are looking for people who will bring projects into South Africa, people who will create jobs for South Africans.

[For example], the Chinese, are known for bringing their local projects that they build in countries. But I think as long as the balance is a significant majority – South Africans employed in those projects – then it will be to our benefit. Then there are opportunities for us to show them a thing or two. We do well as far as women’s representation is concerned, not in the private sector, but in the public sector; we are still ahead of our BRICS partners.

You will be amazed that our rail and road infrastructure in terms of area is way ahead of the other countries. So there are opportunities for us to see whether our skill is taken to those countries.

At the IDC, how do you promote women in business and youth?

In the recent past, we have realized something we should have known a long time ago. People focus on what is measured, and we have therefore started measuring the amounts that are collected and dispersed to youth-owned and women-owned businesses and that has done wonders for us. Four years ago, we didn’t know how much of our funding was being dispersed to companies owned by women or was being dispersed to companies owned by young people.

Now, because management is incentivized to disperse a certain percentage of our funding to women-owned and youth-owned businesses, we are seeing more and more. There are years when – I think it was the previous financial year – we overshot our targets in terms of the amounts dispersed to youth-owned and women-owned businesses. We of course pay attention to our employment equity profile within but we also look at the employment equity performance of the businesses we invest in. That’s a space where we have seen sluggish progress but I think now that we are focusing on it, when people come and look for investment, we probe their employment equity profile. We see male management teams and we ask them why and how long it’s going to take them to bring in female talent and young people. And I expect that we will start seeing a shift on that front as well.

And if the IDC portfolio companies start living as good examples of what this country should be doing more and more, then I will be happy.

In August, the IDC approved a funding of R16.7 billion ($1.1 billion). What kind of businesses will that money go towards?

The companies are diverse. We need to be focusing on industrial development and a significant majority of the companies that benefitted from our R16.7 billion disbursement were industrial companies. However, because of where the economic cycle is, there’s quite a number of distressed companies. We’re a development financial institution, therefore, we would like to think of ourselves as patient investors. And where companies are distressed, but we can see there’s an opportunity to be viable down the line, we want to support them…

What are the new industries the IDC is currently looking at?

In fact, we have a new division called New Industries. We have recognized that for IDC and South Africa to remain relevant, we need to understand the 4th Industrial Revolution.

The new era businesses cannot be valued in a similar fashion as one would value the retail company where you look at the profits and you say ‘ok, the business is doing well’.

There, you look at the technology, you look at the potential of that technology and you support the business on that basis.

I was fascinated there is a company in South Africa working in the Internet of Things (IoT) space because it is tempting to assume that those new technologies are just being developed in the rest of the world but that South Africans have actually started companies in that space is exciting for me.

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