Global Business Solutions South Africa: Empowering Businesses to Achieve Their Objectives

Interview with Jonathan Goldberg, CEO of Global Business Solutions

An organisation like yours is almost a sort of bellwether of storms to come.

It is quite interesting in the consulting business when you are in human resources and labour consulting, potentially you can grow in difficult times because people need creative solutions. In those times you can actually grow your revenues. One of the revenues that will decline during this period is training and development. People will spend less on training and development than they did in the past.

There is talk of a national minimum wage which is expected to be introduced sometime this year I believe. From your perspective do you expect its implementation to lead to job creation or job losses?

I have no doubt from the research that I have read and been exposed to in the last 6 months, that it will lead to job losses. I think any national minimum wage that is not sector based, like the British system, will lead to job losses even if it is set at very low levels. The lower you set it, the fewer jobs; the higher you set it, the more jobs. The big issue in South Africa is not necessarily the jobs but it is the lack of compliance so I think the higher you set it, the more noncompliance of legislation; the lower you set it, maybe the more moral compliance. But I don’t think we have the mechanisms and the machinery to enforce compliance even of the existing legislation. If you look at sectorial determinations in this country, you are getting a 40% noncompliance for sectorial determinations which are set at relatively low levels.

There are huge opportunities in South Africa. We just have to free up some issues.

To what extent do you think that foreign investors eyeing investment in South Africa will be concerned with the regulation regarding employing South Africans (referring specifically to the BBBEE scheme)? How is this impacting on the overall economic development of the country?

My own view of foreign direct investment has got nothing to do with BBBEE or employment equity or labour laws; it is ultimately “can you make a return on this environment?” so long as you can make a return that is better or comparable to the rest of the world then you are here. If you can´t, then you are out of here. I don’t think the Broad Based Black Economic Empowerment or employment equity framework is that problematic for investment. It is another regulatory burden which we have in a number of other countries in the world. The question is: is there too much regulatory burden not only for foreign direct investment coming in but also for local companies to expand? If you look at South Africa, many South African companies are sitting on piles of cash and they aren’t investing it. The question is why? You have to unlock their confidence in the country to invest that money. It is as important as far as I am concerned as foreign investment.

But nowhere else in the world has a system quite like that. It is unique to South Africa.

I suppose if you look at China: if you try to open up a motor plant in China you have to have 51% Chinese partners. It is a bit misleading to say that there are no other dispensations. India has dispensations as does Malaysia and China, so there are many dispensations around the world and some are actually more draconian. Of course people argue that if you try the China market you have the market therefore you can be a bit more dictatorial than you can be in South Africa. The bottom line is if you don’t find a system to integrate the majority of the population in the economy you will have trouble in any case. Whether it is correctly implemented or whether it is correctly consulted upon with businesses is a completely different question. I think we can do a lot more from encouraging compliance than trying to penalise non-compliance. What are the incentives for compliance? Businesses love incentives! If you look at any regulatory environment that has been successful you incentivise employers via tax breaks and other methods to comply. I think we have gone the other way; there could be good reason, we have had twenty years of democracy and change has been slow, economic transformation has been slow. The overall point is figures show that the numbers of South African coloured people in senior management is low after twenty years but the question is why? Yes there might be a slow pace of movement in businesses but the reality is also a very poor education system that underpins that. Skills development is not talking to public development, the SETAs are not delivering to a large extent what their mandate was, they are collecting billions of rands a year and not delivering on the mandate of the original intention of skills development. We have lost our way in respect of providing the right skills to organisations. Direct foreign investment together with local businesses is where skills lead development. You don’t say “well what do you need sir? We will train them”. You train people and attract the businesses with the skilled people. That is what the Indians did with IT skills and I don’t think we have learnt that trick yet; I think we are far off the base in respect of our education and training facilities. There are a myriad of reasons for that but you need to unpack those and find concrete building blocks for rectifying it. The blame game is not going to help and the penalisation game isn’t either.

The 2012 incident was described as post democratic South Africa’s bloodiest wage battle to date when the miners clashed with police. I think there were a total of 44 people killed during that strike. Is there danger of further serious industrial action? Is it almost inevitable given the constraints of the global commodities route?

I think that was a perfect storm and it would be difficult to repeat that perfect storm. Again, in proper analysis of what is going on, we should analyse why and how that arose. Management to blame? No question about it. Workers and trade unions to blame? No question about it. And the violent nature of our strikes and the limited control over violent strikes is a big issue. Two or three deaths would have been bad enough. There is a process going on at the moment which is trying to find ways and means to prevent violence and strikes and encourage more orderly behaviour in protests in South Africa.

But we are going to see more?

I think you are going to see more strikes but…

It is inevitable.

No question, strikes are inevitable and there is a perfect storm for that too because we have rising inflation rates particularly with food prices and transport prices potentially. Luckily we have had a drop in oil prices at the same time. We have a situation where companies are not able to afford above inflation increases. In South Africa at the low levels maybe legitimately there has been above inflation increases. I think those days are over because of affordability. So there is perfect ground for legitimate industrial action; it is the manner in which the industrial action takes place that determines the outcome. It looks like 30 odd thousand jobs are at stake in the mining industry. Who is accountable for that? People have to take accountability for that. Yes commodity prices are one thing, but the violent, long unprotected actions had a contributing element to the fact that 30,000 people are now going to lose their jobs. Maybe only 10,000 or 15,000 would have lost their job as a result of the commodity dip in prices. Where are the doctorate students researching that? Where is the evidence coming to the fore so that we can learn the lessons? This is not the way to conduct ourselves. Actually I think we do need a change in the law, to start outlawing unlawful strikes and giving them limited protection, allowing judges in labour courts to declare them unprotected and ultimately I suppose if they aren’t protected workers should lose their jobs. It happens in most civilised nations around the world.

Interesting. South Africa ranks very highly in global terms for the number of strikes that occur each year. Do you think that collective bargaining is in need of a major overhaul?

I think it is. I think both management’s approach and trade unions’ approach towards the workplace needs a major overhaul as well. I think that one of the things very much in the South African workplace is short sighted thinking. It is not really a South African problem, it is a worldwide problem. If you really want creative solutions you have to think longer term. I think collective bargaining is ready for a complete major overhaul and that is one of the issues being discussed as we speak and correctly so. It comes out of the Deputy President led initiative. I don’t think South Africa gets enough credit for saying we are in the process and really deliberating hard as to how to fix this problem amongst the social partners that are labour, community, government and business.

Do you think there has been a systemic failure of the labour relations act to effectively regulate the recognition of trade unions?

I don’t think there is anything problematic with the construct of the labour relations act; it is really about the participants in that act. I don’t think there are any major problems with respect to the construct although I think judges should have more powers to be more forceful around unprotected violent strikes.

To what extent has the affirmative action policy merely resulted in a system which wants race to be the determining factor in finding employment?

I think there are limitations but again I think in twenty years the hangovers of apartheid are still around. We see that in the “fees must fall” students´ campaign. Again, I talked about education being one key element that we need to sort out in terms of determining the future, determining whether we do have investment locally from current companies that have the money or from foreign direct investment. Again, I think that a person from a disadvantaged class background has very huge obstacles to get to a decent university and get a qualification because the costs are prohibitive. The costs of education for the average family are very high. A woman was telling me in Cape Town today that her five year old son with all his sporting activities and extracurricular activities at a government school… she pays 8,000 rand a month just for the one child who is five.

That is double the medium wage salary.

Yes. So it is an issue of good education, privileged living etc. but you can work it out in terms of after tax income. The real problem in South Africa is again a skills issue. What drives up wages is skill. We have millions and millions of unskilled people that are desperately in need of jobs and that drives down wages. If you want to drive up wages, you can’t officially do so by setting a minimum you have to do so by driving the skill base up. South Africans are quite skilled naturally they just need to have the correct education, training and diversity programs to put them through the system.

We have heard that South Africa’s post-apartheid economy has been described as a cappuccino economy. Are you familiar with that? In practice do you think it does mainly serve black elite?

Again, the real big problem is that the majority of the population in South Africa is outside of the mainstream economy and that is a problem. There is a whole range…

In the informal sector?

In the formal and the informal sector. Try and be a young black person and start a business in this regulatory environment. The costs are prohibitive. You need to create an environment that allows people to operate a lot more freely especially in the start-up phase. I am a big fan of industrial zones that allow relaxed labour legislation and relaxed compliance. Maybe you can have some basic issues in place but for the rest I say operate here for 5 years without those restrictions. If you get beyond a certain size then you have to move more into the formal side. Allow that growth to take place. I truly believe we can compete with China on the shirt that I wear but then I must be allowed to pay a seamstress per piece produced.

Well your textile industry has been decimated by China. We met with Alan Winde who was saying that the LCD television factory here has got a higher productivity rate than even in China.

The point is that I think we can have a higher productivity rate than China if we allow people in certain places to pay per piece. You don’t then worry about sick leave, about toilet leave, about your productivity because you get paid per piece that you produce. I can guarantee that we could compete with China. People would say yes, but they subsidise the supply chain etc. but then maybe…

There are different textile unions in this country. There is a vast plethora of them.

Correct but again we don’t have a duty to bargain in this country, we have quite a progressive labour law system so there is no duty to bargain. The union can organise your place but you can still refuse to bargain with them. There are some international companies who have done that in South Africa who will remain nameless and who have said internationally they will not bargain with trade unions. They just won’t deal with them.

On a more positive note, how would you characterise the overall trade investment environment here in Cape Town?

There are huge opportunities in Cape Town. I think there are huge opportunities in South Africa. We just have to free up some issues. We made some mistakes like on our immigration regulations, so there is stuff that we need to consult with the social partners about and they predominantly labour and business. Effectively if government had listened to labour and business on this issue of immigration legislation and regulations we wouldn’t have made those mistakes. That is what we have to do, we have to listen to each other more and put things in place that are conducive to the creation of jobs and investment. When I talk of investment I am more concerned about the local investment than I am about foreign direct investment at the moment. There are billions of rands that are unlocked and not being invested in South Africa by South African companies. You need confidence to invest here in this particular economy and I think we are a breath away from that. I truly believe we should do one or two very positive things in the next couple of months and then maintain them. I think the budget speech will be positive and I think there is very good ground within the current government to do the right thing but we just can’t do silly things like sacking finance ministers overnight etc. We have to do things that are in the interest of business, government, community and labour.

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