MANAGEMENT

BRIEFING

15 September 2003

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INTERSEARCH

Dr. J.A. du Plessis

P.O. Box 25587

Monument Park

Pretoria

South Africa 0105

Tel: (012) 460-6366

Fax: (012) 460-6366 (ask for)

E-mail: insearch@mweb.co.za

Decision-making parameters for the private sector – 2003 and beyond (Part IV)

Challenging existing perceptions

This briefing paper is intended for the decision-making group in the private sector.

The objective is an exposition of the present situation in South Africa (2003) and the possible changes that may have emerged by 2010. The focus will be on the qualities of society and the impact of the major driving forces: Government, the process of globalisation and HIV/AIDS.

The question to be answered is: what kind of situation will confront the business sector in South Africa by 2010? Does 2010 present a possible hopeless situation that calls for planned disengagement from the country over the next few years, or is it something radically different from 2003 which will still be manageable but will call for new thinking and new structures?

Decision-making parameters

Society

2003

Society

2010

Summarising the changes

Society 2003 differs from society after the first democratic election of 1994. Election 1994 represented a political settlement between the former National Party and the ANC as a struggle movement. That resulted in a highly politically driven society where it became the quest of the ANC to rid society of the last remnants of apartheid – in ideology and political structures.

After 1994 the ideological and institutional objective of the new ANC government became a non-racial democracy as embodied in the constitution and resulting legislation, with the demand that all public organs of government had to reflect the broad composition of society in terms of its racial composition - known as the so-called “fundamental transformation of society”.

By 2000 the “transformation of society” in the public service had been largely accomplished. However, two other major driving forces had started to impact on society by 2000 – HIV/AIDS and the process of globalisation. Both were negligible in impact in 1994.

From 2003 to 2010 the interaction of the three driving forces is expected to change the composition and functioning of society yet again. However, this time the change will not be driven by a race quota, but by the interaction between the role of Government, the impact of HIV/AIDS on society and the demands of globalisation.

By 2010 the private sector could find itself in a new world and current perceptions and policies will not necessarily fit into the new environment.

Parameters of Society – 2003

According to the Census of 2001, which was released in July 2003, the South African population increased by 2% to 44.8 million people. In racial terms the composition of society reflected 79% blacks, 9.6% whites, 8.9% coloureds and 2.6% Indians.

(This information is based on the broad analysis provided in parts 1 – 3 of the

previous Management Briefings)

The following provides a closer look at the inner dynamics of society:

§ Increasing poverty. According to the poverty index of Global Insight poverty has increased from 41% of the population in 1996 to 49% in 2001. The Eastern Cape is the poorest province where 67% of the population lives in poverty.

Some 22 million people have an income of less than R 144 per month. In broad terms, almost 50% of the population has been derailed from the formal economy.

§ Loss of expertise and skills. About 50% of adults have less than 9 years schooling – about 10 million people. Close to 3 million people are uneducated. The Department of Education indicated that out of every ten children who start school, only four would go through to matric. Of 443 821 learners who wrote matric in 2002 only 5 000 succeeded with a C-symbol and higher symbol in Mathematics and Science – of whom only 835 were black learners.

§ A narrow tax base. There are approximately 18.2 million voters and 1.6 million taxpayers. Some 65% of income tax comes from less than 400 000 people. This comprises less than 1% of the population.

§ Impact of HIV/AIDS on society. HIV/AIDS has a direct impact on the average life span of people. The average life expectancy of men is projected to be 38 years by 2010 and that for women to be 37 years. The latest report by the Department of Health that was released in September 2003 indicated an increase of HIV-infected pregnant women from 24.8% in 2001 to 26.5% in 2002. The report was the final product of an HIV test among 16 587 women at 396 clinics.

The more disturbing information in the report relates to the HIV infected women within certain age groups. About 14.8% of the tested pregnant women were younger than 20 years and 17.2% were above 40. This implies that 68% of the infected women were between 20 and 40 years of age. The implications of this are horrendous: people are not only dying prematurely at a younger age, but the “wrong” section of the population is dying. Society is losing the productive section of the population - workers, managers and parents. The functioning and stability of society will be affected.

A unique phenomenon

South Africa is confronted by a demographic collapse of the productive part of its population. Its demographic backbone is in danger of breaking. This is a unique phenomenon in modern history.

Society 2003 is no longer the same society of 1994 and this will impact on how society will function after 2010.

§ Demands of Globalisation. This process implies participation in the global market and is information driven. The benchmark for participation is the level of expertise of the participant.

This creates particular problems for South Africa, for the country has been losing expertise abroad and the level of education in society at large is not high enough to guarantee effective participation. This implies that the shift to 2010 will not be a smooth one. If the present levels of expertise are not protected and increased the country may face spontaneous international isolation.

Parameters of Society – 2010

In the next few years the private sector will encounter unchartered territory. Society 2010 is not merely an extrapolation of existing and known facts and statistics, but an environment where a new interaction of forces will emerge.

In 1994 the dominant parameters were apartheid and the liberation struggle. By 2010 the parameters of the new dynamics will be the interaction between Government’s incapability, a collapsing society, the additional devastating impact of HIV/AIDS on society and the increasing demands of globalisation on markets and society in general.

No final answer about the future can be provided, as the process of change in society will be a continuous one. However, it will serve companies well to accept that Government will no longer be the dominant force in society by 2010, but only one of the participating forces. Therefore, the private sector will have to focus on the process of change in terms of planning.

Future of politics and Government

As strange as it may sound, the profile of politics may start to decline in the years ahead. The struggle as binding force in the tripartite alliance (ANC, SACP and COSATU) is weakening and by 2003 the struggle image of the ANC has been tainted by internal infighting, endemic corruption, nepotism and an unhealthy flavour of growing authoritarianism. This has been supported and further mismanaged by a sometimes incredibly incompetent communications section of the Presidency that got stuck in a world before 1994.

What is emerging now is a clash between the legacy of the struggle and the increasing demands of globalisation. The struggle legacy to “control” and “own” everything in society is now in confrontation with the external demands for good governance. The ANC has the political support to “control” society, but it does not have the governing capability to manage it effectively. The ANC may even receive more political support in the election of 2004 with a greater majority in parliament, but it will not solve the problem of good governance.

The pending crisis in society cannot be solved with a general election at the polls. For a South African society that has been driven by political interests and alliances for decades, this is indeed a difficult mind shift to make.

Does Government have staying power?

A government’s political staying power is usually determined by its political support and majority in parliament. Staying power has also been rated by the strength of the official opposition in parliament, or even resistance to Government in society in the form of a rebel movement.

This is the kind of political world South Africans have become accustomed to. However, there are indications that the world of 2010 will not necessarily function in the same way anymore.

The parameters of Society 2010 indicated a weakened and impoverished society, unable to pull itself out of the emerging chaos, the devastating impact of HIV/AIDS and a Government that cannot provide the basic services of state to its population.

Regardless of what the constitution prescribes and what legislation in parliament prompted, the ANC has been unable to provide effective law and order to the public. Education is under severe strain and has already started a process of internal collapse in certain areas. Health service to the public has entered organised chaos and the national defence force is over infected with HIV/AIDS, the troops are under trained and over the accepted fighting age.

Society 2010 could raise a very interesting question: when does a government lose its legitimacy to govern? At the ballot box or as a result of internal disintegration when it ceases to govern but continues to exert – sometimes brutal - political control? This is when the so-called “failed state” sets in. This is basically the Mugabe setting in Zimbabwe and therefore one of the vexing questions that will have to be answered in South Africa in the near future.

The positioning of the private sector in Society 2010

Society 2010 will not impact on all industries in the same way and therefore a general prescription cannot be supplied. It is, however, already evident that every industry will be confronted by the interactive impact of Government’s declining governing capabilities, HIV/AIDS and the process of globalisation. This will occur within the context of an unbalanced society, weakend to the brink of collapse, with no immediate prospects for any recovery.

With this as a given reality for Society 2010, the questions remains: what now? Can the private sector survive?

There has been an interesting dynamics in the way the private sector has been reacting to these challenges and it is expected to continue.

The interaction with Government

The interaction of the private sector with Government can be qualified by Government’s declining governing capabilities that result in dysfunctional public services. This is a governing crisis in the making with a potential that could bring society down.

The general response of the private sector to this over the past few years has been to duplicate what Government cannot provide. This has not been a normal situation and has been fairly expensive, for the private sector started paying additionally for what Government had already taxed them.

The privatisation of society

The best example in this regard certainly is the rapid emergence of the security industry in South Africa to alleviate Government’s lack of maintaining law and order. The privatisation of security was inevitable and the Security Industry was born. The industry initially started servicing the home owner and commercial sector and this led to the very popular protected security complex and eventually secure neighbourhoods. The latter initiative has been opposed by Government with everything at its disposal.

In the countryside it started with secure farms which evolved into secure farming areas.

This has been a costly, slow and painful process, for Government feared a certain loss of authority and control over its own territory and fought the initiatve all the way. Government could not, however, offer a viable alternative. In fact, Government started to employ the services of security companies itself.

The privatisation of security provided an answer to Government’s lack of capabilities in terms of law and order. However, this solves only part of the future security problem. The Security Industry, as is the case with Government, will be subjected to the impact of HIV/AIDS on its labour force. The only solution seems to be in the process of globalisation where technological intervention can alleviate the looming labour problem. Sophisticated electronic equipment could replace the guard on foot.

If the security situation continues to deteriorate up to 2010 the need for an international police contingent to support law and order inside South Africa may become necessary. The country could become part of a new global protection service.

The need for such an international security service for the region will be discussed in subsequent papers.

Privatisation as a mechanism to restore efficiency is not only an option to the Security Industry as it has become widespread. Roads, transport and harbours are all in the process of some kind of privatisation.

Other sectors of government where privatisation has been struggling to get off the ground are education and health services. At best there is an uncomfortable interaction between Government and the private sector at present. Education is a typical example where Government wishes to control all planning and policies, but parents are increasingly paying from their own pockets for additional teachers in public schools in an effort to maintain standards.

In face of the challenges of Society 2010 certain industries are more exposed than others.

Extreme system failure of Government exposes industry to external manipulation

Agriculture is certainly one of the most vulnerable industries. As part of society it is the section that has suffered most under the impact of crime, robbery and murders. In addition to this it has to deal with the issue of land reform, the training of new emerging farmers, the demands of international markets and a drastic decline – if not total collapse – of research and services on the side of Government. World-renowned research institutions such as Onderstepoort and the agricultural research facility at Irene near Pretoria have basically become dysfunctional.

Government has focused on the “accelerated transfer of land” to emerging farmers, but does not have the capability to support new farmers with information, equipment, fertilizer or markets. Commercial farmers are invited to join Government in the process of support to new farmers, but the decline of research and the flow of information may push them out of agriculture within a few years, as they will lose their competitive edge in world markets.

Government’s present approach to agriculture reflects the parameters of 1994 – the critical issue is land. The general reaction from the commercial farmers deals with the problem of law and order. The interactive demands of Society 2010 on agriculture are not even on the table for discussion. As a result of this, the accelerated transfer of land could easily end up as an accelerated transfer of poverty.

Managing HIV/AIDS – two different policies needed

The impact of HIV/AIDS on society can be identified on two levels: it kills people and it disrupts and destroys functioning systems in society. The implication is that the private sector must have two different policies to deal with HIV/AIDS.

A company must have the ability to deal with HIV/AIDS as a disease. In the centre here stands the treatment of the human being, which includes medication, family support, etc. However, there also has to be a policy that deals with the impact of HIV/AIDS on the functioning productive systems of the company.

New approach needed in industry

Until 2003, the official focus on HIV/AIDS was on the disease, while HIV/AIDS as pandemic has moved to the infiltration and destruction of industry by itself.

HIV/AIDS kills people, but when enough people within an industry are infected, it could bring the effective functioning of the industry into question. The trucking industry has a very high prevalence of HIV infected truck drivers. However, these people play such an important role in the national transport system that HIV infection could have an impact, not only on transport, but on the whole trade section in the economy.

The number of infected truck drivers could be relatively few, but the infection within the industry is extremely high – more than 90% infection was tested along certain roads. This brings the survival of the industry in danger. Other industries with an extremely high-risk profile are tourism, the catering industry (hotels and guesthouses), sectors of the food industry and particularly the dairy industry. Recent information indicates that the educational system could become one of the first victims of the HIV/AIDS pandemic. The disease impacts on so many teachers and administrative officials that the functioning of the educational system comes into question. The World Bank already warned in 2002 that Aids was killing off teachers at a faster rate than they can be trained.

The critical question here is how the private sector manages HIV/AIDS infection within its production systems. In this case, pills cannot be administered. The major drawback in this regard is the fact that HIV/AIDS is not a notifiable disease or cause of death in South Africa. This implies that companies cannot plan for the prevention of a system failure. It is therefore of critical importance that the necessary information about infection on the factory floor is available, for without it the very survival of industry itself could come into question by 2010.

Meeting the challenge of Globalisation

The challenge of globalisation centres on the private sector’s capability to retain existing expertise, train new expertise and link up with international interests to manage their expertise requirements. Without it, participation in international markets will become impossible.

Government’s present capability to manage expertise is already questionable and HIV/AIDS is eroding the expertise base of society even further. Society 2010’s survival will depend directly upon the private sector’s capability to manage its own expertise.

Education, as a major generator of expertise, will not only have to privatise in order to escape from governmental incompetence, but it will have to internationalise with the application of technological intervention. In the process of globalisation world markets will set standards and quality levels, and South Africa will have to adhere to that. The international standard is already becoming the benchmark.

Through the process of privatisation Society 2010 could become part of the process of globalisation with technological intervention as a major mechanism to manage Government’s incapability and the impact of HIV/AIDS. Technological intervention and HIV/AIDS will have a negative impact on unemployment, as it could increase even further. However, technological intervention could be the only mechanism to save industry from collapse after 2010.

South Africa beyond 2010

§ Ultimately South Africa’s future no longer belongs to the outcome of elections or the broadening of democracy.

§ The dynamics for survival has shifted from the political level to the private sector.

§ The private sector holds the key to expertise and skills and a new interaction with a global economy that is information driven.

§ The next five to ten years will not be without pain or stress, but it could be managed.