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Archive for January 2013

The Land Act of 1913 and its alternatives

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This year is the centennial commemoration of what many now believe was the one Act that irrevocably put South Africa on the road to Apartheid. Few have been more outspoken about its impact than South Africa’s leader of the opposition, Helen Zille:

 The 1913 Land Act was apartheid’s ‘original sin’ because it reserved 87% of South Africa’s land exclusively for white ownership, as the basis of the ‘Bantustan’ policy. It not only dispossessed many black South Africans of the land they owned, but also sought to prohibit black people from ever acquiring land in so-called ‘white’ South Africa.

Unfortunately, history is never that simple. There is no doubt that most white South Africans, English and Afrikaners, at the start of the twentieth century believed that the majority of South Africa’s land – and perhaps even the lands of neighbouring countries – should be proclaimed as ‘white man’s land’. The demand for produce in the rapidly-expanding urban areas combined with low input costs, notably the low cost of black wages, made large-scale agriculture a lucrative enterprise. White farmers were also keen to expand and thus enter the traditional black areas with its highly fertile land. This steady expansion had only one consequence: that, eventually, all black land would have been claimed by white farmers. This didn’t happen though. Instead, a group of white officials in the Department of Native Affairs after unification noted the rapid decline in black land and realised that without statutory intervention blacks may soon own no land at all. The result: the Land Act of 1913. Here’s Hermann Giliomee in The Afrikaners (p. 326):

 They saw merit in the idea that a settlement, even if not equitable to blacks, would at least prevent further white encroachment in the reserves. In 1915 the Secretary for Native Affairs referred to a district where fewer than half of the farms formerly owned by ‘natives’ were still in their possession. As the liberal historian W.M. Macmillan pointed out at the time: ‘[Open] competition in land is fatal to the weaker race … Given free right of entry of white into native lands, the natives will presently be landless indeed.

Looking back from our current vintage point, it is easy to assume that the counterfactual to the Land Act of 1913 was a larger share of land for black South Africans; i.e. that instead of the 13%, black South Africans should have received 30%, or 50% or 80%. But what Giliomee suggests here is that that would be a wrong conclusion: instead, in the absence of the Land Act, the land that black South Africans were living on would have been systematically claimed by white settlers, leaving blacks destitute with few alternatives other than to provide their labour to the mines and as farmhands. The Land Act thus protected instead of pilfered land belonging to blacks.

SANNC delegation that went to England to convey African people's objections to the 1913 Land Act, 1914. L-R: Rev W. Rubusana, T. Mapike, Rev J. Dube, S. Plaatjie and S. Msane. Courtesy of South Africa History Online.

SANNC delegation that went to England to convey African people’s objections to the 1913 Land Act, 1914. L-R: Rev W. Rubusana, T. Mapike, Rev J. Dube, S. Plaatjie and S. Msane. Courtesy of South Africa History Online.

(So here’s a thought experiment: there was no Land Act in 1713 for the Khoi of the southwestern Cape. What if the Dutch East India Company had proclaimed 13% of the Western Cape as Khoi-land. Would Khoi-descendants living in these hypothetical areas today celebrate or abhor the 1713 Land Act? That is an open question. Instead, what happened in the absence of a Land Act was that many Khoi died in the smallpox epidemic of 1713 and those that remained had little choice but to work on settler farms, where many of their descendants still work today.)

The late Lawrence Schlemmer once said that he knows of no former colony – other than South Africa –  where the indigenous population continued to live on 30% of the region’s most fertile land after colonisation (I thank Hermann Giliomee for this reference). This is not to suggest that colonisation – or the Land Act – was morally just or defensible, or that it did not contribute to a highly unequal South African society. But before we denigrate the Land Act, we should think about the alternatives. Maybe missionary societies would have acquired some land for black farmers to till. Perhaps white farmers would not have infiltrated black areas to any great extent. But probably not. In all likelihood, black South Africans would have owned considerably less land than what the Land Act of 1913 sanctioned.

Written by Johan Fourie

January 30, 2013 at 09:31

Why WP Rugby should move to Cape Town stadium

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There are many reasons why the Western Province and Stormers rugby teams could continue to play their rugby at Newlands, their home for more than a century. The three most frequently cited are that Newlands is the historic home of South African rugby, its walls draped in the old traditions of the game and the memories of rugby legends, great moments and fierce rivalries. The second is that a switch to the newly-built Cape Town stadium would be financial folly; Western Province Rugby already owns Newlands, while they would have to rent the facilities at Cape Town stadium from the City of Cape Town. And the third, why change something that’s not broken?

Proponents of the move often counter with reasons of their own: The facilities at the new stadium are far better for the players and for the fans. Newlands, tucked into a suburban neighbourhood, can be a traffic nightmare; in contrast, Cape Town stadium has rapid public transport connections to the central train station and is close to the large Waterfront with its ample (if expensive) parking. The capacity of the new stadium is also larger, the spectator experience much better and, the clincher, beer is allowed inside the stadium. Compared to Newlands, the player facilities are also world class. And to put it bluntly, Cape Town stadium is also much more impressive than Newlands (see picture) and represents the spirit of the new South Africa and the future of Cape Town.

So here’s why I think WP Rugby should move. First, tradition and history are important, but we should refrain from using it to arrest progress. Yankee Stadium, home of the New York Yankees since 1923 and arguably one of the most revered (and cherished) stadia in the United States, was closed in 2008 after the new Yankee stadium was built. The old stadium was demolished in 2010 and is now a city park called Heritage Field. Arsenal, one of England’s oldest football clubs, moved in 2006 from Highbury, where they had played since 1913, to the new Emirates stadium. It wasn’t that these clubs had not valued their history, but what they realised was that if they wanted to remain at the top of the game, so to speak, they had to move forward.

Second, and perhaps more importantly, there is the belief that, because Western Province Rugby owns Newlands, the financially sensible thing to do is to remain there. This line of argument, though, neglects to consider opportunity costs. Let’s say a conservative estimate of the value of Newlands is roughly R300 million. If Newlands were to be sold, Western Province Rugby could potentially earn up to R30 million annually from investing these funds. Such returns, I suspect, could easily pay for rent of the new stadium, given that all stadium maintenance costs and other related expenditures would now be removed from WP’s budget. (A side note: this requires the City of Cape Town to reconfigure the new stadium to ensure that WP Rugby can accommodate all their stakeholders, principally members and suit holders. This seems to be happening, as the new Business Plan for Cape Town Stadium suggests.) The point is: owning doesn’t imply that there are no costs; the foregone income may be much higher than the current benefits of ownership.

But I’m actually not in favour of selling Newlands completely, because I think there is value to be had from the current history and tradition. Yes, I am in favour of Stormers and WP games being played at the new Cape Town stadium and thus the money to do this must be found somewhere. So here’s my proposal: redevelop Newlands. Reduce the seat capacity to a maximum of 10000. Convert all of the current suites and upper levels into A-grade offices, conference facilities, hotel rooms and perhaps even condos. Continue to use the pitch for practice sessions. What Stormer supporter would not like to look from his office window and see the team practice for this weekends game? Why not remodel the Jan Pickard stand into the four-star Jan Pickard Hotel, where each room has a view of the field? Or, for those really avid supporters, let them buy a bachelor or two-bedroom apartment with a living room view onto the famous Newlands grass. Who wouldn’t want to wake up to an early captain’s run on a Friday morning?  The multi-use of stadia is becoming a global phenomenon: I’ve been to a shopping mall inside Benfica’s Stadium of Light, which housed not only a supermarket but several retail shops and cinemas.

A smaller Newlands will also allow WP Rugby to host other events like derby schools rugby or the final of the club championships, which usually doesn’t draw more than a few thousand. And if we are really inventive, why not build a permanent roof and use the stadium for temporary exhibitions, music concerts, or even other sport codes: imagine a ten-thousand seater sports arena for an ATP tennis tournament, or world-class gymnastics or boxing events.

Redevelop Newlands into something that will more than compensate WP Rugby for hiring Cape Town stadium for all Currie Cup, Super 15 and international rugby matches. More people, more fun, more beer, making more financial sense. At least for the next hundred years.

Written by Johan Fourie

January 26, 2013 at 13:58

An ode to demography

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Global population growth according to the CIA World Factbook

Global population growth according to the CIA World Factbook

In his latest book ‘The Last Afrikaner Leaders’, Hermann Giliomee notes three ‘badly flawed assumptions’ of the Apartheid government: the carrying capacity of the homelands, the historic claim to the land, and the growth of the black population. While the first two have solicited much attention, the last one has, surprisingly, been neglected. In those years, the study of demography was still at an early stage. Jan Sadie, professor in Economics at Stellenbosch and South Africa’s pre-eminent demographer, greatly underestimated the growth of the black population. This was an important error. Given his calculations, Sadie believed that complete separation between the races was still a possibility. But what if he had known that the black population would grow more than five times faster than his projections? Would integration – however skewed and unfair – not have been the only option available to Verwoerd and his followers?

Instead of discussing this counterfactual world, the point here is that we tend to underestimate the power of demographic changes. To explain changes to GDP per capita, economists focus mostly on the GDP rather than the per capita. But population growth rates change rapidly and the impact of the demographic dividend – a rise in the rate of economic growth due to a rising share of working age people in a population – is often neglected. Perhaps one cause of the high South African unemployment rate is the large increase in the number of working age individuals that was born at the end of the 1980s? Or perhaps the slower growth in Europe is not only a consequence of rising debt, but because there are fewer people to pay it? Or perhaps the lower rates of crime in New York – as Freakonomics authors Steven Levitt and Stephen Dubner argued – is due to legalised abortion two decades earlier, removing a subsection of the population that would have had a higher probability of committing crime? The Census 2011, for example, suggests that South Africa’s fertility rate during the 2000s declined dramatically. What are the implications for the number of kids going to school? And what if the unemployment rate begins to fall in 2020? Do we congratulate ourselves for a thriving economy, or realise that it’s simply the result of a smaller denominator rather than a growing numerator?

Accurate demography statistics is also critical if we to understand development over time. In compiling national income statistics for various twentieth century African countries, Morten Jerven at Simon Frasier University noticed that for most African countries, official population estimates are scattered and often don’t add up. Colonial administrators most likely had to minimise costs and censuses were thus often little more than guesswork. And after colonisation, the new independent governments often had an incentive to overestimate the population numbers of their own constituencies, boosting population numbers far beyond their actual size. Morten and Ewout Frankema is busy with a large project to find archival sources to recalibrate African population sizes for the twentieth century. In the latest edition of Economic History of Developing Regions, Leandro Prados de la Escosura use these and other data to calculate new GDP growth estimates for twentieth century African countries.

Often, demographic indicators are all we have left of the past. In a new paper, Jeanne Cilliers and I use a new genealogical dataset to calculate demographic estimates of the settler population in the Cape Colony (Working Paper here). We find that the settlers often lived longer than many of their eighteenth century counterparts (i.e. the poor) in Europe – and that the average life span increased from around 40 years to 54 years during the nineteenth century, probably due to higher incomes and better medicine (which, incidentally, is higher than the life expectancy of South Africans in 2010 – 52.1 years). It also appears as though this rise occurs a decade or two earlier than the discovery of diamonds in the South African interior – which is when incomes probably began to increase. Demography is also about much more than incomes: household size was also high for most of the eighteenth and nineteenth centuries (about nine children per male), falling to four by the 1930s. In more recent work, Jeanne also investigates the marriage patterns of Cape settlers, showing that women’s age of marriage increased from about 20 at the beginning of the eighteenth century to around 26 in the 1840s. In contrast, men’s age of marriage declined from a high of 28 at the start of the period to be on par with women at the end. Such evidence has important implications for understanding household size, fertility and female education, for example.

It’s surprising that the field of demography doesn’t receive the attention it deserves. A better understanding of our future – and our past – depends on it.

Written by Johan Fourie

January 20, 2013 at 23:07

How to solve the road carnage

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The open roadSouth African Decembers evoke thoughts about long walks on the beach, watching Protea test match cricket on the couch, and reading about the carnage on our roads. This year was no exception: 1465 people died on South African roads from 1 December 2012 to 8 January 2013 in 1221 fatal accidents. Several thousands more were injured in these crashes. These deaths are not only tragic for family and friends; they carry a heavy burden for the South African taxpayer. According to Tiyani Rikhotso, spokesperson for the Department of Transport, road accidents cost the government R3.9 billion a year, while in addition the Road Accident Fund had to pay out R12.5 billion in claims for the 2011/2012 financial year. But the lost productivity, higher insurance fees and other costs to the South African economy will be much higher; estimates vary between R50 billion and R157 billion annually.

So what to do? A recent Business Day editorial calls for “a holistic plan of action that addresses the actual causes of road deaths”:

Various responsible parties need to ensure that our roads are in good condition, that painted lines are visible and that signage is intact and legible. Given that the AA estimates that as many as 50% of all South African drivers’ licences are fake or obtained fraudulently, corruption at licensing centres needs to be addressed. And, given the condition of some vehicles on our roads, so does corruption at testing stations.

Policing strategy, currently focused on speed-trapping and roadblocks, needs to change. The biggest killer in accidents is head-on collisions, so it is clear that the crossing of solid white lines needs to be policed, as does tailgating, failing to indicate, overtaking on the inside and myriad other perfectly sensible laws that are routinely, and fatally, ignored. This can be achieved only by getting many officers out from behind their speed guns and into their patrol cars.

Police forces themselves need to change. If a drunk driver is able to carry on his or her journey after offering a corrupt officer a bribe, people will die. Given that as many as 40% of those killed on the roads are pedestrians, laws preventing walking on freeways need to be enforced. Speed traps cannot do this. Infrastructure for pedestrians and cyclists, such as footbridges and cycle lanes, is urgently needed.

Calls for drastic action increased after Burry Stander, South African Olympian and world champion mountain biker, died on 3 January after he was hit by a taxi on his way home after training. Most commentators lamented the moral decline that results in absolute lawlessness on South Africa’s roads. News24 columnist David Moseley wrote in his column ‘We all killed Burry Stander’: “Our arrogance, egos, impatience, ill manners and total disregard for the lives of others on the road all contributed to Stander’s death as much as the man sitting at the wheel of the car that killed him.” His solution? “Look in the mirror”.

Unfortunately, it’s not that easy. Blaming road deaths on the average driver’s lack of good intentions is like blaming the financial crisis on the average banker’s greed. Greed did not cause the financial crisis (people are always greedy), but the wrong incentives did. If we want to solve the road carnage problem, we need to make more fundamental changes.

Firstly, we need structural changes to our transport network. Because of the way our cities have developed – due to our past segregation policies but also because of relatively few spatial constraints – cars are the predominant mode of transport in urban areas. While passenger trains do carry thousands of daily commuters, private cars, buses and taxis are still far more popular. These modes of transport are even more popular across long distances; for those who cannot afford to fly from Johannesburg to Cape Town, the bus, taxi or private car is the most obvious alternative. Passenger trains like the Shosholoza Meyl dwindle in significance to the number of travellers using the roads. Most importantly, the decline of rail freight services during the 1990s and 2000s caused a massive increase in road freight. Travel on the N1 from Cape Town to Bloemfontein during the off-season and you might count more trucks and lorries than passenger vehicles. These trucks are often slow and difficult to overtake. On single lane roads, they block faster traffic, leading to frustration, risk-taking and, ultimately, fatal collisions.

The first solution to reduce road accidents should involve reducing the freight transport on our national highways. Transnet, the rail freight carrier, has improved their services over the last few years and will hopefully continue to make inroads into the road freight industry. Our physical infrastructure is good; we need to improve the quality of infrastructure (as I argued a few years ago). This means improving the reliability and frequency of rail services to boost competition with road freight. But road freight has also matured into a multi-billion rand industry; don’t expect them to play along to any plans to reduce road freight transport.

The second solution should involve reducing the volume of passenger road traffic. Even though there is only a weak correlation between the number of vehicles and the number of deaths (December traffic is probably more than double the usual monthly volume, but only 30% more people died during this period than the average of the other months), getting people to use other, safer modes of transport dent would see the number of accidents decline. Why not divert the annual government hand-out to SAA to low-cost carriers to reduce transport volumes on the roads? A subsidy for Kulula or the new low-cost FastJet to fly between Bisho and the urban centres of Johannesburg and Cape Town may reduce the number of taxis and buses on these routes significantly. Or why not build a high-speed railway between Cape Town and Durban (with stations at George, Port Elizabeth, Grahamstown, East London and Mthatha) and Durban to Joburg (with stops in Pietermaritzburg and Harrismith)? Again, don’t hold your breath for support from the taxi industry.

In urban centres, other modes of transport could be incentivised. Two strategies can be followed here: make private cars more expensive, or make alternative forms of transport more affordable. E-tolls is one way to achieve the former, but the public backlash has been surprisingly strong. To be sure, the cost of implementation was excessive, but if we are to encourage alternative modes of transport, toll roads can be an important tool to alleviate road congestion and accidents. Most fatal accidents often involve large cars such as 4x4s, minibus taxes, buses or trucks. One way to encourage the acquisition and use of smaller cars is to impose a ‘weight-tax’ on cars, or to subsidise the use of motorcycles and other smaller cars. Surprisingly, there are relatively few scooters and other motorcycles in South Africa’s urban areas; travel to other African countries and these crowd the streets. Presumably, they are dangerous to use here because everyone else drives large cars. Incentives that can get South Africans to buy smaller cars will make accidents less deadly.

But to discourage the use of cars requires alternative forms of transport to be available. Higher commuting costs may increase the attractiveness of walking to work; expect property prices closer to the city to rise. (I’ve recently moved closer to my office and can now walk to work. It’s definitely recommended). Cape Town has already expanded its bicycle network and a growing number of daily commuters now use this mode of transport. The Rea Vaya and MyCiti bus systems in Johannesburg and Cape Town have slowed the increase in the number of passenger cars in these areas; expanding these networks to suburbs will continue this trend. There is even talk that the rail and bus network of Cape Town will be integrated and managed by a single authority; such operational changes are key if commuters are to give up the freedom of their private car. New networks can also be built: the Gautrain was a bold initiative and is relatively successful, although due to high ticket prices and the low number of carriages, the number of daily commuters are still only a small proportion of Ben Schoeman traffic.

Yes, we need better policing and better road infrastructure, but this further entrenches the culture of the car. The only way to reduce the number of road deaths every year is to make fundamental changes to our transport network. We need incentives that force commuters to switch from private to public transport, that promote rail freight over road freight, that encourage the use of smaller, lighter vehicles, and that accommodate pedestrians and cyclists. The moral compass will follow.

Written by Johan Fourie

January 12, 2013 at 09:49

Five wishes for the new year

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FireworksI’ve always struggled with New Year’s resolutions. The struggle wasn’t so much in actually achieving the resolutions, but thinking about new one’s every year was tiring (especially when you’re supposed to be on holiday). So I’ve decided to just stick with my only one last year: In 2012, I decided to never read News24 comments again, and managed to hold out until February. This year I’ll aim for March. Unless news sites disable comments, or South Africans miraculously become literate and open-minded, I won’t have to think of a New Year’s resolution ever again.

Instead, this year I’ve decided to make a list of five things that would make South Africa better. There are constraints: I’m not allowed to say fluffy things, like wishing for greater social cohesion, or less corruption, or fewer racist comments on News24. These things would be nice, but there is no clear policy prescription to achieve them. Also, I cannot choose things that benefit me only (win the lotto), or things that benefit some South Africans at the cost of others (which rules out any dreams of Super 15 glory for the Stormers). And, given that I’m an economist and believe that economic growth is the best way to address the social challenges around us, most of the things on my Great List will be those that, I believe, can make all South Africans more prosperous in the long-run, even if it may not be immediately apparent. Here goes:

1. Open migration

South Africa already attracts thousands of African immigrants, but there is no reason why we should not encourage the immigration of highly-skilled people. The low growth rates of the developed world have forced many to find work elsewhere: why not encourage the highly-skilled to settle in South Africa? African migrants are often also exceptionally skilled, but without a work permit or the option of a South African passport after a period of residency, these skills are suppressed. Skilled immigrants are most likely to become entrepreneurs: if they are here legally, they pay tax and can expand their business, providing jobs and reinvest their profits in their new home. If they’re here illegally, they tend to remain under the radar, and their earnings are remitted to their origin country. It might be difficult to sell to an electorate, but it’s fortunately not too difficult to implement; more open immigration policies is just as easy to implement as the current ambivalent attitude towards foreigners. As a famous Nando’s ad once quipped: we are all immigrants in our own country. It’s time we realise that migrants can greatly contribute to South Africa’s success, and that we demand their equal rights.

2. Competition in education

The annual mourning of the matric results passed relatively smoothly this year. The pass rate was up, although the key statistic that most ignore is that close to 90% of all matriculants scored less than 50% in the final exams. And that doesn’t include the thousands of students that never reached their final year. So what to do about the dire state of our education system? There are no easy answers, of course, and there are plenty of clever people thinking about this, but my suspicion is that the answer lies in encouraging competition.  Unions are often blamed for allowing bad teachers to go unpunished: well, why not let students vote with their feet: parents will realise that if they send their child to a school with zero pass rates (yes, in South Africa we have schools where none of the final year students pass the national exam) there is a very high probability that their child will fail matric too, so they will could send them to the better school. Poor-performing schools (those with fewer and fewer students) could then be closed down. The best way to do this is to set a rule up front: if the number of students falls to lower than x, the school closes down. Or why not give kids a voucher? They can then choose at which school they’d like to spend the voucher: the successful one’s will attract more students, which will give the school greater resources to improve further (and higher more teachers, or pay their teachers more). Here the private sector and civil society can join in: schools that grow quickly can receive additional support in the form of new facilities sponsored by business, or perhaps even hostels managed by church groups. Such support would provide further incentive for schools to do well – and the kids to choose well. The bad schools will inevitably see their numbers decline and, if the rules are strictly adhered to, these schools will be forced to close down. This empowers the students to demand the best education their voucher can buy. (This is, of course, much easier to do in urban schools than in rural schools, where substitutability between schools are low because of geographical distance.) The key is that bad performing teachers (and principles) must go down with the bad performing schools.

3. Broadband for everyone

I’ve argued this before, and will do so again. Part of the bad performance in education, I believe, has to do with kids (and their parents) not demanding better education. And the lack of demand is because they don’t believe they will require the skills taught at school for their future jobs. If you believe that your only job after school will be as a farm hand, or unskilled miner or taxi driver, then why study at school? At the cost of sounding fluffy, students need more, well, hope about the future. The internet can help with that. It’s not only the greatest library that there’s ever been, but it’s also the greatest tool to discover and develop your own passions, skills and interests. And, here’s the catch, it’s relatively free – if only the infrastructure is put in place to allow access to it. In a very interesting recent experiment, kids in two Ethiopian villages that have never seen books in their life, were given boxes of tablets, taped shut, with no instructions whatsoever. What happened? In five months, they were programming and teaching themselves English. Just imagine what they would do if they’d been given five years. Providing broadband to every South African household would be an expensive undertaking, but it would be the best investment the government can make in our future. Kids could learn to code at a young age, which is, aside from English, the most important language of the future. It allows entrepreneurs, even the most isolated and under resourced, access to a global market. It makes South Africa, truly, alive with possibilities.

4. Keep minimum wages to a minimum

The Economist recently wrote a review article about minimum wages that argued that, at least at low levels, minimum wages aren’t that bad. But nearly all the papers The Economist use as evidence consider only the developed world; high minimum wages in a country with an unemployment rate of above 25% will only protect the high-paying jobs of a few at the cost of many. The reason for the high minimum wages in South Africa is clear: Unions – with their interests in protecting the salaries of their members – argue that workers must earn a ‘living wage’. (This sounds very much like the labour arguments of the 1920s, when white workers agitated for ‘civilized wages’ to the detriment of the large pool of unemployed black workers.) Unfortunately, unions in South Africa, for historical reasons, have exorbitant political power, which means that the interests of the unemployed lose out to the interests of those fortunate to have a job. COSATU has already announced that farm workers in the Western Cape will strike from the 9th of January demanding a R150 minimum wage; the sad reality is that at that price, farm owners will have to let thousands of workers go – if we assume that the daily wage would have to double from the current R75 to R150 and a wage elasticity of -0.71 (as calculated by Fallon and Lucas for South Africa), then a back of the envelope calculation will show that the number of farm workers will fall from 116 000 to 70 000, i.e. the destruction of 46 000 jobs. Political parties, unions and the media would want to find a scapegoat for this destruction of jobs and farm owners will probably have to bear this burden. But it won’t be their choice: it will be the consequence of power hungry individuals demanding higher minimum wages in a market that cannot afford it. No research about the impact of the minimum wage, no sense about the opportunity costs of forced higher wages, just politics and foolishness. And 46 000 people without a job. That is not only sad, it’s also incredibly unfair.

5. Saving the savings rate

Imagine filling in an online application for a home loan, and as soon as it appears online, you have thousands of potential lenders screening the application and deciding whether to support your project. Call it crowdbanking. With South Africa’s saving rate appallingly low, one initiative to get South Africans to save more, I believe, is to show them the consequences of their savings. So, if you’ve just matriculated with seven distinctions but none of the banks are willing to offer you a study loan (you don’t have any collateral), then why not go to The Crowdbank. The interest rate is determined through an auction process of potential suitors. And the transaction is administered through a reputable financial institution. Something like this already exists in a slightly different format for African entrepreneurs: is a platform that connects entrepreneurs in several African countries with investors from across the globe. Entrepreneurs would visit a local MYC4 office, explain their financing needs, and if the MYC4 partner agrees that it is a worthwhile project, the project will appear on the website (this video explains it well). Anyone can now invest in the project, stipulating how much money they are willing to invest and at what interest rate. If enough people support the project and the borrower is satisfied with the interest rate, the funds are transmitted to the entrepreneur. I’ve been investing since November 2012, and although two borrowers are behind on payments, I’m due to make a positive return by the middle of this year. But it’s not only about the positive return: I’m investing in Emmanuel R. Wambura’s fish shop, in Michael Kalenga Bwana’s bar, in Rose Wangui Mwaura’s farm (she has three cows), in Howard Shimba’s wholesale store (all in Tanzania), in Theogene’s Magnifica Hotel in Rwanda and several others. It’s not just business, it’s personal. Given South Africa’s extremely high inequality, this is one way of “redistribution” that promotes entrepreneurship and economic growth for those outside the formal economy. And, by the way, it’s a lot of fun.

Here’s to a productive and prosperous 2013!

Written by Johan Fourie

January 5, 2013 at 16:04