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Oct 06, 2003

Mission possible: productivity with jobs

The concept of productivity is generally understood as the ratio of input to output.

However, productivity goes beyond this, with the human element playing a critical role – it is really about building the productive capacity of people. The critical challenge facing South Africa is the ability of the economy to improve its labour absorptive capacity. And, while productivity has, at times, been viewed as a threat to this objective, the overarching feeling now is that it will play an important role not only in driving growth, but also in contributing to nation-building and, ultimately, to job creation.

October has been declared productivity month, and the custodian of productivity, South Africa’s National Productivity Institute (NPI), hopes to use this period to highlight its benefits as well as challenge South Africans to build a culture of productivity.

The NPI defines productivity as the ability to combine and convert the energy and competences of people and resources into valued goods and services.

The fact that productivity is relevant to an individual, organisation, employer or employee, is the message that NPI executive director Yvonne Dladla hopes to convey this month.

There is a definite flow of relationships between an individual’s energy, effort and ability; however, these feed into an organisation, and it is the responsibility of the organisation to manage, combine and convert all these factors into something valuable, she explains.

Even in the use of day-to-day amenities such as water and electri-city, productivity remains a relevant issue because wastage is an aspect of being unproductive. Dladla argues that people have to be aware that productivity affects economic growth in the same way that wastage does the cost of amenities.

When a country is productive, the outcome is an increased standard of living, better access to services, poverty alleviation, and a higher quality of life, she says.

Dladla believes that in order to achieve global competitiveness and a higher quality of life, there is need for a common understanding of the meaning of productivity and how to achieve it.

Therefore, this month offers an opportunity for all South Africans to take part in the debate and develop a better understanding of the issues.

But just how is South Africa faring with regard to the productivity challenge? According to the newly-compiled IMD 2003 World Competitiveness Yearbook (WCY), which surveyed a total of 52 countries, South Africa’s overall competitiveness has slipped two places down to 18 from the previous year’s 16th position.

However, it should be noted that this is based on a new split ranking system based on population size.

This allowed the WCY survey to take into account the differing nature of competitiveness in larger and smaller economies. It involved 52 partner institutions and more than 320 competitiveness criteria.

South Africa, the only African country to participate in the WCY, falls into Group I, which comprises 30 economies with a population greater than 20-million, with the US leading the group.

Group II, led by Finland, includes 29 economies with a population of less than 20-million.

The overall competitiveness rankings were determined by four main indicators, which include economic performance, government efficiency, business efficiency and infrastructure.

According to the survey, South Africa’s economic performance ranking dropped by two, from 21 in the 2002 WCY report to 23, while government efficiency and infrastructure performance dropped by three, from 12 to 15, and by one, from 20 to 21 respectively.

On the other hand, business efficiency moved up one position, continuing its upward trend over the last four years.

According to NPI chief economist Jan de Jager, South Africa ranked poorly in the economic performance ranking, where the main indicators are unemployment, direct investment flows from abroad, portfolio investment liabilities in US dollars, as well as exports.

However, South Africa ranked first on direct investment flows inward as percentage of GDP, the cost-of-living index and the strong resilence of the economy to economic cycles.

Government efficiency ranked high in terms of the rate of employees’ social security contribution, the number of females in parliament and legal regulation of financial institutions.

For the government-efficiency main indicator, some of the areas of weakness include discrimination in society, harassment and violence in workplaces, inadequately protected personal security and private property and investment incentives unattractive to foreign investors.

Although the business sector indicated a positive growth, its weaknesses include skilled labour (which is not readily available), the brain drain, and the lack of readily available finance skills, reports the NPI.

South African businesses ranked well in the social responsibility of business leaders, the efficiency of corporate boards in supervisory management and the efficient managment of shareholder value.

The lack of adequate social infrastructure is manifested by low life expectancy, low economic literacy, inadequate pupil:teacher ratios, a lack of interest in science in schools and a lack of qualified engineers.

South Africa performed well in the total health expenditure as percentage of GDP and also public expenditure on education as a percentage of the GDP.

Other well-managed resources include energy infrastructure and electricity costs, investments in telecommunication and environmental compliance laws, which do not hinder the competitiveness of business, says De Jager.

Although South Africa dropped two positions in the latest survey, the number of jobs lost in the private sector has declined, compared with the previous survey.

This year’s survey, which compares the 2001 figures with those of last year, indicates that 21 604 jobs were lost in the private sector compared with a figure of 54 440 the previous year, which is a considerable improvement, but the South African economy should be creating jobs, charges De Jager.

During 2002, the manufacturing and transport sectors, each with more than 8 000 job losses, indicated the largest number of job losses, while the mining and quarrying sectors created 5 012 jobs.

The wholesale and retail trade, catering and accommodation sectors created 721 jobs.

It is the view of the NPI that no employee should lose a job as a result of productivity improvements, remarks De Jager.

According to the NPI, there are five ways in which productivity can be improved, namely: ? output growth which exceeds the growth of inputs including employment;
? output growth combined with the same amount of inputs in which employment remains unchanged;
? output growth with reduced inputs which lead to the loss of jobs;
? output remains the same while inputs, including employment, are reduced; and
? output declines while inputs, including employment, decline even more.

The NPI advocates the first two methods of productivity and is opposed to the other three methods, unless the unions involved are in support, says De Jager.

It is also clear that South Africa will not ameliorate its unemployment problems by continuous downsizing, he adds.

It is for this reason that the Department of Labour (DoL) has developed programmes and arrangements, organised through its employment services, to assist enterprises and individuals affected by retrenchments.

However, DoL spokesperson Snuki Zikalala reports that the number of jobs created increased from 9,6-million to 11,2-million between 1995 and 2002.

South Africa is part of the global economy and, to sell its goods and services, it must be competitive in terms of price and quality, he says.

The challenge for the country is to become competitive, but also to increase the number of jobs, adds Zikalala.

Government and its strategic partners at the Growth and Development Summit in June developed a strategy aimed at improving investment, skills and jobs, therefore the DoL is working to build skills through the sector education and training authorities (Setas) to encourage self-employment opportunities and to assist people to find work, he remarks.

Despite the drop in ranking, the NPI argues that there were some positive aspects for South Africa in the report.

“It is heartening to see that South Africa’s business efficiency, which is largely the engine of growth, ranks tenth, almost ten rankings higher than its economic performance and infrastructure ranking.

“What is even more encouraging is that it moved up one position from 2002,” says De Jager.

Furthermore, he states that there is a highly-competitive business environment, which is characterised by openness, transparency and also supplements the normal functioning of supply and demand, enhances productivity and competitiveness.

The free and unfettered supply of production factors, as well as new business entry improves competitiveness and productivity and ensures the exit of ineffective enterprises, he advises.

“It is important to have informative and regular dialogue between businessmen and government,” remarks De Jager.

Emphasising the implications of the rankings in terms of attracting investment, De Jager says that improved rankings could spark interest in South Africa, but would not create a stampede of foreign investors.

Businesses are individual entities with specific and diverse needs, he notes.

Further, the business sector is aware that productivity is key to growing the economy and is therefore moving towards an environment to reward productivity, says South African Chamber of Business (Sacob) policy analyst Carol O’Brien.

The use of customised incentives will encourage productivity, therefore Sacob encourages the use of incentive-based rewards based on performance rather than general salary increases, she says.

“The prevailing sentiment in business is to go back to the fundamentals, which include encouraging transparency, working at consolidating the business, as well as displaying honesty,” states O’Brien.

Although small, medium and micro enterprises (SMMEs) are a critical component of the business sector, the chances of survival of these entrepreneurs is slim, reports the NPI.

Statistics reveal that 94% of SMMEs in the country cease to operate within the first three years of business, and establishing a turnaround strategy for this important sector in the South African economy is, therefore, essential.

In this context, the NPI has developed a concept document highlighting how productivity can lead to growth and development in the SMME sector, break the tragic three-year life cycle and lead to sustainable SMMEs, which have the capacity to positively influence the country’s economy and improve the quality of life of the communities they serve.

The concept, named ‘The Productive Capacity Building Programme’ (PCBP) will focus on four main areas of learning: entrepreneurship, life skills, economic concepts and productivity improvements.

Explaining the reasons why most SMMEs fail to survive, O’Brien notes two general failure points, namely cash-flow problems and the inability to run the business after it has expanded.

Another major eroder of productivity is emigration, which, according to O’Brien, has a significant effect on businesses and productivity in general, as often it is the smartest workers who leave the country in search of better rewards.

She cites crime as one of the reasons for emigration, while the affirmative-action policy results in the emigration of white males.

In general, it would appear that emigration has led to a shortage of skills in specific areas, such as public sector doctors and specialised nurses, researchers and, possibly, engineers, states Zikalala. Where this is the case, one could safely assume a negative effect on productivity within the affected workplaces, he adds.

However, the ability to determine the impact of emigration accurately is hampered by information problems.

Drawing on official statistics published by Statistics South Africa, it is important to note that emigration from South Africa has, in fact, dropped when viewed in historical terms, argues Zikalala.

Compared with the late 1970s and early 1980s, for instance, emigration is lower today, he observes. The emigration figures are likely to undercount the real number of those leaving South Africa. Changes in emigration figures are less significant than the drop that is shown in the immigration figures.

This has led some to argue that the challenge is not so much about stemming the brain drain, but increasing the ‘brain gain’ or attracting more skilled persons to South Africa.

According to the latest emigration figures for professionals, semiprofessionals and technical occupations, about 2 929 in this occupational category were officially recorded as emigrating during 2001. This represents about 0,1% of the total number of people employed in this occupational group.

The number of immigrants for 2001 in the same occupational grouping was 524.

Commenting on the impact of Setas on productivity, Zikalala states that some individual employers have reported improvements in pro-ductivity, adding that the business case for increased investment in training and education is gaining ground. It seems the HIV/Aids pandemic, which is on the upswing, is affecting many aspects of the economy, productivity being one of the key sectors greatly affected by the pandemic.

The DoL notes that Aids-related illnesses and deaths of employees affect a firm both by increasing expenditures and reducing revenue, while high labour turnover can result in a smaller or a less-experienced workforce that is less productive. Other consequences, such as increased turnover due to Aids-related illnesses, lead to a loss of skills and a loss of tacit knowledge among the affected workers, while the cost of labour replacement and other direct and indirect costs result in high production costs.

“There is a definite impact of HIV/Aids on skills and productivity. However, quantifying the impact is more complex due to data constraints and other factors,” says Zikalala.

Although there is no significant literature documenting research into the impact of HIV/Aids on firms, a few studies have been prominent.

Using an econometric model, the ING Barings report on the eco-nomic impact of Aids in South Africa predicted that the infection rate among highly-skilled workers would peak at 13% in 2005, compared with 22,8 % for the skilled workers and 32,8 % for semi- and unskilled workers.

Comparing South Africa’s productivity with the rest of the continent, particularly countries such as Morocco and Egypt, adviser to the director-general of the International Labour Organisation (ILO) Samir Radwan says the unemployment rate in Egypt of about 8% is lower than that of South Africa, currently at about 30%.

In the next ten years, the average number of new jobseekers in South Africa will increase to 683 000 yearly, compared with the capacity of the Egyptian economy to create 435 000 jobs yearly over the next decade.

The Pan African Productivity Association (Papa) reports that increased productivity can play a major role in enhancing the continent’s economic and social development.

According to the Papa secretary-general Dladla’s report, submitted to the 39th meeting of labour and social affairs commission meeting held in Mauritius, in April, the continent needs to fast-track its sustainable development programme towards greater economic and social progress and prosperity.

Papa believes that using productivity as a key enabler to creating sustainable growth and development can ultimately improve the quality of life across the continent, reads the report.

It seems productivity is not just a challenge for South Africa, but Africa as a continent.

It is only when Africa meets its productivity challenges, such as high unemployment levels, lack of government and business efficiencies and underdeveloped infrastructure, that the continent will be competitive globally.
Edited by: nkolola halwindi

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