Finance now SA’s biggest sector

In a new report by the SA Institute for Race Relations (SAIRR), it is reported that the financial sectors contribution to the country’s GDP in 2008 was 22%, the manufacturing sector 19%, while government itself added 15%. Mining is at 9.5% and agriculture at 3.3%. The report confirms statistics from Statistics South Africa that shows that Gauteng now contributes 34% to the national GDP, with KZN at 17% and the Western Cape with 14.5%

Traditionally the manufacturing sector is the largest contributor but over the last decade this contribution is declining, while the business and financial services sector grows. If you think of it, South Africa has a really advanced knowledge intensive business sector, and strangely this sector is not recognised as a strategic asset by the government. This business and finance sector is closely related to manufacturing, as well as other financial services. Aside from this 1st class service sector, there is a whole consulting and NGO sector that has emerged to supply state-subsidised services to small enterprises. Unfortunately, the services of these service providers, nor the customers that they serve, are competitive.  And because these services are often driven by templates and recipes, they are not knowledge-intensive. For small enterprises to take markets from larger competitors, or for local firms to excel in the region and globally, they need knowledge intensive services. Something that is expensive, but valuable. OK, I got a bit side tracked there!

The point is that the knowledge intensive inputs into manufacturing is increasing. This implies that South Africa is shifting from simple manufacturing (where few intermediary services are required) towards integrated or advanced manufacturing, where a lot of business service (or intermediary) inputs are required. My research earlier this year showed that some manufacturing enterprises in the electronics and metals sector are depending on more than 50 of their product value from contributions from specialised service providers. Wow!

So if you are working with manufacturing enterprises, wean them from wanting to use free or subsidised services and get them to engage with specialists. There is no other way to compete!

Shifting towards innovation and technology application

Have you also noticed that increasingly local economic development is captured by the public sector, often from a governance perspective, while the role of the private sector and its own development gets reduced to a consultative stakeholder? I find this amusing, as the private sector is the acknowledged driver of growth and increased wealth. I have already shifted my attention to the stimulation of technology use and innovation in the private sector, as I cannot imagine a more strategic way to create a new future for our region.

But strangely, the private sector, at least at an organised level, has only in a few places in Southern Africa taken the lead in its own development. While the media and government complains about job losses, firm closures and the increased uncompetitive performance of the industries, industry itself seems to be waiting for government to bail them out!

At the moment I see only a few ways out of the hole that our industries are in. Firstly a more pro-active approach towards the use of technology and innovation is required. Government is not going to donate the machines, and nobody will give a firm the research. Firms need to invest in new technology. Secondly, at a collective level, industry bodies need to move from advocacy towards a more proactive approach of building value chains and industrial networks. Many famous developmental fads like value chains, incubators, clusters etc have their origins in the private sector, even if these instruments are often widely used and abused by the public sector. Why are we seeing so little investment in these instruments by the private sector for the benefit of a specific industry? Thirdly, industry needs to realise that both increased competition and increased globalisation have changed the rules. Just as governments have to deal with immigration and passport issues, business should become a bit more obsessed with shaping the economic, education and science policies of their countries.  If industry does not as a collective become more vocal about education standards, research missions or industrial support then we are in for a tough 20 years!!

Hey, what do you think we can do to inspire our industries in Southern Africa to become better organised and more involved?

How can we get businesses to start investing in the latest technology?

How do we get business to not only innovate in marketing and advertising (we are good at that) but also to invent new business models, new technologies and new solutions to the problems of the world?

Any ideas or proposals are welcome!!

Two attitudinal trends about human mobility in Southern Africa

There are two attitudinal trends that emerge when you work with government officials responsible for economic development in many Southern African countries. The first, is that foreigners with skills pose a threat to locals, and that they should be kept out of the country to protect local jobs. Despite popular belief, this is not a position that is unique to Africa (ask anybody who tried to get a VISA to Germany recently!).  The second, is that rural people should be kept (by force or incentives) in the rural areas, and that jobs should go to rural areas to make sure that people do not migrate to cities.

Both these trends are disturbing as it limits our options to makes economic development reach its objectives. It is so important to attract people with skills to a developing country, as research shows that the best skills and knowledge transfer in developing countries does not take place through knowledge transfers from universities, it takes place through knowledge transfer from suppliers, customers and competitors (UNCTAD LDC report 2007 and others). When you attract foreigners with skills to your country, you basically save education costs as these individuals were trained and gained their experience at the expense of another country. Unfortunately, xenophobic propaganda that is often fuelled by insecure local politicians have succeeded in making it very difficult for foreigners with skills to feel comfortable or safe in many communities in our region. Governments also use the ‘scarce’ definition to basically make it extremely difficult to attract people with scarce skills. For instance, a UNIDO study in the SADC region found that most small enterprises lacked accounting and basic management skills that undermines their chances of surviving or thriving. Yet, accounting and business management skills is not recognised as a scarce skill in most of the SADC member states. Fortunately that may be changing soon in South Africa, but it may still take time for the government to figure out the new relaxed rules and procedures to make it easier to attract foreigners with ‘scarce’ skills.

The 2nd trend is that government officials want to fight the flight of people from the rural areas to the urban areas. The World Bank 2009 World Development report is still one of the best publications to describe the new rules of human mobility. It is a fact, people (for now) are moving to cities and towns. And it is also a fact that people are more emotional or sensitive about this topic than many other development topics. Yet, statistics show that people are engaging less in subsistence agriculture in many Southern African countries, and farm labourers that used to exchange manual labour for food and tenure on commercial farms are increasingly left without jobs due to changes in labour laws and value systems  in many countries.

In a recent interview with a father that moved his whole family from a rural area in South Africa to a squatter camp (informal settlement) explained that it was better to unemployed in the city than employed in the country side. His kids are going to a school that offered much better education than the rural school, so even if government succeeded in creating jobs in the rural country side, people like his family may still choose to take their chances in the city. Even though many people may choose to move to the city, there are still large numbers of people that are not as mobile, due to personal health, cultural or other reasons. With every skilled or capable person that decides to leave a rural area, the remaining people are increasingly marginalised as the options to create jobs for the remaining people dwindles as the average skill level in the region declines. For instance, if a person with some farm management skills leaves and area, the chances of creating jobs through effective farm management competencies goes down. Therefore, one of the most important government interventions into the rural areas should be education, as this at least makes it easier for future generations to exercise their choice of whether they want to stay or move. In any case, people with better qualifications (and experience) are more likely to succeed in an enterprise (or farm) in a rural area.

I moderated a conference in the region recently, where several participants felt that people from the rural areas SHOULD NOT BE ALLOWED into cities! I was quite shocked by how many others publicly endorsed this opinion. Basically this argument will enforce a new divide, those with shops, banks cinemas, traffic congestions, better jobs and good schools, and those without. I cannot even imagine going back with my family to the small town where I grew up.

So as development practitioners we have to embrace the new challenges of mobile human beings. We have to make our counterparts aware of ‘scarce’ skills that are missing in the system, and the benefits of attracting people into local systems that have gained expertise and qualifications elsewhere as a means to build local competencies. Furthermore, we should not fall in the trap of believing that people from rural areas and other countries are here to steal jobs.

Also do not fall in the trap of stereotyping all people living in informal settlements as uneducated. The father I mentioned earlier is a qualified diesel mechanic that used to work in a rural tractor dealership. Understand that job creation in rural areas are difficult because of low volumes and the fact that people with skills and experience are (for now) moving to the urban areas. But we cannot prevent people from moving as this is an important choice for families to make. Rather, our spatial planning and city development strategies must deal with the fact that in the medium term more people are coming to cities.At the same time, the urban dynamics are changing. Cities are becoming the lifeblood of our African economies, and people live and work differently in these spaces. This also has an impact on our city management and our economic development opportunities. I sometimes wonder whether the poor public transport systems in South African cities are designed on the assumption that all the commuters will soon go away to where they came from.

The age of human mobility is upon us, and this is not only a luxury of only the wealthy. The poor, the desperate and the under valued people are also mobile, and when they move, they change the economic potentials of the spaces they leave behind as well as their destinations.

From good governance to good development governance

In its latest Least Development Country Report , UNCTAD is reflecting on the impact of the financial crisis on the 49 LDCs and is stipulating a move from “good governance” to “good development governance”. The report describes the weaknesses of the current “good governance” trend that has trapped many development agencies and governments, and provides recommendations on how to improve the impact of good governance interventions through a move to good development governance.

Development governance is about the processes, policies and institutions associated with purposefully promoting national development and ensuring a socially legitimate and inclusive distribution of its costs and benefits

 

http://www.unctad.org/Templates/webflyer.asp?docid=11721&intItemID=2097&lang=1

The UNCTAD LDC reports are an annual highlight, I strongly recommend that you take a look at this document.

 

Thin solar technology commercialised in South Africa

I was delighted to read in the South African Mail and Guardian this morning that a public-private partnership between the University of Johannesburg and several other partners (Sasol, the Central Energy Fund (CEF), the National Empowerment Fund and the University of Johannesburg) are working on a plant to commercialise thin-film technology in South Africa. The new technology is known as Thin Film Solar panels, and consists of micro-thin metallic film (only 5 microns thick) that converts light into energy at a fraction of a cost of the current Photovoltaic technology. Germany is a global leader in micro-film technology due to its huge investments into alternative energy technology, and the equipment needed to make the Thin Film Solar modules will be imported from Germany to the Western Cape province to establish a production facility in Paarl.

This is great news for several reasons. Firstly, researchers at Stellenbosch university are also working hard on new solar technology, thus creating a regional technology cluster effects (click here and here for more information). But perhaps the timing of this announcement is more important, as it coincides with the announcement that Escom wants to increase its energy prices by 45% for the next three years. At the moment, solar panels are still extremely expensive in South Africa.

A Google search for “thin film solar” found several sites that explained the technology, and it seems that similiar technologies have been commercialised elsewhere. It was not possible for me to determine whether the South African design differed than the technology described on Wikipedia.

South Africa have other reasons than our electricity shortage and price increases to invest in new climate friendly technology. Not only do we have to worry about our environment, but alternative energy could assist in overcoming the costs of connecting rural households to the grid. But at the moment the costs of alternative energy in South Africa is still very high. I cannot wait for the day that I can disconnect from the mainline power grid for environmental and cost reasons! Bring on the technology!!!!

This blog post was inspired by an article in the Mail and Guardian online, the original article can be found at  http://www.mg.co.za/article/2009-10-13-sas-thinfilm-solar-tech-at-commercial-stage

Innovative firms

Have you ever wondered why not all firms are innovative? If you are a development practitioner like I am, then you must have come across hundreds if not thousands of small and large firms that are not very innovative. This results in these firms also not being very competitive.

There could be many reasons why so many firms are not innovating, and one of these is that the firms are serving undemanding customers. This very often happens in rural or isolated areas, of where companies provide convenient goods and services.  Another reason why firms do not innovate is that innovation requires change, and this change is uncertain. This makes innovation not only risky, but also potentially expensive.

One of the reasons why development practitioners should try to stimulate the competitiveness of firms that they work with, is that increased competitiveness requires innovation. Again, this does not simply imply new products or processes are developed or improved, but also that firms try new management innovations. However, many development practitioners are not comfortable with competition, or do not understand the importance of competition to the socio-economic development of a society. There is a tendency in the field to try and get groups of individuals or firms to compete together against a competitor ‘out there’. This is a first step in the right direction, but we must also try to get our local firms to compete against each other. Thus we must try to create opportunities to collaborate, but at the same time we must try and increase or stimulate the local competition against each other. With this I am implying the nice and healthy kind of competition.

What is often forgotten in economic development, is that we are not only concerned with the health and the well-being of the business owners. Firms must also innovate to create better, healthier and more stimulating jobs, attract foreign investment, skills and knowledge into our areas, and finally, provide improved goods and services to local communities. The latter is usually overlooked. Thus, we want firms to be competing with each other, and together also competing with others, not only to make business owners and managers rich, but to ensure that our society in itself becomes wealthier and more innovative. This will then lead to more innovative and competitive businesses, and so the virtuous cycle is complete.

In search of innovation in firms

Thank you for your concerned messages about my recent whereabouts.

In the last few weeks I have involved in running a RALIS (Rapid Appraisal of Local Innovation Systems) with my colleague and friend John Lawson. This process is focused around three Institutes of Advanced Tooling in South Africa that are based in the Western Cape, Eastern Cape and Gauteng. We are looking at the innovation system around the tooling sector around these 3 centres and their key customers.

A literature search on innovation reveals that product, process and organisational innovation (a.k.a business model innovation) is commonly identified in the academic literature. Innovation does not take place in a vacuum, and a RALIS methodology allows us to better understand the determinants of innovative behaviour by firms. It is important to recognise that while tinkering about in a workshop is great fun, a lot of innovation in firms and between firms cost a lot of money and time, and the outcomes are uncertain. Therefore, we have to understand how and why firms innovate, and how the Institutes of Advanced Tooling can play a role to support innovative behaviour by firms in the South African Tooling sector.

Now many of you will know that my interest in the tooling sector goes back a long time. Firstly, the tooling sector is truly an important sector, as toolmakers make the machine tools and production equipment that is used by the manufacturing sector to produce just about everything that you see around you. Secondly, the tooling sector was one of the two sectors that I used to analyse market failures in a knowledge intensive business service market in for my PhD Thesis.

In the next few posts I will share some of the insights from this exciting process with you!

A tool used to make picture frames
A tool used to make picture frames
Tools and moulds
Tools and moulds

Moderating large events

I have just created a new sub-page on my experiences of moderating large(ish) events. With large I mean events with more than 50 people in, but still not 1000s of participants that Natasha Walker enjoys to facilitate!

There are some pictures on the page of the technology configuration and the role of the moderator in a large event.

Please take a look and contribute your experience of moderating or even participating in larger events.

Change in societies – part 2

In my work with trying to get the private sector to perform better, I often deal with sectors and their support institutions. Very often there are official or recognised industry bodies that are promoting the interests of industry. The least these industry bodies do is to organise an annual golf day, with some even playing an important role to lobby with government. The more organised sector bodies play an active role in sharing information, promoting standards amongst their members, or in some cases actively trying to develop their members or new markets. So these industry bodies often try to affect change in the way I described in the previous post.

But although these organisations are functional units themselves, they are actors trying to promote change in a small part of a society. This means that while they can affect change internal to their organisation through formal change or organisation development methods (using hierarchies, sanctions, incentives and process management), they have to also play a leading role in changing the society around them. The members of the industry body, their supporters and the broader innovation system related to this industry body is not physically part of the organisation, but forms a sub-group of the society around the industry body.

Several challenges arise in this process of trying to get a part of a society to change. The first challenge is that this process of upgrading the performance of industry is often not recognised as a change process. Secondly, societal change is a tough thing to do, and the body of knowledge on how to achieve change in societies is still in infancy. Thirdly, to affect change in a society it is important to appeal to the common identity or value system of the group being targeted, and very often both these factor are weak within industries. For example, some pharmaceutical companies consider themselves to be in the cosmetic sector, while others in health. This means that even if we classify a firm in a given sector, they may still identify more with another sub-group in the society.

For instance, in my earlier post I mentioned the importance of leaders using value systems to lead through example. How can this be related to trying to change the performance or behaviour of an industry? The answer is that we have to make positive examples of those that are early adopters, or leaders. By showing how some firms innovative, or overcome problems through innovative thinking, creates opportunities for others to imitate. Furthermore, industry bodies cannot really use incentives or sanctions to inspire change. However, they can play an extremely important role of communicating why behavioural change or improvement is necessary. If industry bodies cannot build a better case for why firms need to pull up their socks, cooperate better, compete more, innovate or invest, then nobody else will be able to achieve this until it is too late.

Thus, industry bodies have a critical role to play in using their organised members to inspire behavioural change or performance improvement. This process must be understood as a change process at the level of the society. The desired change must be seen in a systemic way to make sure that individuals are not just thinking about measurable improvements (such as time to assemble a gadget) but to also consider the societal change aspects (how to recognise the new values or how to know whom to follow)

Change in societies

The previous post described a typology of competitiveness that spans three levels. In order for individuals, hierarchies (e.g. firms) to improve their competitiveness or performance some kind of change of performance is required. While some of these changes are incremental and takes little effort, it may in many cases require a more concentrated effort to make a significant change. A few years ago Holger Nauheimer introduced me to three different levels of change that corresponds with the typology of competitiveness.

Firstly, there is change in the performance or behaviour of individuals. This may be related to an effort to improve competitiveness, or it may simply be a change of behaviour. Secondly, there are change processes in organisations in order to improve performance and competitiveness. Lastly, there may be changes at the level of the society that results in improved performance and competitiveness.

In the first instance, individuals try to change their performance or behaviour through a combination of self-motivation, self-discipline, practice and concentration. Whether the change is success depends largely on the self-control of the individual, and their own incentives and value system. For organisation to change may require small incremental improvements. In most cases a change process requires proper management, transparrent leadership, transparency and clear communication with staff. Management may decide to use a structured approach, drawing on topics such as organisational development, change management and project management. A combination of sanctions and incentives may be used to shape the behaviour of people in the organisation.

At the highest level, changes occur in societies. These changes typically affect the performance of individuals and organisation, and are also affected by the performance of individuals and organisations in the society. For leaders to influence the transformation in societies, clear leadership with strongly communicated values are required. In my imagination I can think of leaders such as Nelson Mandela and Barack Obama at being particularly good at this. The challenge with change in societies is that it is difficult to manage, due to the fact that incentives and sanctions are weaker. There is also growing awareness of the psychology of crowds and how people in societies create and respond to signals of change. At the same time, we don’t have to think of whole societies changing. Malcolm Gladwell in “The tipping point” explains that when a small enough part of a society change, that it could lead to a tipping point where a larger scale change in behaviour takes place. This activism of change agents in societies are what seems to be keeping many societies in check at the moment, while at the same time promoting ongoing improvement and advancement.

From a systems perspective, the changes in individuals, organisations and societies should be recognised as complex human and social systems. There are many feedback loops, and delays between interventions and results. Furthermore, there are complex dynamics between different elements of the system. Therefore the results of decisions to change are often unpredictable, and care should be taken to create a habit of continous improvement combined with reflective exercises to make sure that the people in the system are able to respond to surprises and changes in the dynamics.

%d bloggers like this: