By Bongumusa Makhathini, Anton Bauman and Mark Fitzjohn
For the first time in a generation, and largely due to the global coronavirus pandemic, poverty levels have increased, disproportionately impacting countries with large low-income populations, like South Africa. And with the current global political volatility and uncertainty, we may feel as though the light at the end of the tunnel is a long way off.
It’s not just in South Africa where we are battling poverty however, and unfortunately more than half of the world’s poor are children. According to Unicef and the simulations run during 2020, 131 million to 547 million people may have become “newly impoverished”, clawing back the previous years of progress.
As the pandemic progressed, countries responded to help their populations by increasing social welfare, healthcare access and income support funding. Some nations have cleverly used economic stimulus packages to build back better, but more significant opportunities are waiting.
Inequality is the biggest inhibitor to a nation to live up to its full potential. The level of inequality matters because high levels increase the risk of social and political instability, and it stifles broad-based economic growth. Unemployment has peaked, especially among young adults, but the youth is where some of the most significant opportunities are.
A paradigm shift in our thinking is the start to equality
A recent World Bank report entitled: Inequality in Southern Africa: An Assessment of the Southern African Customs Union rated the most unequal nations globally and named South Africa as the most unequal nation in the world. The main conclusions of the report were:
1. Inherited circumstances (inequality of opportunity) drive overall inequality.
2. Lack of access to jobs and means of production (education, skills, land, among others) slows progress to more equitable income distribution.
3. The fiscal policy helps reduce inequality through targeted transfers, social spending, and progressive taxation, but our budget to assist the poor doesn’t deliver on expectations. South Africa’s spending assists in feeding the poor, but it doesn’t improve their outcomes or create opportunities.
4. Vulnerability to climate risks and economic shocks threaten the gains toward an equal society.
While these obstacles appear to be great, Sabina Alkire, who directs the Oxford Poverty and Human Development Initiative in the Department of International Development at the University of Oxford, says: “The pandemic could be a driver, a wake-up call, the basis for a new determination to build a better world for today’s children and tomorrow’s generations.”
In an essay published by the Financial Times, she asks: “What if it used that voice to consolidate a new paradigm based on cutting edge research and data and created a new legacy of deft humility and understated collaboration?”
This narrative is needed in South Africa, and it is working in other nations. South Asian countries reduced multidimensional poverty fastest of any region. India saw 270 million people leave multifaceted poverty in the decade to 2015/16. In Bangladesh, it was 19 million in just five years, 2014-19.
It is possible to do the same in South Africa with the deft humility and understated collaboration between governments, the private sector and civil society. Although our inequality problems are unacceptable, they aren’t insurmountable.
In his book, Factfulness, Hans Rosling says that how we see poverty reduction is usually wrong. According to Rosling’s research, we perceive the world getting worse and dramatise every tragedy until we essentially feel powerless to effect change.
“When we worry about everything all the time instead of embracing a world view based on facts, we lose our ability to focus,” says Rosling.
A positive fact is that notable progress against poverty has happened in the past 20 years, including in South Africa and in Africa. Instead of feeling paralysed and resigned about levels of inequality, we should focus on the data and facts on what we know can turn the corner on poverty, especially for youth.
Sabina Alkire concludes, “In the wake of the pandemic, the bottom of the distributions needn’t spin out of control. In fact, we could reduce acute multidimensional poverty and the most egregious inequalities, sharply and decisively.”
We couldn’t agree more with Alkire. According to the World Bank’s inequality report, inequality reduction can happen if we focus on three policy areas:
1. Expand coverage and quality of education, health, and essential services to reduce inequality of opportunity.
2. Strengthen access to and availability of private-sector jobs. It is vital to accompany structural reforms with measures that facilitate entrepreneurship and skills acquisition of disadvantaged populations and to improve land distribution and productivity in rural areas.
3. Invest in adaptive social protection systems to increase resilience to climate risks and economic vulnerability, with safety net programs for more efficient use of fiscal resources.
I want to add a fourth. We believe there’s another efficient way to put South Africa’s fiscal trajectory on a growth path, and that is to prioritise investment into our small, medium and micro-enterprise (SMME) sector.
The SMME sector is the backbone of any economy and, globally, small and medium enterprises serve economies as the largest avenue to employment creation. The SMME sector also employs greater numbers of people as it grows, unlike large corporates that typically outsource opportunities or invest in automation as they expand.
A sure way to boost economic growth is by creating employment in the ‘missing middle-class’ in South Africa. The missing middle can be built with support for the SMME sector. There is a wealth of financial resources available to invest in smaller businesses and see a return on that investment. Our business is living testament to that.
Enterprise Supplier Development (ESD) is an opportunity for corporate partners to participate in ESD in a meaningful way to promote economic inclusion and transformation, while ensuring commercially attractive returns.
ESD can offer more merit and introduce opportunities through social and commercial investments in which SMMEs are not viewed as inferior economic proponents needing handouts, but as future economic powerhouses worthy of investment.
There are other success stories like ours and our investees
Sw7 is Africa’s first virtual go to market accelerator platform. They service B2B product-led technology business funders and founders. Their main areas of focus are go-to-market, sales, and investor readiness services. Other services include getting products to market, matching businesses to potential funders and mentorship in scaling a business. Entrepreneurs get plugged into an ecosystem of like-minded businesspeople and start-ups are supported in their journey to build a successful enterprise.
Sw7 have created strategic partnerships with some of the world’s biggest tech companies like Amazon Web Services (AWS), HubSpot and Twilio Sendgrid. These partnership benefit members of Sw7 through training and support, structuring for scale and improving market access. This type of exposure for new African-led business ventures is priceless and genius.
Similarly, Akro is a platform where young entrepreneurs from anywhere in Africa can go for business advice, venture capital funding, networking opportunities and events with high profile, well-experienced professionals.
These bold venture capital businesses are seeing significant returns from investing in local talent of which there is an abundance. These models work, and it would be amiss to not capitalise on them while the time is right. We don’t want to see our young entrepreneurial talent looking for opportunities in other nations because we weren’t paying attention. The light is drawing nearer.