by LUKE ZUNGA
JOHANNESBURG – THE first article on struggling African and some Global South economies diagnosed that (1) the number of formal businesses must be 5% of the population to create enough employment and growth and that (2) countries must organize capital within the country to seed industrialization. Â
Organizing capital is the key to seed manufacturing, the entry point for faster economic growth and inclusivity.
New factories employ labour and distribute products on the markets where wealth is distributed.
Apart from funding, there are other issues, to be resolved before factories could sprout up. These issues are difficult for an individual to do, but a program can handle them easily.
A program is defined in Project Management Book of Knowledge 3rd edition, chapter 6 page 123. A program has several projects or subprograms, involving many people, managed centrally by a Project Manager, with a budget to be adhered to, skills sets and timeline.
A program has clear goals. There must be pre-and-post-natal facilitations for a business to germinate properly and succeed.
Our technocrats just follow the bank model which is only for post-natal services and does not attend to the many issues required to start well. Businesses which start poorly account for the 75% business failure rate globally.
Here are the issues.
A formal business must satisfy five tenets. The first is Project Conceptualization which is to get the product or business idea well thought out. It involves an analytical process.
The second is Markets. Each product idea must have a clear marketing point and a competitive edge. The third is Skills availability.
The fourth is adequate funding or Capital. Africans and Global South must learn to organize capital within their countries as correctly evaluated in www.organizecapitals.com.
The fifth is Administration and compliance. Nobody has all the skills to run a business. Administration and compliance are highly technical.
A good industrial policy should protect factories from the Scourge of Landlords. Black businesses, for example, are always migratory, from building to building, area to area, charged exorbitant rentals, which makes them uncompetitive. Any mishap, the business door is locked and everything inside is lost.
A more steady and calmer atmosphere is desirable. This is solved by a more coordinated method to provide land and buildings for factories.
Product ideas require an expert to evaluate them and a Research point to put the idea through efficacy trials such as a prototype.
The first thing is to understand the marketing point, then check on large global patent databases that there are no immediate clashes. It is a tedious job. Therefore, industrialization needs a research point where product evaluation is done as a routine. Startups are held up here.
There must be a Backup Fund. When production starts, there are usually issues which were not foreseen. There is hardly any factory which will run smoothly from the first day. Sometimes the market indicates a problem which needs to be sorted out.
Sometimes it is to change packaging and align to competition. It means there must be a Backup Fund to attend to these issues, which banks do not provide. This step is fundamental to avoid business failures.
A good industrial strategy should coordinate Environmental issues as they require a coordinated approach. Individually environmental issues are difficult prescripts. The cost of an environmental study is exorbitant, time delaying and the process is out of reach. To get an environmental study approved by the municipality is a challenge.
A good industrial policy should centralize environmental design. Apart from repetition an individual acting alone cannot do these things.
In South Africa the National Credit Regulations (NCR) restrict lending to a payslip. Arguably the NCR had good intentions but it also slowed the economy since its introduction in 2008, because it took away discretionary business lending from banks. New factories cannot be financed from the payslips model.
South African workers are poorly paid. They cannot industrialize based on payslips. A new model of organizing capital is required.
Many startups fail at the business plan stage, when the production costs make the product uncompetitive.
There must be a way to reduce the cost of production, which an individual acting alone cannot achieve.
Nobody has all the skills to run a business. Uncoordinated, these factors retard industrialization.
Setting up and running a factory individually is not competitive. A model which shares a range of critical costs is required to reduce unit cost of production so that products are competitively priced.
Cost reduction can be achieved by centralizing the provision of certain costs such as project preparation costs, buying power of inputs, management and administration costs, environmental costs, software licensing costs, quick access to market, centralized advertising, backup power, security etc.
Many countries such as South Africa, can compete relatively easily if it adopts programs. It means the starting point is not an individualized operation but a program under which individuals participate.
Our technocrats do not understand these issues and stick to attracting foreign investors and refusing any deviation. But it is clear foreign investors are not the solution. We see wars and coups in Africa because the economies are stagnant, while the models to grow economies are refused.
– CAJ News
