14 Tuesday, February 16 2016 BUSINESS REPORT

Opinion&Analysis

DISCUSSIONS on the mooted na-tional minimum wage (NMW), ata recent symposium at theUniversity of the Witwater-srand, suggest that its introduc-

tion will lead to increased consumption. The consumption, it was argued, would

lead to increased production and thusgrow the economy.

Whatever the merits and demerits ofthis argument and its assumptions, itmisses the dictum that “a small business isnot a small big business”. There is abun-dant research that businesses react differ-ently to phenomena because of their size.

Unsurprisingly, presentations on theimplementation of NMWs in Malaysia,India and Germany showed that the im-pact was more on small businesses than onbigger ones. This was based on the levels of

non-compliance. This is not surprising assmall businesses do not have the fat toabsorb the resultant impact on the wagebill or cannot move funds from one line ofitem to the wages one. Most are perpetuallyon life support.

Thus, proponents of “the NMW willincrease consumption and production”blissfully ignored the impact it could haveon small business. This generalisation, inany case, exemplifies South Africa’s psy-che of seeing the economy in terms of bigbusinesses. In fact, this appears to be anAfrican disease as a 1989 World Bankreport decried the fact that small businessis “Africa’s missing middle”. It pointed outthat Africa’s economies consisted of ahuge informal sector, big multinationalsand state-owned entities. African govern-ments had paid scant attention to smallbusiness, yet it was the engine for growth.

Reasonable threshold Fortunately, this is now changing, asAfrica focuses on entrepreneurship andsmall business. And since the creation ofthe small business ministry in SouthAfrica many, but not enough, now swear bysmall business.

The discussions on the NMW for ourcountry should, therefore, focus on its

impact on our vulnerable small businesssector and a reasonable threshold set.Notwithstanding the impact on smallbusiness, the NMW is necessary as it willlift millions out of dire poverty. Accordingto Statistics SA, 28 million people live onless than R800 a month.

As if this is not enough, the mean percapita income for the poorest 10 percent isR910 and for the richest 10 percent it isR19 1194. This is disgraceful. The NMW isthus desirable, particularly as some busi-ness persons have affluent lifestyles at theexpense of their employees. Still, and need-less to state, the NMW will result in joblosses as scenarios by the respected Devel-opment Policy Research Unit show.

This is a no brainer as the doubling oflabour wages in the agricultural sector re-sulted in severe job losses. It did not resultin a wealthier agricultural sector, as thesuper leftists at the symposium would haveus believe. More importantly, a further di-chotomy is that we must achieve a balancebetween economic transformation, which isthe longer route to lift people out of poverty,and the NMW, which is the shorter route.

Transform racial structure If we want to transform the racial struc-ture of our economy, in which the richestcontinue to be white and the poorest arethe black majority, we need more vibrantsmall businesses. Getting 10 percent ofthis major company or the other does notchange the racial composition of the econ-omy as the 3 percent black presence on theJSE after 20 years of black empowermentshows. For the record, lest people de-liberately misunderstand me, there isnothing wrong with individuals gettingtheir 6 percent or 5 percent of this or that.It is a part of transformation.

However, this 5 percent does not changethe nature of economic participation, asmost came in as silent investors. Realtransformation is when more black peopleare creators of wealth in their own right.

To add to this, we need more black-ownedbusinesses as we need to expand the taxbase. Note: we have close to 15 millionSouth Africans getting a social benefit ofone form or the other. We must just expandthe tax base as the number of social bene-fits is unsustainable but necessary. Hence,the relevance of the Black Industrialistand the National Gazelles programmessimply cannot be overestimated.

It is emergent businesses that may behard hit by the NMW. Yet, they are thebusinesses that could integrate us, in ouridentity, and into the world economy. Justas they did for some of Asia’s economiestwo decades ago. Thus, while the intro-duction of a NMW is a major necessity,the threshold is critical. When a smallbusiness closes doors, it is numerous fam-ilies and not only the business owner thatlose livelihoods.

The claim that consumption is boostedwhen wages are increased must be con-sidered alongside the fact that there is anegative and wholly destructive impact onsmall businesses as a result of an in-creased wage bill. The threshold is thuscritical.

Dr Thami Mazwai is a special adviser to theMinister of Small Business but writes in hispersonal capacity.

❚❚ DILBERT

Minimum wage will cost small businesses the most How fruitflies can keepresearchersin AfricaWe must achieve a balance

between economictransformation,which is thelong route to lift people outof poverty,and the NMW,which is the short route.

BUSINESSPOLICY

AFRICA’S biggest-horned anddisease-free buffalo was valued ata record amount on Saturday afterbusinessman Peter Bellinghambought a 25 percent share forR44 million.

That values the animal, namedHorizon for his wide horn span, ata record R176m, surpassing theR40m paid for a buffalo namedMystery by a group includingbillionaire Johann Rupert in 2013.Horizon’s horns are 139.7 centi-metres wide, compared with Mys-tery’s 134.62cm. It also does not

suffer from tuberculosis.“It was a unique opportunity to

own the best genes in the world,”said Hendrik de Kock, a marketerat Wildswinkel, which ran theauction.

Horizon’s four owners, includ-ing Bellingham, had the right toprovide him with 10 buffalo cowsa year and keep the offspring, DeKock said. Breeders in SouthAfrica, the biggest market forsuch animals, are willing to payrecord prices for the genes of buf-faloes they believe can increase

their herd’s horn span. The industry has attracted

wealthy investors such as Rupert,who controls jewellery makerRichemont, the maker of Cartierwatches. South African DeputyPresident Cyril Ramaphosa andNorman Adami, the former chair-man of SABMiller’s local unit,have also invested in the animals.

Horizon’s sale bucks the re-cent trend for wild animal pricesin South Africa. Average buffaloprices dropped 30 percent toR334 879 last year. – Bloomberg

Value of Africa’s biggest-horned buffalo soars to R176mYou can write, fax or e-mail a letter to:The Editor, Business Report, PO Box1014, Johannesburg 2000Fax: (011) 838-2693e-mail: brletters@inl.co.zaInclude daytime telephone numbers and full address.Pseudonyms are not acceptable.The editor reserves the right to edit or reject lettersDIRECT ENQUIRES TO:JHB NEWSDESK 011 633 2484You can send feedback, complaints orsuggestions to:e-mail: br.editor@inl.co.za

❚❚ CONTACT

Thami Mazwai

❚❚QUOTE OF THE DAYWe must let go of the life we have planned,so as to accept theone that is waiting for us. – Joseph Campbell, American author (1904 – 1987)

The fruit fly is being used as bait to stopthe exodus of researchers from Africa.

PHOTO: SUPPLIED

Dr Martha Vicente-Crespo

THE HUMBLE fruit fly is being putto an unusual use in sub-SaharanAfrica: it’s being used as bait. Itsintended lure? It’s hoped that thetiny creature, whose scientific

name is Drosophila melanogaster, can stopthe exodus of researchers from Africa.

At the moment, most of the biomedicalresearch being done in African laborato-ries is performed using rats. Now a projectcalled DrosAfrica is under way to promotethe use of the fruit fly as a model organismfor research into human diseases.

There are several reasons for this. First,rats are far more expensive to keep thanfruit flies. As an affordable alternative, thefruit fly requires fewer resources to main-tain and not as much expensive prepara-tion for experiments.

Also, as a model system, Drosophilaenables researchers to perform sophisti-cated genetics, live imaging, genome-wideanalysis and other state-of-the-artapproaches. Drosophila research hasidentified thousands of genes with humanequivalents. This has provided keyinsights into cancer biology, pathology,neurobiology and immunology.

Drosophila is a prime model organismwith tens of thousands of researchersworking on every aspect of their biology.

This work is aided by electronic openresources, such as Flybase, and stockcentres, like the one in Bloomington,Indiana in the US.

The centre will send Drosophila to anylab in the world for the cost of shipping.These stock centres are funded by govern-mental grants enabling 100 000s flies to bekept alive in warehouses. And an entireresearch unit has been built with a focuson understanding a specific aspect of thefly. The most famous is called JaneliaFarm, founded by the Howard HughesMedical Institute in the US.

A bigger agenda The project that is using fruit flies as baitfor scientists is known as DrosAfrica. Itwants to drive the paradigm shift from ratsto flies as experimental organisms. To dothis, project leaders have organised work-shops to share fruit fly techniques withuniversities and research institutes acrosssub-Saharan Africa.

But there is more to the work thanmerely extolling the virtues of fruit flies.

We also try to provide basic equipmentsuch as dissecting microscopes, buffers,slides and antibodies for labelling proteinsto facilitate the creation of local researchcommunities. Such strong communitieswill ultimately be able to provide PhDprogrammes and research opportunitiesfor African researchers.

This will mean students do not auto-matically feel they have to emigrate whenseeking research opportunities. Powerfullocal research programmes will also helpto place the continent in the spotlight ofinternational research. This could ulti-mately lead to a return of expatriates witha strong scientific background.

This article initially appeared on The Conversation:http://theconversation.com

❚❚ DIARY

IT’S OVER. Trust in the once almightypower of the central banks has almostcompletely vanished. Sure, there arestill some holdouts who believe centralbanks could fix all problems in the real

economy, as well as in financial markets,primarily by just printing more money.

As becomes clearer every day, centralbanks are not going to help us out of thecrisis. They are the ones who got us into itin the first place and make it worse everytime they intervene.

That is the “medicine” they have pre-scribed for more than 30 years already. It istime to stop them!

To be very clear: Without the centralbank policies of the past 30 years, we wouldnot have a global debt crisis, no asset bub-ble, no discussion on inequality and no de-flation. Oil would also not be at $30 (R476).Don’t believe it? Let me jog your memory.

Debt bonanza The “Greenspan Put” is firmly in the WallStreet dictionary. Whenever there wassome turbulence in financial markets orthe economy, the US Federal Reserve – and,along with it, all major central banks in theworld – came sailing to the rescue. Lowerinterest rates and more “liquidity” (read:money) were injected.

The result? The crash of 1987, theRussian crisis, the Asian crisis, the dot-com bubble and the global financial crisis.In all cases, speculators and banks knewthat the central bankers had their back.

Given the Fed’s path, the other majorcentral banks of the world really had nochoice but to follow. The price of notfollowing Washington’s command wouldhave been to risk a steep appreciation oftheir own currency and a loss of exportcompetitiveness.

Here is the remarkable development:contrary to the constant soothsaying byAlan Greenspan and colleagues, after each

of these crises, interest rates neverreturned to pre-crisis levels.

As the Bank for International Settle-ments has warned for years, this asym-metric reaction on the part of centralbanks laid the foundations for an ever-bigger crisis, forcing the already lowinterest rates lower still. The new centralbanking mantra? Low rates today requireeven lower rates tomorrow.

No wonder, then, that rates went lowerand lower for decades. It became more andmore attractive to work with borrowedmoney. “Leverage” became the fuel of themarkets. “Debt” became the answer to allproblems we might face.

Leverage for financial gains More competition from China leads todownward pressure on wages? No prob-lem, just embark on a strategy whereeverybody gets rich by buying property,even with no money down (as the US did sospectacularly).

More competition leads to higher un-employment? That’s no problem. After all,we have social welfare (that was thepreferred European solution).

The rationale remains the same ineither of these two cases: The higher theleverage given of a system, the higher theprobability of a crisis.

This “logic” forced central banks tointervene more, creating even strongerincentives to borrow and to use leveragefor financial gains. The medicine providedby the central banks made the addictsmore addicted.

The result: Never before has the worldeconomy been as highly in debt as it istoday. We are reaching the limit of debtcapacity. All those able and willing to takeon debt are already heavily in debt.

An ever-bigger proportion of new debtis just taken on the pretense to “serve”already outstanding debt.

The practical result of that is the oldjustification – generating a demand effectfor the economy — is shrinking rapidly. Etvoila, we enter secular stagnation.

Closely linked to the debt wave is thedevelopment of asset prices. One hundredof the 400 richest Americans made theirfortune with “investments”, most of themwith cheap credit.

Similarly, banks, hedge funds and pri-vate equity firms achieve their impressivereturns only thanks to extreme leverage.

The mechanism is well known: Asothers ride this bandwagon as well, the

demand for the stock goes up, leading tohigher prices. This not only makes somepeople even richer, but they can evenborrow more to buy more stocks.

The lower the interest rates and thelower the required equity, the higher assetprices can and will rise. Central bankpolicies for the past 30 years were, there-fore, a one-way, low-risk street to fortunefor those who could play the game.

Without the central banks, ThomasPiketty, who wrote the best-selling bookCapital in the 21st Century, a heavy treatiseabout inequality, would have had to lookfor another research topic.

Catering only to a few But even though his book runs some 800pages, he did not make the connection thatgrowing wealth and inequality wereclosely linked to the debt super-cycle of thepast 30 years. He is thus describingsymptoms, not causes.

Alas, even today it is becoming onlyvery gradually clearer to the generalpublic that the central banks – supposedlygeared toward protecting the safety and

soundness of the financial system – bene-fit only those with assets.

In its arrogance, the Fed even made thisdismal concept its official economic strat-egy. It declared that a “wealth effect” wouldlead to more consumption – and, therefore,help the real economy.

This might work in theory, but not inpractice. People equipped with high in-comes and wealth tend to save more andconsume less. Thus, the net effect of thiscentral bank “strategy” is less consump-tion and less growth.

Make no mistake: The Fed – and all thecentral banks that follow it so eagerly – arenot working for the good of overall society,just for the good of a small group.

It is only logical that Ben Bernanke, oneof the biggest proponents of this policy,joined the hedge fund Citadel after step-ping down as Fed chairman. High time forhim to cash in himself on the cheap moneyand unlimited leverage “strategy“.

Daniel Stelter is the founder of the German thinktank Beyond the Obvious. Follow him @thinkBTO.This article initially appeared on The Globalist.Follow The Globalist on Twitter: @theGlobalist

Central banks areto blame for ourfinancial troubles

Never before has the worldeconomy been as highly indebt as it is today.We arereaching the limit of debtcapacity.All those able…are already heavily in debt.

POLICYDEBATE

Daniel Stelter

People pass a Wall Street subway stop, in New York. The writer blames central bank policies for recent financial crises. FILE PHOTO: AP