BEFORE YOU CAN FIX THE PROBLEM YOU MUST

BEFORE YOU CAN FIX THE PROBLEM YOU MUST UNDERSTAND THE CAUSES: EMERGING ENTREPRENEURS AND THE PERENNIAL MARKET PROBLEM IN THE CONTEXT OF CLIMATE CHANGE AND ENVIRONMENTAL DESTRUCTION Presentation For Western Cape Department Of Environmental Affairs June, 2012 By Yvette Abrahams Gender CC Every emerging entrepreneur struggles with two things: 1. Finance 2. Markets To some extent the two issues are interlinked: if you have lots of finance, you can afford to seek markets (advertising and promotions). You can also manage to survive temporary market failures until sales pick up again. In this sense markets are a problem for SMME’s precisely because they are small. They have no ‘cushion’. However, there is another way of understanding SMME difficulties in accessing markets, which is based on an analysis of structural problems. Today I am going to argue that South Africa suffers from a long term structural market failure, as well as increasing ecosystem costs. These two problems need to be addressed in order for markets to expand so that SMME’s can make a living. In short, I am proposing that it is not enough to be a business person. In order to be successful SMME’s, we have to be activists as well.

THE STRUCTURAL ISSUE UNDERLYING CHRONIC MARKET FAILURE South Africa is a highly unequal society. The measure of this is called the Gini Coefficient – it measures the level of inequality between the highest and the lowest income earners. A Gini co-efficient of 1 would mean that one individual earned everything, and a Gini co-efficient of 0 would mean that every South Africa’s earned the same. South Africa’s used to be the highest in the world, at 0. 71 in 2010. It has now dropped to 57. 8, still the highest in the world. The reason for the drop is the increase in social grants – some income has been transferred from the rich (or the middle income groups) to the poor. There are three causes of economic inequality: • Asset inequality, i. e. access to land, property, and investments is extremely unequal. • A very high rate of unemployment – South Africa is number 173 in the world, very close to the bottom. • Income inequality: the difference between high and low income earners is very steep.

HOW DOES INCOME INEQUALITY AFFECT MARKET DEMAND? Top 10 % of income earners earn almost half the nation’s income (46%). Top 5 % earn one third. Top 1% earn one sixth. What do the rich consume? Much of their money is not consumed, but saved and re-invested, often overseas. This affects the domestic market for goods and services negatively. When they consume, it is not what South African SMME’s produce, but rather goods and services produced by other rich. For example gold, diamonds, luxury cars, designer clothing, French champagne, overseas holidays, computers, communications. Only domestic services, property, construction, leisure and some fresh foods can really be said to be sourced in the domestic market. Therefore half the nation’s income provides at best very indifferent market support for SMME’s.

WHAT DO THE POOR CONSUME? Poorest 10 % consume 1. 1 % of nations’ income. Poorest 50 % live below poverty line, consuming about one tenth of the nations’ income. The market poor people provide is extremely small. Also limited in terms of good and services: • • • Basic foods Energy Transport Cheap building materials Alcohol This is not much from which to build an SMME sector.

THAT LEAVES THE “MIDDLE INCOME” GROUP TO PROVIDE A MARKET FOR YOU 80 % of the nations’ people consume 40 % of the nations’ income. It is from this group that much of the tax transfers come. BUT: ecosystem services are also becoming increasingly expensive. Ecosystem services are, for example: • Fresh air • Clean water • Fertile land • A predictable climate We are all having to pay for diminishing ecosystem services. It can be seen as a tax which is being imposed by nature because we have not been good stewards of Earth’s resources. Sometimes this is in the form of direct taxes; for instance, DWEA has estimated the cost of sorting out acid mine drainage will amount to R 350 million/ year. Direct and indirect taxes further reduce disposable income of this group, making your potential market even smaller.

WHAT IS THE SOLUTION? Commercial agriculture causes about 30%-50% of world carbon emissions. • About half through direct emissions (diesel use, fertilizer, pesticide and herbicide application) • About half through land use changes (deforestation, wetlands removal, desertification and soil erosion. Organic agriculture reduces this to near zero, and under the right conditions is carbon positive (stores more carbon than it produces). • Partly because it reduces direct emissions. • Partly because it stores soil carbon. • Best of all, organic farming is typically small-holder agriculture • AND USES ABOUT 30 % MORE LABOUR PER HECTARE.

HOW DOES ORGANIC AGRICULTURE SOLVE OUR MARKET PROBLEM? Organic permaculture or agroforestry systems restore forests and promote species diversity. Organic agriculture recycles waste, stops soil erosion and can preserve wetlands. Well-run organic systems store and clean water. For the first 30 years, or so, organic agriculture stores soil carbon until a new balance is reached. All these things produce ecosystem services and reduce indirect taxes. Small-holder farming reduces asset inequality, promotes more efficient use of land, and provides firmer asset base for next generation of SMME’s. Absorption of labour into agriculture will promote more balanced income levels and begin to increase general wage levels. This is also a very cheap way to do it since it is adapted to existing skills levels. THIS WILL PROVIDE STRONGER MARKETS AND MORE DEMAND FOR LOCALLY PRODUCED GOODS.

TAKE HOME MESSAGES 1. EVEN HARD-WORKING BUSINESS WOMEN NEED TO TAKE TIME TO ACT FOR SOCIAL JUSTICE AND ECONOMIC EQUALITY. IT IS LONG-TERM WORK TO IMPROVE YOUR MARKETS. 2. SUPPORT ORGANIC AGRICULTURE, EITHER AS PRODUCER OR CONSUMER.

THANK YOU !!!