MARK BARNES: Those invested in the future need to tackle capital and revenue leakage

To succeed in business you must solve a problem and make the solution scalable. Problem identity is commonplace. It happens often, sometimes unintentionally, in casual conversation, most often the result of common sense, seldom the manifestation of genius. Listen for it, distil its essence down to a single statement, and do it.

Getting it done requires determination, energy, single-mindedness (being convinced beyond the doubters), time and risk capital. It’s far easier to just sit back and not fix it (properly) if it ain’t broke, but eventually legacy businesses led by legacy mindsets fail — all of them.

We have big problems to solve. A list won’t help. Root cause identification and treatment is required. There are some common undercurrents. One of them is leakage. Our economic foundations are leaking like a sieve.

I am grateful to the various city crews who spend time tirelessly repairing and patching failing water infrastructure, but I’m afraid “there’s a hole in your bucket, dear Liza” and their work will never be done. We have a reactive task force, not a cohesive, funded strategy.

About 40% of municipal water supply in SA is not getting to its customers. The problem is systemic, not random, not isolated. Electricity supply has the same problem — while source availability seems back up for now, delivery will continue to be sporadic until the infrastructure is upgraded, replaced or substituted. We’re past nine stitches. 

Gauteng’s water supply system has to be replaced with a thorough, incremental, executable plan of renewal, so compelling, so stable that it will attract direct discretionary capital, like Eskom once did, like all functional utilities can and should. The acid test is whether water supply bonds would be subscribed for by capital market players, particularly foreign investors who have choice (with no intermediary money leakage).

If the system works, the users must pay, however little, however much subsidy and discipline may be required. Our finances also leak. The extent of capital and revenue leakage due to corruption (a result of fair market value overrides, ignorance and theft) runs into trillions, forcibly overwhelming any influence an astute budget process can counter, or ingenuity can solve. 

To even aspire to the 3%-5% GDP growth we need (on a per capita basis) to address poverty and unemployment, or the more like 8% we need to prosper, will furthermore require bringing the vast informal economy into the formal mix — rivers of tax revenue leakage flow there. 

If the reported 565 zama zamas at Orkney (who were driven to the surface by the questionable practice of denying them access to food and water) is any indication of the extent of illegal mining taking place in SA, that brings what I might classify as the “scraps economy” into focus. We have efficient clearing mechanisms for excesses and leftovers in place for so many sectors in the economy, but who’s benefiting and who’s being exploited? 

I’ve never figured out where all the stolen money ends up, whether spent or stored. Fragments of it are evident in fast cars, bodyguards and fancy handbags, but does it all figure in our GDP, or is it all offshore? That’s another leakage we can do without. If the rise in organised crime is anything to go by, a lot of it is still here — circulating in the underground world of illicit trade, drugs and other life-shortening activities. 

Some established formal economy players have done well out of expanding into the huge developing sectors of our economy (such as Shoprite in retail and Capitec in banking), while other legacy players have languished. Only those prepared to embrace our new economic order will survive. When they do, imagine the jobs, imagine the tax revenue. 

Solutions for growth will be found with our bright and bushy-tailed 45-year-olds. Let’s invite in those who want to plant a future, and kick out those only interested in harvesting a past.

• Barnes is an investment banker with more than 35 years’ experience in various capacities in the financial sector.