Will BEE continue to be?

Is BEE going the same way as the RDP and a number of other post-1994 policy acronyms?

This is the kind of question I have been asked casually in conversation after the momentous ousting from power of Thabo Mbeki. Mbeki put his personal stamp on the evolution of black economic empowerment into government policy, encapsulated in the Broad-Based BEE Act and its accompanying Codes of Good Practice.

It is not impossible. Recall how entrenched in the national consciousness was the Reconstruction and Development Programme, how much time was spent analysing, debating and contemplating its many parts.

It was Mbeki, the incoming president, who saw off the Reconstruction and Development Programme ministry and folded the RDP into the budget, after which it was rarely heard of (except as a description of the matchbox houses government has been building all over the country which are known as “RDP houses”).

And it was the current President, Kgalema Motlanthe, unlike the Cyrils and Tokyos, not obviously over-empowered, who in 2004 questioned the narrowness of BEE transactions. He told the Black Management Forum that “certain individuals” seemed not to be satisfied with “a single bout of empowerment”, referring to the then growing disenchantment with BEE deals that involved what became known as “the usual suspects”.

“Perhaps, in order to forestall this and broaden the base of black empowerment, we should declare that, once an individual has been empowered, he or she should no longer be regarded as a historically disadvantaged person, but should accept the status of an ordinary business partner. Perhaps it is time to move to limit one person to one empowerment, at least where this involves significant state resources.”

The underlying resentment against narrow-based BEE increased to such an extent that many of the latest deals, such as the Vodacom and Sasol deals, have a strong thrust towards involving many smaller black beneficiaries.

A signal of the way people are thinking now is the reference to BEE in the closest thing to an extensive economic policy document, a two-part article by the Cosatu secretary general, Zwelinzima Vavi, based on recommendations of a panel of “progressive economists”.

What’s interesting about this document is that there is a single reference to BEE, almost in passing.
“The BEE strategy is reinforcing the current growth path and buying into the existing business model. BEE has not been realigned to the emerging industrial policy.”

That’s it; there is no further discussion of this point, which is largely valid. BEE deals seem to have effectively bought off pressures for new competition in some areas, notably telecommunications.

To see what might be meant, National Empowerment Fund chair Ronnie Ntuli’s recent speech to Parliament about BEE complained that government had taken its foot off the economic transformation pedal.

Ntuli went on to speak about the need to go beyond the BEE deal paradigm, where black groups buy into white companies.

“Though this is a critical first step, an important next step must be to encourage and support the creation of new enterprises, big and small, in sectors and regions that will enhance their growth, create employment and make the economy competitive globally.”

Part of Motlanthe’s analysis of what was wrong with BEE in his 2004 speech was exactly this.

“Another weakness in the empowerment programme is that it has been focused on transfer rather than transformation. By ‘transfer’ I mean the ceding of existing assets to individuals in a manner that does not in any way alter the economic structure. By ‘transformation’ I mean the creation of new markets, new investments and new drivers of domestic demand in the economy.”

Vavi, Ntuli and Motlanthe seem to be on the same wavelength. Add to this the call by ANC treasurer Mathews Phosa “for the process of black empowerment to be much more transparent and for its beneficiaries to be much more representative of the demographics of the country”.

What this anti-BEE deal sentiment can translate into is limited by the reality of BEE legislation being in place, soft law though it may be, in the form of the Broad-Based BEE Act, with its Codes of Good Practice.

Also, the calls for equity transfer remain strong. Witness the pressure being put on the financial services companies by community and labour to increase the black shareholding percentage required by the Financial Services Charter (FSC). If the department of trade and industry cannot broker a deal between those in favour of keeping the charter as it is and those who want a higher percentage of black equity, the banks and other financial ser-vices companies will fall under the codes, threatening the present FSC thrust for financial inclusion of the poor. The codes require transfer of equity as part of any company’s BEE compliance with the balanced scorecard.

Scrapping the codes or the Act would close the door on those who might still benefit from BEE deals and the BEE old boys’ club (it is mainly male for the moment) is not big enough to put up a “no more room” sign, or rich enough to go it alone and take on vested interests.

What might—and I stress this is the realm of supposition—militate against BEE deals more is the global financial crisis, which will make deal-making more difficult. It could unravel some of the deals already done, because most are in one way or another dependent on a rising share price.

Yet, after the Asian crisis, the cycle of deal-making started again, albeit with tweaked financial models. I doubt we’ve seen the end of the big BEE deal.

In any case it will be interesting to see how the new Cabinet balances the desire for racial transformation with other economic transformation and with market forces.

 

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