BEEing the owners we want
Black economic empowerment has come a long way since South Africa emerged from the first democratic elections in 1994. And thankfully so, because those early steps to transform the economy often resembled something of a stampede … a stampede of a few.
Business headlines in the 1990s were dominated by announcements of one share incentive scheme and special purpose vehicle after the other.
The trumpeting of these “ground-breaking” and “historic” empowerment transactions often masked the true nature of deals that far too often involved just a handful of connected individuals.
Judging by the recent revelations regarding Gold Fields’ 2010 empowerment deal — via yet another special purpose vehicle — very little real progress has been made.
The mining company is fighting off accusations that the deal was structured to benefit key figures in the ANC, as well as individuals with dubious credentials.
One of the gravest disappointments is that we don’t seem to have made greater progress beyond the emphasis on ownership, despite the introduction of the broad-based black economic empowerment codes of good practice a decade ago.
“We have to look at BEE as a strategy to grow the country’s economy,” says Dr Thami Mazwai. “It’s not a reward for being black. Being black is not a skill in itself.”
Mazwai is a former journalist and publisher, anti-apartheid activist, and until recently the director of the Centre for Small Business Development at the University of Johannesburg. He is currently chairman of Mtiya Dynamics, which consults on enterprise and supplier development strategies.
“The problem with black empowerment done before the codes was that it was more a matter of companies not knowing what to do, and [doing these deals] just to salve their conscience,” he says.
“The biggest shortcoming of the codes at that time was it was very convenient to give blacks shares. But the downside was that you created a mindset that economic empowerment was about giving shares. There was no sufficient effort to make economic development the standard.”
He argues that the economy would have been better served if economic development and entrepreneurship had been pursued rather than share ownership.
“I think the biggest shortcoming was that the stress on enterprise and skills development was just not there.”
He acknowledges that the economic transformation process was bound to be beset by “hit and miss” strategies and policies, but that the worst of this could have been avoided if these policies had been based on local knowledge and realities.
He recalls how the first Small Business Act defined a small business as an enterprise with annual turnover above R5-million.
“The first Act excluded black entrepreneurs because the definition was based on what the world standards were, and the experts who came to assist the government were from developed economies. In the black community, a turnover of R5-million is big business. Even today, only 7% of businesses in the townships have a turnover of more than R1-million. So those classifications were completely out of kilter with what the country should do.”
One entrepreneur who proved his mettle, no less than a full decade before democracy no less, is Black Like Me founder Herman Mashaba.
The executive chairman of Lephatsi Investments’ story is a compelling one. Overcoming his humble upbringing in Hammanskraal, his drive and determination have resulted in him steadily growing his empire over the past 30 years.
He fully supports the objectives of the BEE codes, but believes they have stifled rather than supported the country’s economic prospects in the intervening years.
“The BEE codes are an imperative. No-one can question this because the lack of black participation before 1994 was not of our making. Our lack of participation in the economy was not an accident,” he says.
“We needed to find ways to address it and I think it was great that government came up with policies to address it.
“But, I don’t think we’ve been successful. Some aspects of the codes are not good for our economy and the challenge is the implementation. Let us not come up with policies that are going to discourage economic growth in our country.”
Like Mazwai, he laments the blind focus on ownership, saying he would prefer to see greater emphasis on social investment and development of black skills.
He says that the greater threat to the future of the country lies in discouraging young, white South Africans from starting their own business because of the BEE codes.
“It is my children and my children’s children who are going to suffer when South Africa does not have a strong business base. Why come up with laws that don’t encourage the promotion of business?
“They can impose these rules on the big companies. You can say they benefited from apartheid. But young, white South Africans wanting to start today? Let’s encourage them.”
He points in particular to restrictive labour legislation that, he argues, has not allowed economic activity to thrive.
This is a favourite hobby-horse of his, particularly since taking over as chairman of the Free Market Foundation two years ago.
“If I look at our economic growth over the past few years, it’s really worrying. And the draconian labour legislation has, for me, been the number one stumbling block.”
The labour environment also comes under fire from Mazwai, who suggests that the system is biased towards protecting jobs in major economic centres rather than creating employment and opportunities in outlying areas.
“When you look at a place like Lusikisiki, R50-million is paid out in grants, and 80% of that leaks out [to metropolitan centres]. How can there be development in Lusikisiki when the money is not circulating to keep the people busy in gainful production?
“If we are serious about dealing with unemployment, we cannot go on as we have where we grow the existing businesses. They are not going to employ more people; they are going to become more capital intensive.
“I know that what I’m saying is heresy as far as Cosatu is concerned, but its brief is not to grow the economy, but to protect jobs.”
Simple industries such as bakeries are a natural candidate for such economic development.
“When you see a bakery van going into a rural area, something is seriously wrong,” he suggests.
He says that government is potentially missing a significant opportunity for true economic empowerment, particularly in these outlying areas.
“I don’t think that the government is aware that the Expanded Public Works Programme (EPWP) is a formidable tool in its hands to really make a difference in terms of economic development,” he says.
“The EPWP must not be seen as a poverty eradication programme. What you need is new thinking. It should be taking pride of its place because by its very nature, it involves people in marginalised areas.”
Recent revisions to the BBBEE codes hold some hope for the future success of this grand plan to transform the economy, with enterprise and economic development taking front stage.
“Obviously we have burnt our fingers,” says Mazwai, “but I think we have learnt our lessons and will see a dramatic turnaround on the whole question of small business development. It is becoming the centrepiece of BEE, and that is what should have happened in the first instance. I have a lot of hope for BEE, but the emphasis must be less on making people shareholders of Anglo American rather letting people create their own Anglo American.”
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