Can it be that BEE, coupled with affirmative action, is retarding African entrepreneurship — and ironically spurring white people to take the plunge into running their own businesses?
Let’s be clear that entrepreneurship here entails innovation and risk-taking and contributes to economic development rather than being simply the art of spotting a gap.
There is some evidence that the end of apartheid privilege has spurred white entrepreneurship, pushing white executives out of their comfortable chairs in government and large firms to start their own businesses.
The phenomenon has both a “push” and a “pull” aspect. According to small-business expert Barrie Terblanche, the white people who start their own businesses are not necessarily being forced out of jobs.
They are not the “necessity entrepreneurs”, as the Global Entrepreneurship Monitor (GEM) dubs them. Rather, they are finding their race is subtly closing doors within corporations and government and the discomfort of having careers truncated is prompting them to look elsewhere. Allied to this is the new uncertainty that rules in the corporate environment. The idea of waiting for your gold watch is decidedly unwise if not unfashionable.
What little data there is backs up the theory — at least in part. The most startling figures I have come across are those quoted by Professor Carel van Aardt of the Bureau of Market Research, using figures produced by South Africa’s All Media Products survey.
Van Aardt produced figures in June 2003 that indicated that the number of African entrepreneurs had fallen by 16% from 1998 to 2002. By comparison, the figures for whites had risen by 5%, while the figure for Indians had shot up by 58%, and that for coloured people by 18%. So everyone other than Africans has become more entrepreneurial.
The recent Finscopeâ„¢ pilot study of small business in Gauteng showed, using its new Business Segmentation Model, that most African businesses were trapped in survivalist mode.
The energy of African survivalist business is visible in our city streets. What is keeping it from growing the economy and adding to competition by moving into more profitable activity?
Anecdotes are plentiful of capable, intelligent and educated black South Africans who have opted to set up shop specifically to get BEE deals, taking stakes in established firms rather than starting new, productive businesses in South Africa.
An example is the metamorphosis of Herman Mashaba from entrepreneur to BEE dealmaker. Mashaba made his name as the founder of Black Like Me during the apartheid era, triumphing over policies designed to suppress African business.
Other examples abound. BEE charters, in particular, and pressures to have African shareholders generally, have led to independent, operational black-owned or black- empowered businesses being swallowed by white or “established” businesses. Examples here are energy company Shell swallowing Thebe subsidiary Tepco, and the merger of Comparex Africa and Business Connexion Solution Holdings.
The African shareholders could argue that they were merely following the logic of capitalism.
After all, the fate of the black-owned Davids that emerged in the Nineties to take on the white Goliaths of industry sent the message that you can rather get a small stake in the economy with ease or fight for a large stake and get thrashed. National Sorghum Breweries and the Pepsi-bottler New Age Beverages are two prominent examples.
Few new truly black-owned or empowered businesses have been created through the billions raised for BEE over the years in high-profile deals. Some of those that stand out are involved in broadcasting, though HCI has a number of other investments as well as a major stake in the only privately owned free-to-air TV channel, e-tv. Another is the successful owner of Kagiso Media radio stations.
In the JSE’s Top 40 companies, African Rainbow Minerals (ARM) stands out. Patrice Motsepe founded ARM by raising debt to buy assets Anglo American Corporation no longer wanted, in what seemed at the time like a gamble. This gamble paid off handsomely for Motsepe and it is this kind of risk-taking that has been notably absent from BEE.
Along with ARM is newly created coal giant Exxaro, created by Anglo American through unbundling Kumba Resources. To be headed by mining entrepreneur Sipho Nkosi, it has yet to prove itself, but looks like a solidly empowered company.
And BEE has helped create some smaller black businesses such as wireless provider iBurst, as well as numerous black building contractors, for example. These are exceptions.
By comparison with the fate of those starting new ventures, BEE parties that settled for a slice of the action, particularly in the gambling industry, have fared well.
While BEE equity transfer or deals may have blunted African appetites for risky new ventures to shake up the South African business scene, affirmative action may have diverted — not suppressed — individual entrepreneurial instinct.
Affirmative action, particularly in the public sector and to some extent in the large corporations, has meant that African talent is quickly snapped up.
It has reportedly led to premiums of up to 40% for African candidates. Talented Africans who would otherwise be entrepreneurs are shackled by the golden handcuffs of the corporate and public sector.
When they do leave public service or corporations they are likely to enter the BEE field.
For instance, Andile Ngcaba, former director general of the department of communications, left government service in 2004 after eight and a half years to lead a BEE consortium for which a 25% interest was set aside in Dimension Data South Africa. A caution is that not everything can be laid at the door of BEE. The GEM 2006 study reveals that South Africa still has low entrepreneurial activity.
For now though, even if BEE has not held back entrepreneurship, it has not been much of a catalyst.
Perhaps because of a focus on BEE, government support for small business, however well-intentioned, has been lacking. The Finscope Gauteng pilot study found that only 8% of small businesses in the province were using government support mechanisms.
As the study shows, more needs to be done to help struggling smaller businesses, mostly African, graduate from the lower rungs of activity to more profitable, employment-generating small businesses. Education, specifically education that changes people’s mindsets about entrepreneurship, is one part of this.
It is clear that government cannot rely on BEE alone to spur the kind of new business creation that supports strong economic growth.