The emergence of a black middle class is not solely the product of equity transactions but also of the skills development, employment equity, enterprise development and preferential-procurement elements of the black economic empowerment (BEE) codes, argues a paper from the Businessmap Foundation published this month.
“If the equity element were to be done away with, blacks would continue to benefit from the economy and their upward mobility would continue apace,” write the authors of the paper, Khehla Shubane and Colin Reddy.
The premise of the paper, entitled BEE and the black middle class, is that the rise of the black middle class is not solely the result of the “acquisition of equity by blacks in companies controlled by white people”.
They argue that empowerment is often reduced in the public eye to the moment when shares are sold to a black group in a BEE deal. It is also assumed that this type of transaction confers wealth and status upon the black partners involved in the deal.
But Shubane and Reddy note that the actual ownership of shares may be postponed until the money used to buy the shares is paid off. Moreover, the black partners often receive a relatively small chunk of the total value of the BEE deal because of this debt.
Companies such as Mvelaphanda and Shanduka have nevertheless managed to acquire significant assets, the authors admit, but maintain that “equity transactions are, however, generally slow to create the wealth that is associated with empowerment”.
The paper then considers four other elements of BEE, namely skills development, enterprise development, employment equity and preferential procurement to identify how each may have contributed to the rise of the black middle class.
Skills development, for example, targets one of the key outcomes of apartheid, which Shubane and Reddy argue was to create an un-equal access to skills.
The current government’s efforts to improve the distribution of skills aims to give black people citizenship in the labour market, they write.
They point out that many of the current training initiatives concentrate on people who already have jobs and additional steps are necessary to up-skill the unemployed.
Not all people who receive training become middle class, Shubane and Reddy also note.
However, they maintain that training has facilitated the creation of a middle-class element among black people by giving them access to greater upward mobility and by supporting other elements of BEE such as employment equity, which requires that blacks have the necessary skills to occupy more senior positions.
The employment-equity element of the codes contributes to the formation of a black middle class because employment-equity legislation requires that blacks be represented in all occupational categories in legislated proportions, the authors write. Blacks in managerial positions will have greater access to resources that they can leverage to “catapult them into middle-class positions”.
The enterprise-development element of the codes helps to create a class of black business people with significant assets under their management, write Shubane and Reddy.
“The focus of enterprise development on black people building their own enterprises rather than acquiring assets from white-owned companies puts a spin that is always ignored,” they argue, “Empowerment is projected as blacks simply seeking to be given assets rather than creating them from scratch.”
They acknowledge that black-owned enterprises tend to start up in sectors that have low capital requirements such as catering or security and may have limited growth prospects.
In looking at preferential procurement, the authors argue that the implementation of BEE tends to favour the ownership element of the codes because of how officials interpret BEE. Without an equity transaction, companies may be considered non-compliant, they note.
The way BEE is practised therefore tends to create assets in the hands of black people, Shubane and Reddy argue, especially because the procurement regime allows empowered companies to charge some premium for their services.
Further work is necessary to test the logically developed claims in the article about the causality of the elements of the BEE codes and assumptions about the development of the black middle class. Yet the paper offers an important perspective by broadening perceptions about the impact of BEE on society and the manner in which this occurs.
What middle class?
Trade union federation Cosatu last week dismissed claims about the growth of the black middle class as “vastly exaggerated” in a response to a draft African National Congress’ economic policy paper, writes Tumi Makgetla.
The policy paper will be presented at the ANC’s policy conference in June.
The number of Africans in the top 10% of earners has almost tripled between 1996 and 2002, but still make up only 350 000 South Africans, Cosatu reports. This is out of a total of 37,7-million people who are defined as African, according to data from Statistics South Africa.
“Moreover, the median income for employed Africans in 2005 was just over R1Â 500 a month,” the federation notes.
Cosatu argues that the share of black people in senior positions remains limited. This is especially true of the private sector, which the federation describes as “particularly disappointing”. It notes that more black people have obtained jobs, especially in the public sector.
The number of Africans among senior management and professionals has increased from 29% in 1995 to 33% in 2005, according to the document.
Coloureds and Asians together have increased their representation by three percentage points to 15% of senior management and professionals.
Whites have declined by seven percentage points to 52% of senior management and professionals.
Cosatu argues in its response paper that there needs to be a “much more open debate” on whether the black economic empowerment codes will contribute to or detract from “the alliance’s historic mission” to empower people on a broad basis or realise the Freedom Charter’s demand for wealth redistribution.