All too often analysis of transformat ion in South Africa gets snarled up in arguments about how much has really been achieved and how most South Africans are still not proactively participating in the mainstream economy.
We forget that lack of participation was embedded (starting with the defeat of the Khoikhoi in 1659) throughout the more than 350 years of South Africa’s existence, with dispossession and oppression of certain groups being an accepted way of life during all that time.
To expect to correct the full range of consequences of hundreds of years of behaviour in just 16 years is unrealistic, to say the least. Perhaps more to the point is that such a comprehensive transformation of society as we have embarked upon has never been attempted inmodern times and in such a globalised environment.
Transformation in South Africa is, therefore, oneof the purest forms of socioeconomic entrepreneurship — or trailblazing ever undertaken and, when you blaze trails, it follows that there are no guidebooks, because no one has been down this path before you. There may be no guidebooks but there is one guiding principle.
The true measure of transformation is not just the levels of equity and ownership in commerce by previously disadvantaged people but also the positive impact this has not only on the performance of the companies in which they now participate but also on the performance of the overall economy. To be effective, transformation should lead to improvement of performance.
It should make the companies and the country more competitive. South Africa should be the richer on all levels — for the participation in the economy of progressively more of its people.
The change conundrum
Seen in that light, we’re doing not too badly. The economy is holding up very well, particularly if you consider the current state of globalised commerce. By contrast, when affirmative action began in the United States about 50 years ago, country economies were more isolated. What the US did to bring the more or less 15% of its racially underprivileged people into economic activity had little knock-on effect on its economic partners or on global opinion of the US.
The same can be said of Japan’s attempts during the latter half of the 20th century to transfer its economy from the hands of a financial, political and social elite into the hands of the middle class. No one was watching. Very few outside of Japan were affected — until the transformation was complete and Japan had become an economic force. Aside from the strategic interest followed by economic support from the US, Japan was free to implement, misstep and tweak its system until it got it right.
South Africa has no such luxury. It came to democracy in a global spotlight. It drew up its advanced Constitution with the input of international experts. And it now participates in a knowledge-based, globalised economy along with other developing countries, all competing in the same markets and for the same investment funds. If South Africa slips, its place will be taken by any one of 20 or 30 developing countries.
The World Economic Forum’s 2010 Global Competitiveness Report ranks South Africa 45th out of 133 countries for global competitiveness which is the clearest objective indicator we could have that transformation is working.
Changing transformation
But with current unemployment statistics ranging from 25% to 60%, we still have work to do. Our transformation model is by no means perfect and, in its current form, unlikely to take us any further. We must adapt and augment our existing models to pursue new objectives. Most of the ownership and equity initiatives undertaken in the past 16 years have been at the large corporates level.
So there are not that many left that haven’t been down this road. More to the point, important as the corporates are, it’s the small and medium-sized businesses that drive the local economy. And the mid-cap companies are a transformation black hole. Not because they don’t have the will to be transformed but because they simply don’t know how or have the financial and managerial resources to acquire the know-how and then apply it.
Transformation is expensive, with many challenges. What has intrigued us as private equity investors in mid-market companies is that most of the chief executives in our portfolio companies didn’t know how to use transformation as a means to improve their business’ performance. They didn’t understand that transformation is a business performance enhancer in the same way as sophisticated technology or a more targeted business strategy can catapult your business into an entirely new league.
Obtaining the understanding would normally come with a BBBEE consultancy price tag that is too high for companies whose annual turnover runs between R50-million and R300-million. So we decided to pay that price for our portfolio companies, recouping our costs from their improved performance as triggered by more focused, astute and strategic application in their business of BBBEE principles.
We see this as a new transformation model, particularly in the midcap space — where transformation has been least attempted but where it is most needed. It’s an example of what is possible. Some large corporates are doing something similar with their small-and-medium-sized suppliers. The payback is a better supply chain for the corporates.
Transformation is not about official ratings, scorecards, equity and ownership. Those are outcomes, not genesis. Transformation is about finding ways for the engine room of South Africa to use empowerment as a growth mechanism. Profit is a great motivator. Why not tap into its power? It does mean doing things in a new way — trailblazing again. Isn’t that what entrepreneurs do?
William Jimerson is the Musa Capital co-founder and director