The successful limits of BEE

Impatience with improving the economic lot of black South Africans is understandable, given the relative poverty that especially black Africans find themselves in. But fighting over a too small economic cake isn’t going to change our realities.

Under strain externally and internally, Cosatu secretary general Zwelinzima Vavi has deflected to an old monster-under-the-bed, capitalism. This he describes as “the real enemy” of black advancement and against which he’d like attention rather to be focussed.

Quaintly out of touch in the 21st century and with a continent booming at 5% to 7% GDP growth a year, Vavi’s attempt ignores the lockout of blacks from capitalist opportunity this past South African century – largely why they’re relatively poor in the first place.

Even so, he may tap into something. Dire poverty is in decline, but very much a reality for many. Despite marked progress these past 20 years in reducing income inequalities, providing basic state services and stipends to many millions of people, and in many other ways, Statistics SA reports that more than 40% of black African adults are unemployed, and that a quarter of people without jobs haven’t had any for five years or more.

Across such fields of human anxiety and disappointment lie stories of individual and collective trauma, and negative effects on nutrition, education, basic health, living standards and in deeper issues of tenuous self-confidence follow.

But that’s hardly the fault of capitalism, the free actions of free people. Indeed, trying to force the market’s racial ownership patterns have seemingly had some success. Racial economic change is legislatively pushed through laws requiring or encouraging company BEE shareholding, employment equity changes to staff and management composition, preferential procurement, and in soft options like skills levies and training incentives.

Economist Mike Schüssler calculates Africans owning 41% of private property in SA and forming 82% of people whose homes are owned and fully paid off. The Free Market Foundation’s Themba Nolutshungu has African JSE share ownership rise 61% in just this century’s first decade, with shares in JSE retirement funds up 87%. Research company Finmark Trust puts 2010’s African share of small business ownership at 83%, while black directorships on JSE-listed companies increased 83% in just two years from 2008, says the SA Institute of Race Relations. The latter also puts BEE deals the decade from 1998 at up to R600 billion.

These last have to be paid for, of course. But legally requiring local ownership adjustment can rattle investors, with Nigerian billionaire Aliko Dangote claiming this “blocks investment into SA”, while the African Development Bank’s Professor Mthuli Ncube says BEE deals have created no shareholder value. They presumably have for some of their beneficiaries.

Bringing a greater reach of beneficiaries into BEE deals has in recent years seen companies like Volkswagen and Kumba opt for “community trusts”, with share dividends (after payback) used for upliftment projects. This has its own problems, not least in deciding just who manages the trust decisions and just how representative of “communities” they are, notes Feedback Analytics.

There is certainly movement in racial economic ownership and benefit, but fighting over an existing business cake has its limits. Says Ncube:  “The next step should be creating more entrepreneurs, creating a new cake. That’s where (BEE) needs to go”.

– Paul Pereira (first published in The Citizen, 21 May 2013)