BEE Brief 11 April 2011
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This is an article from Black Business Quarterly on-line magazine written by Ntokozo Ndlovu (After an exclusive interview with Moeletsi Mbeki) entitled “We do need BEE”. I unashamedly include the entire article because it represents the many objections and discussions currently in circulation regarding BEE.
In the wake of mounting pressure to review black economic empowerment, analyst and author Moeletsi Mbeki offers a more candid perspective.
It does not take a rocket scientist to declare that black economic empowerment (BEE) – or its better loved sibling, broad-based BEE – have made very little impact on the poor.
The bulk of beneficiaries are the black elite, the Politically well-connected and the dynamic entrepreneurs who have made hay while the sun shines. Besides making an elite few even richer, the policy has evidently not done much for those in real need of empowerment.
In retrospect, the policy of BEE was introduced to redress imbalances of the past, and as a pragmatic growth strategy to realise the country’s full economic potential and transform South Africa’s economy.
Despite the many economic gains since 1994, with a growth rate of 4% or higher every quarter since 2004, there are visible blemishes. The racial divide between the rich and poor remains, there is a rise in unemployment and corruption in the government, and the mismanagement of the public sector.
In 2007, 153 BEE transactions were carried out to the tune of R96 billion. The value of BEE deals in 2006 was R56bn, and the bulk of beneficiaries of these
transactions were the usual suspects.
The poor remain much on the margins, facing the same dehumanising poverty as they did during apartheid. The standard of education has not improved, and
little significant investments have been made toward skills development, job creation or the betterment of the standards of living for the poor .
In late 2009, the government launched a BEE Advisory Council, primarily to assist it in addressing shortcomings of its empowerment policies, through practices such as fronting and identifying weaknesses in the verification and accreditation procedures.
Since then, there has been much talk about ways of redefining BEE.
In October 2010, Finance Minister Pravin Gordhan warned in his Medium-Term Budget Policy Statement that the government would follow up cases of tender corruption (with reference to BEE) ,and other matters where poor service delivery emanated from “collusion” between officials and private enterprise.
In December last year, Minister of Trade and Industry Rob Davies said the “scourge” of fronting in BEE transactions to secure government contracts had become so pandemic that “we needed to become much more energetic in combating (it)”. However, no results have come out of these plans.
In 2003, Davies’ department said it was working with Treasury to find ways of penalising companies for “fronting”, while disguising it as BEE or affirmative
procurement.
Other departments, too, have promised to criminalise fronting.
While government officials and politicians talk of resolving ills associated with BEE i.e. corruption in the tender process, fronting and other forms of wrongdoing, their kith and kin continue to strike gold, and in the process slow down processes of genuine empowerment.
The reality of South Africa’s framework for empowerment is that the lives of the poor have not significantly changed. Unemployment has risen, coupled with a
shrinking manufacturing or industrial sector.
In 2008, the manufacturing sector accounted for only 16% of gross domestic product – down from about 25% in 1990.
In South Korea, manufacturing accounts for 35% of GDP, and in China a massive 51% of its GDP.
The Chinese government has invested a great deal in its education system; every year, it builds new universities and colleges to produce educated, competent and skilled workers. By the end of 2004, China had over 2 200 universities and colleges.
The Chinese government invests in entrepreneurship and job creation because the country has a wealth of skills and, as such, the economy is booming.
This is in stark contrast to South Africa, where a pool of uneducated people from previously disadvantaged communities survives on social grants. Most cannot find work, as industries in South Africa have dwindled, with more focus shifting toward the country’s natural resources – which is where the politicians and the elite have struck it rich.
It is an unsustainable model, described by author of Architects of Poverty Moeletsi Mbeki as a system that has encouraged development of a bloated middle and senior level of management, which is grossly overpaid and underqualified.
Speaking in an exclusive interview with Black Business Quarterly, Mbeki stated: “We have all this employment legislation and equity legislation in the country, BEE legislation included, but if people don’t have qualifications, and they don’t have the work ethic and training, you can pass as many laws as you wish about employment equity – it will not make private companies employ unqualified people, and that’s why we have service delivery problems in the public sector. It’s because government employs people who haven’t the training, but are politically connected.”
He said the private sector is productive because it employs qualified and competent people, whereas BEE and BBBEE compel the private sector to employ unqualified people for reasons of creating jobs.
The government has not done much to educate and upskill people and, since the introduction of BEE, has sustained the illusion of making poor people believe in BEE and its promises.
Very little investment has been made toward the promotion of entrepreneurship in industries, one of the biggest drivers in addressing unemployment and poverty.
Mbeki said that to understand fronting, the premise of BEE needs to be explained.
He revealed that most people in South Africa, and the rest of the world, naively believe BEE was an invention of the African National Congress (ANC). To the contrary, BEE was, in fact, conceptualised by what he called “South Africa’s economic oligarchies” – a handful of white businessmen and their families, who control the commanding heights of this country’s economy, including mining with its associated chemical and engineering industries and finance.
He explained that the object of BEE was to co-opt leaders of the Black Resistance Movement, by literally buying them off with what seemed a transfer of massive assets to them at no cost. But to the oligarchies, these assets were, in fact, small change.
The scheme was used to wean the ANC off radical economic ambitions, such as nationalising the major elements of the South African economy, by putting cash in politicians’ private pockets. The transfer of wealth from the strong to the weak is what has come to be known as BEE, according to Mbeki.
In return, the ANC had to give these oligarchies’ companies a first bite at government contracts that appealed to them, and protect them from foreign competition, while opening up the rest of the economy, particularly consumer goods and the manufacturing sector.
Those oligarchies wanted to shift their companies’ primary listings and headquarters from Johannesburg to London, which the ANC allowed.
All these machinations were eventually incorporated into South Africa’s democratic constitution, through creation of citizens – apparently 91% of the population – to be known as previously disadvantaged individuals.
This gave the impression that all black South Africans could or would benefit from BEE, and this legitimised the co-option payment to the black political elite by dangling before the black masses the possibility that one day they, too, would receive reparations for wrongs inflicted during apartheid.
“It is unfortunate that the ANC has been very successful in creating the illusion among the poor that there’s hope for them in BEE, when the policy was never in the first place created for purposes of redress,” revealed Mbeki.
“The reality is, South Africans don’t need BEE, the poor do not need BEE, it has not made an impact on their lives; the emerging black middle-class does not need BEE, they are educated, skilled and competent and can equally compete in the open market just like anyone else.”
He maintains that the reason BEE still exists is because politicians and government officials need it, and the elimination thereof will definitely affect them. All this tough talk about developing laws to address fronting and fake BEE are mere threats because the same people making the laws are the ones benefiting, and are in cahoots with BEE fronting companies.
“A good education system, good healthcare, skills development, the creation of an employable community of professionals, decent housing, creation of sustainable jobs, revival of industries in South Africa to create sustainable jobs, will bring about genuine empowerment for all citizens of South Africa – and not crazy schemes like BEE,” advised Mbeki.
Many people now warn of a bleak future for the country should this greed continue, in view of the fact that 10 official years after its introduction, not much has been done to empower previously disadvantaged communities.
Archbishop Emeritus Desmond Tutu has cautioned that South Africa is sitting on a “powder keg” because millions are living in “dehumanising poverty”, as BEE continues to serve the elite few – stating that political “kowtowing” within the ANC is hampering democracy.
“BEE is a system that is building up much resentment we may rue later, and it is the kind of antagonism that threatens the security of our country,” he said.
According to Jenny Cargill, author of Trick or Treat, the biggest challenge facing South Africa now is that “we cannot move on from BEE and we have lost our innovation on how to create a much more inclusive society, one that will encourage up-skilling and accord people from previously disadvantaged communities an equal opportunity to engage productively in the economy.”
It is clear that the current BEE formula has not worked and does not include empowerment as an agenda for the people of South Africa as a whole, neither does it address South Africa’s socio-economic challenges.
Instead, it is the cause of current socio-economic inequalities, and a key contributor to the failed public sector system, where positions have been created to accommodate the elite and politically connected.
South Africa requires a solution that will genuinely empower people. An effectively educated populace, creation of a pool of qualified people and revitalisation of industries will play a significant role in addressing poverty in this country.
A skilled workforce can compete for jobs in the open market, without the flawed current affirmative action programmes.
Ntokozo Ndlovu
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