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Paragons Or Parasites?

It is 10 years since South Africa introduced its contentious economic policy designed to address the inequities of its past. FORBES AFRICA analyses the triumphs and follies of BEE.

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It’s the three-letter acronym, with a sting, that few can ignore. BEE—Black Economic Empowerment—is a decade old this year and has rarely been free of controversy.

Questions are being asked about whether BEE has brought more people of color into the South African economy or reached its expiry date.

There are many critics of the ruling African National Congress’ (ANC) policies. They claim that BEE has far from closed the gap between rich and poor, despite South Africa’s solid economic infrastructure and increased social welfare spending. South Africa’s GINI co-efficient numbers—the global measurement of inequality—remain among the highest in the world.

Professor Adam Habib, political commentator and new vice-chancellor of the University of Witwatersrand in Johannesburg, says BEE was never intended to be a policy to bring previously disadvantaged South Africans into the economic mainstream, even though it was presented as such. For him BEE was an exercise in exquisite deception.

“The ANC’s aim was not to deracialize the economy, through investing in small business or entrepreneurs, but a critical decision to deracialize the apex of white business in South Africa, which they did and created a class of capitalistic and parasitic bourgeoisie,” says Habib.

Habib uses the word “parasitic” because he says the BEE super elite have not created new business, promoted Greenfield projects or stimulated job creation or entrepreneurship that’s sustainable or meaningful.

“The irony is, it’s easier to get a tender worth R250 million ($25 million) than it is to get R25,000 ($2,500) to start a small business,” he says.

Habib says, the policy needs a complete overhaul. As he puts it: “Pigmentation becomes a tradable commodity in South Africa.”

His three checkboxes to justify BEE are: for small business development to be prioritized; a “one bite at the cherry” clause to apply for those who benefit from BEE deals; and firm action to stimulate new enterprise.

Moeletsi Mbeki is less confident that there is anything worth salvaging from the policy enacted during his brother, Thabo Mbeki’s, presidential tenure. He says BEE has not benefitted the majority of South Africans, black or white.

“In the 10 years of BEE, what we’ve learnt was that it was an important device to create an economic oligarchy for the politically connected, which was always the aim. The majority of South Africans, black or whites, are no better off because of policies like BEE or affirmative action,” says Mbeki.

“The ANC needs BEE to continue to perpetuate the illusion that everyone can enter into this circle of wealth.”

BEE has come with a complex system of scorecards, codes and charters that cut across two broad aims of skills development and employment equity. It is broken down into additional categories and indicators so government can assess companies for BEE compliance.

The ANC’s man on economic transformation is Enoch Gondongwana, who failed to respond to FORBES AFRICA’s requests for comment.

The party’s secretary general, Gwede Mantashe, has criticized BEE, saying he has “serious grievances with BEE focusing on shareholding rather helping beneficiaries gain a deeper understanding of business”.

Mantashe has slated a lack of transformation, saying the new breed of black CEOs is mere window dressing. He has also criticized growing wastage as BEE companies use the state as a cash cow, by providing poor quality goods at inflated prices.

The Black Management Forum (BMF) disagrees and says BEE has to continue because it serves the country’s growth and development needs.

“BEE is a moral initiative to redress the wrongs of the past. It’s also a pragmatic growth strategy that aims to realize the country’s full economic potential, while helping to bring the black majority into the economic mainstream. Given the fact that the economy has not transformed to encourage participation, which reflects the demographics of South Africa, makes talk of a ‘sunset clause’ irrelevant and premature,” says Rowena Baird of BMF.

Baird argues that BEE is not a racially divisive policy because its aim is not to take wealth from one group to give to another.

There are lessons from countries such as Malaysia that embarked on a 20-year-long National Economic Policy (NEP) in 1970. It was meant to eradicate poverty and restructure society, to eliminate the identification of race in economic life. It promoted affirmative action in favor of Malays but also had the effect of pushing Chinese economic, educational and cultural life to society’s periphery, leading many Chinese to feel like second-class citizens.

For Mamphela Ramphele, former managing director of the World Bank and leader of new political party Agang, the Malaysian story should be a warning to South Africa that making citizens feel alienated is a recipe for disaster.

“BEE can only work if it has real intentions to redress the legacy of the past that systematically disadvantaged black people,” she says.

Ramphele says that more structured programs need to be in place. She says well planned employee share schemes can mean money in the pockets of a wider range of previously disadvantaged individuals.

The South African Institute of Race Relations (SAIRR) says racial inequality has been declining, but it’s not because of the post-apartheid policies.

Anthea Jeffrey, head of special research at the SAIRR, says: “Such inequality has been declining steadily since 1970 and started under the Nationalist Party.”

Factors she cites include rising skills, unionization, and better paid jobs for Africans.

“Redistribution via the budget has played a vital part; 16 million people are now on social grants. The government also provides free RDP houses, free schooling in 60 percent of schools, free healthcare to many, and free basic water and electricity to the indigent. In addition, public sector employment has been steadily expanding, while average wages in the public sector, where Africans predominate, outstrip those in the private sector by around 40 percent,” she says.

“Despite its evident successes, racial inequality remains stark. The poor are far from being content as rising social and labor unrest makes clear. The number one aspiration of adults living in relative poverty is to get a job,” says Jeffrey.

Unequal skills and a lack of opportunity divide; makes policies like BEE and employment equity irrelevant to the poor because legislation doesn’t bring them in from the cold.

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