The last Isandla Development Communiqué of 2004 is shorter than previous newsletters. We are aware that this is not the best time of year to expect people to have time and energy to read lengthy documents. With this in mind, Isandla Institute wishes all readers of the newsletter a very restful and energising fest of season. We would also like to thank you for the positive feedback on Isandla Development Communiqué in its first year. It has been encouraging to know that the newsletter is appreciated. We intend to give you more critical reflection and thought-provoking articles in next year’s issues.

This issue’s Thought Matters carries part 2 of Frank Meintjies’ article on Black Economic Empowerment. Part 1 was printed in the previous issue of Isandla Development Communiqué. The complete article, with references, can be found on our website.

Black economic empowerment: Elite enrichment or real transformation?

Frank Meintjies (Part 2)

In Part 1 (published in Isandla Development Communiqué 9), Frank Meintjies argued that BEE, as a process of change affecting the apex of the economy, needs to be related to broader transformation and broader socio-economic change for all South Africa’s citizens. Although government attention to BEE has initially been slow, government has recently put in place measures that would allow clearer guidance and direction of BEE. Government favours a notion of broad-based empowerment, a notion that envisages that larger numbers of black citizens share in the direct benefits of the process and that has the potential to impact more broadly on inequality. The new legal framework (the Broad Based Black Economic Empowerment Act of 2003), together with heightened public debate and dialogue about the direction of BEE, creates a platform to transform BEE into a more effective and tranformational process.

Poles and Positions in the Debate on BEE
Before detailing the various standpoints in the debate on BEE, some broad outlines should be stated. Firstly, account should be taken of the key role of white pioneers and key exponents of BEE as one of the poles of thinking. Among these leading private-sector figures that have undertaken the deals there is a great sense of pleasure, and in some cases a sense of pride, about BEE. Why do they carry forward BEE? Is it because they put on black masks and put themselves in the shoes of black people? Is it because they support national objectives of transformation? Or, are they none other than full-on capitalists motivated by enlightened self-interest? The motivation of white business leaders in the forefront of BEE should be the subject of further study. They exist side by side with business counterparts who are much more sceptical. From time to time, a minority of private sector leaders expresses concern that the demands of BEE may affect competitiveness of South African enterprises. The intentionality of some business leaders, while useful and relevant, does not translate into relevant and insightful contributions regarding the formulation of a BEE strategy as part of South Africa’s transformation.

Another pole of thinking is that of the many white opinion-shapers who, although not directly involved in managing enterprises, have expressed anger and outrage at BEE. The Democratic Party has referred to BEE as an expression of crony capitalism, referring in particular to the fact that beneficiaries have often been persons connected to the ruling party. Other commentators from within the white community, including those with media influence and control, have expressed anger at enrichment of persons who were not entrepreneurs and did not add value to the business they were purchasing, arguing that this is a betrayal of the intent of benefiting the widest group of black citizens as possible. The media, both white and black owned, have in recent months been at the forefront of such criticism, although it is the media itself that develops the profiles of particular black moguls and creates a context in which true entrepreneurs (black persons on small and medium enterprises) have little voice and are virtually invisible to white business seeking partners.

A third factor is that the BEE issue has become something of a hot potato, if not a source of embarrassment, for the ANC itself. The party can see the build-up of criticism and what has been termed “public disquiet” at enrichment of a few. It is has also watched as on numerous occasions former Ministers, former Premiers and several director generals have quit the public service and moved directly to take part in BEE deals which almost immediately turn them into multimillionaires. This situation has led a variety of senior ANC figures to enter the debate and to raise fundamental questions about the direction of empowerment, including the way in which a few prominent well-connected persons continue to accrue significant benefits. There have been calls for an increased focus on the broad-based empowerment measures as expressed in the recently adopted Broad-Based Black Economic Empowerment Act.

The current debates on affirmative action are difficult to follow because of a tendency among the protagonists to speak past each other. It is almost as if they are arguing about different aspects, often without properly responding to critiques specifically raised, a point made cogently by Jeremy Cronin. The various viewpoints expressed within current debates are reflected below.

One position is that “there is nothing wrong” with the way black economic empowerment is being implemented. This views states that elitism is “normal” within capitalism, as is “greed and enrichment” and that it is understandable that businesses seek to change their ownership structures. This is the “is it such a bad thing?” argument. A key role player, and a beneficiary of many deals, Saki Macozama argues that the present method is the best and quickest way to deracialise the economy. Paton argues that it is “inevitable” that “the richer and more influential top black figures become, the more the market will like them when it comes to deals and finding partners.”

A second position is that it is anyone’s right to benefit from how the system is changing. In short, those with the right political credentials who enter the business world on the BEE bandwagon are merely exercising a constitutional right. The argument goes: Politicians or "comrades" have every right to be in business; they are not responsible for the capitalist structure, and it amounts to an injustice to question their rapid enrichment. Exponents of this argument sometimes assert that “comrades in business” are entitled to take advantage of deals, because they never joined the struggle “to be poor”. Needless to say, this argument is visionless and makes no pretense to a strategic approach. Some exponents of this view reject the idea that effective BEE should be measured in terms of how it benefits a large number of persons. They deride such an idea as expecting “a capitalist system to produce socialist outcomes” and remind us that BEE is not designed to “cure all the ills of our society”.

A further argument raises concerns that, in a programme that benefits from government support, benefits should not be confined to a few individuals who constantly feature in empowerment deals. Exponents of this view argue that, to be taken as a proposal within the ANC, individuals who have already benefited from major deals need no further empowerment and suggest placing a limit “on the number or value of empowerment deals that one person could make as historically disadvantaged.” This view is linked to a view – also widely expressed in media editorials – that the main focus in reforming BEE should be to increase the number of beneficiaries. This view suggests argues that creative ways need to be found to make a much wider group of citizens shareholders of enterprises, whether this be through consortia or through direct shareholding schemes.

A fourth view accepts that individuals will play a role, but argues that BEE needs to be consciously reshaped “even within the constraints of a capitalist system”. It asserts that those activists who argue that they are intervening in the economy from a politically conscious position need to spell out how their involvement contributes to broader transformation. The ANC secretary-general Kgalema Motlanthe expanded on this thinking when he argued that BEE as currently practised in high profile “deals” was much more about transfer of economic power than about transformation of economic power. If it is true that change at the heights of the economy is important, more thought should be given and detail provided to the precise ways in which it is important. In this regard Netshitenze argues: “How do you ensure that the people drawn into business do not merely get co-opted into the culture they find there, but rather that they help to find a better form of SA capitalism?”

A fifth standpoint, sometimes linked to the fourth view is that the most important change required is that empowerment should be broad based in terms of the number of people involved. This view was put very starkly in the Business Day which has argued in an editorial (referring to a particular high profile deal related to a 15 percent stake in Telkom and worth more than R6bn): “How many people will benefit from this deal? A thousand? Twenty thousand? Half a million?” The editorial demanded that the relevant former government director-general leading the BEE consortium involved in the deal must “come up with numbers and names of beneficiaries.”

Perhaps a sixth view is the one expressed by COSATU, which officially rejects the idea of BEE and instead supports redistribution at the base. At the same time, and ironically so, several COSATU unions have set up investment companies – a move which has set stirred up controversy in the labour movement. Collectively, these companies have notched up a track record that ranges from promotion of ethical business practices to involvement in businesses buying up privatised entities. For example, COSATU’s Kopano Ke Matla Investment Company is said to have acquired a 17% equiy stake in Netcare since 1997, which is in turn involved in privatisation arrangements at for example Bloemfontein's Universitas and Pelonomi hospitals.

BEE: challenges and opportunities
It is important to note that capitalism, while it generates wealth and (distortions aside) may be said to contribute to efficiency, is amoral. In this regard, it is inordinately difficult to get the dominant actors in the economy to think beyond short-term interests and focus on longer term issues, including for example wider issues such as poverty and environmental issues. Frequently governments have to use incentives to stimulate change of behaviour, conduct and practice in the private sector. In this context, any attempt to transform the functioning of the economy so that we lessen class differentiation and inequality – and that will lead to the expunging of the dual economy - will be constantly undermined by this essential property of that system.

Despite this, it is possible to intervene to ensure progressive economic change. Behaviours, conduct, decisionmaking and practices in the heights of the economy can be positively changed through regulation, incentives, public activism and other forms of pressure. Properly calibrated, such measures can be undertaken without rejecting the reigning capitalist framework, without undermining prospects for economic growth and without weakening enterprises that must operate within this system. In fact, intervention can be undertaken in ways which build and strengthen the local economic base.

A key problem in the pursuit of BEE (in the form that it has taken in the last decade) is that too many protagonists are not always clear about why they have entered the business world and why they undertake BEE. Clearly, BEE as a concept is almost always defined in terms of altruistic intentions and in terms of some greater good. This is why the BEE Commission called for financing and other government support for BEE. In this regard, it seems reasonable to suggest that BEE can never be left to its own devices or viewed merely as transactions with able and willing black persons and captains of white-owned commerce and industry.

Another key problem has been the lack of coherence and strategy. Government, for much of the past ten years, has been preoccupied with wider social transformation and with issues affecting the ultra poor and those in the survival stage. Its policy development process achieved a key milestone in 2001 with the BEE Commission report, which has only recently culminated in legislation geared to give guidance to the process.

A third key challenge has been that the shape and form of BEE (as it relates to changing the ownership and control patterns in the heights of the economy) has been dictated by enterprises themselves and by financing institutions owned and controlled by white citizens. These protagonists have selected the key partners for major deals and, given their financial influence in deals, have had an inordinate influence on the type of transactions and financing vehicles adopted.

A fourth and equally major concern regarding the shape and form of BEE is that it involves so little focus on entrepreneurs – as opposed to politicians and bureaucrats connected to the ANC – who opt to enter the business world through high-profile deals. To draw in black entrepreneurs involved in small businesses into empowerment deals is generally not viewed as a requirement. These persons who are the true entrepreneurs in the black community add value and create jobs, and who often do so with insufficient state support, should be in the forefront of black economic empowerment. It is also a matter of concern that most deals benefit black men infinitely more than black women. Women have thus been marginalised in the process of transferring ownership, even though experience around the world shows that, on average, women in all socio-economic categories have outstanding capacities of resilience, entrepreneurial spirit, trading skills as well as ethics that could serve BEE well.

Government needs to urgently ensure that black economic empowerment is informed by political objectives for broader reasons, ones related to societal development more broadly. It recognizes that, unless it more clearly directs the way in which ownership and control is being deracialised, it will lose the opportunity to ensure that such deracialisation supports wider transformation. It has noted that while the first economy has made strides, the benefits of this progress do not filter down to the second economy and hence to the majority of people. As it tackles this major challenge, it must ensure that inclusion of black people in the commanding heights leads to a narrowing rather than a widening of the gaps between ‘haves’ and ‘have-nots’. The change in ownership should lead to wider distribution of wealth, but also to greater opening up of opportunities for all black people.

There is a strong basis for optimism that BEE can be reshaped to better serve national transformation objectives. The existence of the BEE Act as well as the heightened public debate about the direction of empowerment fuels such optimism. However, many remain cynical or sceptical, either about the extent of political will to move in the right direction in all sectors or about whether the correct mechanisms have been or can be found to ensure that BEE supports transformation. As South Africa enters the second decade of democracy, much will depend on the pace and the determination with which the BEE Act is implemented.

Conclusion
BEE empowerment is an integral part of South Africa’s transition. As a focus on deepening black participation and ownership in South Africa’s corporate world, it can contribute to improving the position of black South Africans more broadly. The past ten years has seen BEE deliver disappointing results and ones which connect very poorly to broader transformational objectives. Government appears to have recognised this and, with the BEE Act and other measures, is set to steer BEE into more progressive directions. Even though discourse around BEE is sometimes confusing, the flurry of public dialogue around BEE is useful and important. Overall, the increased intellectual activity around the direction of BEE contributes to a sense of optimism that BEE will more effectively contribute to deracialisation of the economy and to reduction of social inequality.