HE PREVIOUS issue of Isandla Development Communiqué focused on economic policy making in South Africa. This time, we are staying with the economic focus, but focusing on the contentious issue of black economic empowerment. The recent public spat between Archbishop Desmond Tutu and the President has received much attention, with the President clearly taking issue with the suggestion that the government and/or the ruling party would somehow be instrumental in allowing a small ‘recycled’ (as Tutu put it) black elite to benefit from black economic empowerment. Yet, the government is clearly concerned with the pace and nature of economic transformation in the country. In recent times, both Minister Trevor Manuel and Essop Pahad have challenged black entrepreneurs about how deals are structured, how benefits are distributed and how they ensure that they invest in the economic wellbeing of black South Africans more generally. Without a doubt, these are important questions. But surely such questions need to be directed equally at black entrepreneurs and to the white businesses who still dominate the economy.

Perhaps an analogy can be drawn with the issue of women’s representation. Women need to be in the boardroom, in parliament, in local Councils, not just because their presence is a condition to change the male-centred nature of decisions and the masculine/patriarchal culture of organisations, but because women have a right to be in these positions – just like black people have a right to be at the commanding heights of the economy. But do these women represent the interests of women, be they women who work for the company or women in particular communities or even South African women in general? Should they, particularly in instances where they have not been explicitly elected to represent a constituency of women? By what morality do we judge women in leadership positions, and why would this morality not apply equally to men? But perhaps there is another issue at stake: is transformation (political, economic, social) only, or largely, a question of morality?

In Thought Matters, Frank Meintjies takes on some challenging questions related to black economic empowerment. Among his many institutional capacities and affiliations, Frank is Chairperson of the Board of Isandla Institute. It is perhaps this capacity that allows him to claim two issues of Isandla Development Communiqué: there are two parts to his article, the first part is printed in this issue and the second part will appear in the last newsletter of the year. A full version of the article, with footnotes to support the analysis and claims made, will be available on our website once the next part has been published.

Black economic empowerment: Elite enrichment or real transformation?

Frank Meintjies (Part 1)

Black economic empowerment (BEE) has had mixed results, with very little being achieved in terms of changing the structures of ownership and control within the economy. Yet, BEE is a relevant and necessary process. To take the debate forward, there needs to be greater clarity regarding what is being referred to as BEE and how government seeks to promote and support BEE.

Part 1 of this article outlines the key forces in shaping BEE in South Africa and gives a brief historical background to the notion of BEE, which has culminated in the Broad Based Black Economic Empowerment Act of 2003. In Part 2 (which will be published in the next issue of Isandla Development Communiqué), attention will be given to the various poles and positions in the debate on BEE. The article will conclude by summarising a number of key challenges related to BEE.

Setting the scene
BEE refers to measures, actions or programmatic steps geared to enable meaningful participation of black people in the economic mainstream. It is a response to our particular reality born of racial capitalism, the fusion of apartheid with the capitalist system.

A variety of indicators show that white households are economically dominant and that the white business environment remains stubbornly white. Black people occupy only a minority of the positions of power and influence in the economy - they manage in and own only a miniscule number of companies. More starkly, the majority of black people falls within categories below the poverty line or within what may be termed the strata of economic survival. They are thus largely victims of decision-making in the economic arena, whether these be decisions by individuals, institutions or companies. This reality forms a compelling base upon which arguments in favour of BEE are made.

Interestingly, the key forces in BEE are not educated and skilled black South Africans, nor black entrepreneurs, nor the prominent political activists who have chosen to further their careers and ideals in the private sector. Politically connected and prominent individuals may think otherwise, but the deals they shape take place within frameworks that are already defined by larger forces. The main drivers of the shape and form of BEE are, in different ways, government and white businesses.

Government, on the one hand, has expressed its concern about the economy in terms of its thesis of two economies – one globally competitive, advanced and home to a minority, and the other populated by the marginalised, the unemployed and unemployable. Government has acknowledged that the second economy could “fall even further behind without decisive government intervention”. Government’s renewed vigour to transform ownership and control in key sectors of the economy can also be linked to its stated position that the least gains made in the last 10 years have been in those areas where it has lacked control. Government is shaping BEE through its policies, backed up with government resources and certain financing mechanisms.

On the other hand, the reasons industrialists and commercial interests have for pursuing BEE are different, yet complementary, to those of government. At one level, they are responding to a concern about the credibility of capitalism, which they realise is linked to reducing racially defined class differentiation and inequality. This legitimacy of capitalism in the eyes of black people and black policymakers is viewed as critically important for sustaining their long term business interests. At another level, business interests are responding to government’s policy and procurement system which favours companies that are empowered or have undertaken empowerment – i.e. those that have greater black ownership and contribute to other affirmative measures.

The private sector’s influence on BEE prefigures particular deals. They select their partners, they are constrained by their shareholders’ interests and concerns and they are involved in arranging the financing structures. In particular, the more short-term view of top management embarking on BEE – where they simply want to dispose of their empowerment obligations even if it means accessing several individuals promoted by the media – explains much about the definition of BEE.

Redistribution and change: BEE versus economic empowerment ‘at the base’
In this article, BEE is distinguished from economic empowerment that takes place through social change, through government’s interventions in housing, education and other social programmes – or, if you like, through the social thrusts of the Reconstruction and Development Programme. Such changes are relevant, however, to economic empowerment because they can help move black people from poverty to survival or from mere survival to higher levels of livelihood prospects. In this sense, effective social delivery forms a base for enabling greater participation of people in the economy. We can refer to this approach as focusing on redistribution of resources at the base.

Here, I focus much more on BEE in terms of redistribution of resources at the apex and other upper levels of the economy. To some extent, BEE is about black people in business and about increased clout of black business and black businesspersons in the economy. Of course, the way BEE has been practised and pursued has meant a focus on the formal economy and on the major enterprises within economy, while scant attention (within the framework of BEE discourse) has been paid to emerging, small and micro enterprises. Therefore, I also do not discuss efforts to support small and medium enterprises as part of BEE.

It is important not to conflate the two levels of redistribution and change. Although the two levels are linked, redistribution at the apex raises possibilities of redistribution of power in the economy in the short term, while redistribution of resources at the base seeks to lay a foundation for potential longer term changes in power relations.

Furthermore, it should be noted that there is much to analyse about the way in which government, black persons with political power and some capacity for economic intervention, and the private sector are approaching redistribution – or attempted deracialisation of economic power – at these higher levels.

BEE, which focuses on direct and immediate change in economic control (ownership and management of major enterprises), may be further disaggregated to distinguish between narrow and broad-based empowerment. The former focuses on a few high profile individuals. These individuals have two things in common – they are politically connected and become millionaires “overnight”. Broad-based BEE is a term coined by government, in large part as a reaction to the kinds of empowerment that has been defined as “enrichment” of a few individuals. Broad-based empowerment may refer to a process to encourage more black persons to become owners of shares when companies change their ownership structure to reflect empowerment requirements. It also denotes a focus on other areas of performance in addition to ownership change: employment equity, skills development, procurement and management control. Broad-based BEE would seek to ensure significantly progress in all these areas and thereby speed up the process of improving the position of black people in the economy.

Figure 1

The diagrammatic representation in Figure 1 may be useful in clarifying what it is we are debating when we discuss BEE in the SA context. Figure 1, which is an adaptation of a “model” produced by Empowerdex, locates BEE within socio-economic categories. The term “capability” is based on the work of development economist Amartya Sen and refers to the capacity of people to make choices about their lives and lead their own economic and social development. It is adapted here to refer to a situation where people have some resources and some choices as well as some possibility of using these resources to strengthen their economic position in society. Competence refers to “being able to look after oneself and one’s family and to contribute to society”.

While the Empowerdex used its model to focus on the fact that “to counter the resistance and ceilings at each level, the government and the private sector need to implement both economic and socio-economic drivers to promote the graduation of Previously Disadvantaged Individuals into the different stages of economic growth and development”, I use this diagram to indicate that BEE as currently promoted relates to focused interventions in transforming the A category above. Such transformation must be undertaken in a way that supports, enables and facilitates positive economic empowerment of disempowered citizens in categories B and, to some extent, category C. In other words, we must plan and strategise for deracialisation in category A so that it takes place in a manner that simultaneously contributes to a reduction in (rather than consolidation of) economic polarisation and inequality in our society.

Theoretical justifications for BEE
It would be interesting to trace the theoretical roots of black empowerment, but that will require further research. There are some links to work on affirmative action, including to the ways in which affirmative action has been advanced in countries such as Malaysia and in the United States of America. There may be links with black consciousness, although an initial scan revealed very little explicit theorising of BEE and as little consideration of strategies black persons can adopt to rapidly penetrate the private sector, let alone how they might operate within that sector in a way that supports wider transformation.

Regardless of how BEE may be theorised and justified, COSATU and the Communist Party reject the idea of BEE. Instead, they prefer concepts such as transformation and, especially in the case of the SACP, “building people’s power in the economy” and society as a whole. Blade Nzimande has suggested that BEE is more relevant to a society in which black people are the minority (i.e. the USA). COSATU and the SACP are much more concerned with redistribution of resources at the base, although from time to time they make specific recommendations about BEE.

Some of the exponents of BEE merely see themselves as playing a role within capitalism. They argue for a distinction between on the one hand broader socio-economic development of black people - which they argue is the problem of government and society as a whole - and on the other hand measures to support black business development in the economy.

However, many of the prominent “comrades” who become partakers in BEE appear to enter the business world motivated by first by personal need and only theorise after the fact, when pressed to do so. Such persons appear to take part in BEE because they have reached a ceiling in their career progression in the public sphere (rather than out of a burning need to help transform the economic structure of our society). The business arena is for many a logical next step – because they can build on the contacts they made while in government – and for many reasons seems to be more attractive than a transition to the not-for-profit sector locally or to international development bodies such as the United Nations. The most common transition strategy is to enter as quietly as possible, usually via a big empowerment-related business opportunity, to remain out of the public eye and to reap business success – an explanation of their role in the business world comes much later, and often in response to pressure for an explanation of one’s role.

BEE in historical context
Many of the practices of black economic advancement can be traced back to the period immediately following the June 1976 uprising. In that period, the apartheid government created a relatively more conducive environment for some form of black advancement by promoting the idea of creating a black middle class. Linked to this were initiatives by US companies, in a bid to justify continued involvement in South Africa, to follow a programme of black advancement. This advancement focused not on ownership but on training and promoting black people for management positions in multinational firms. At this time the Sullaven Code, which sets out guidelines for US companies wanting to remain in South Africa, became popularised and was adopted by many companies.

Actively dealing with racism and counteracting the impact of instutionalised racism in South Africa did not seem to be a pressing concern for the new South African government after 1994. Although the new Constitution took a clear stand on race (upholding notions of equality and making provision for affirmative measures), government in its early years translated this into practice mainly through the repeal of discriminatory laws. It would take some time before measures would be put in place to encourage and foster non-racial or even anti-racist behaviour.

It was not until 1998 that the Employment Equity Act was passed. In passing this law, government noted that “disparities (caused by apartheid) create such pronounced disadvantages for certain categories of people that they cannot be simply addressed by repealing discriminatory laws.”

The Black Management Forum (BMF) argues that it has played a key role in the formulation of affirmative action measures in South Africa, including employment equity policy. It is sometimes argued that while deracialising the upper reaches of the economy was on the back burner, organisations such as the BMF stood alone in agitating that this issue be addressed through government policy and programmes. The idea of a BEE Commission arose directly from a resolution of the BMF in November 1997 as a quest to ensure that black people “take charge of a new vision for black economic empowerment”.

In its 2001 report, the BEE Commission viewed Black Economic Empowerment first in its broadest sense – as an integrated and coherent socio-economic process located within the RDP. It said this empowerment includes job creation, rural development, urban renewal, poverty alleviation education and so on. It also took a narrower view: the aim of BEE was to ensure “the equitable transfer of and to confer ownership and control of the financial and economic resources” to the majority. However, the commission made wide ranging recommendations, including a call for measures to growth the economy, a legislative framework, national targets and the idea of a structure to oversee BEE. It also called for measures to combat perceived discrimination by financial institutions and for government to use its resources in a more deliberate manner to finance BEE transactions. These recommendations have been instrumental in shaping the recent Broad Based Black Economic Empowerment Act.

Before this Act was passed in 2003, the South African government did implement certain measures to reverse the economic legacies of the past. Measures in the areas of procurement, licensing and financing and geared to support the development of black business have been put in place in order to accelerate the BEE process. However, in the absence of a comprehensive framework to implement these measures across all organs of State, the effectiveness of the measures is hampered. The government has recognised these limitations and has taken the recommendations of the BEE Commission into account in drafting a legislative framework as a step towards a more integrated strategy.

The Broad Based Black Economic Empowerment Act is an important milestone in that it provides the legal basis for government to begin directing, in a more conscious and consistent way, deracialisation of the economy. Despite its name, it is however not clear what aspects of the Act make it broad-based, except perhaps through its focus on more dimensions than just ownership – on for example management, human resources and skills development, employment equity, procurement and “investment in enterprises owned by black people”.

In other words, it is not clear that because the Act exists it will be prohibitively difficult to continue forging black empowerment deals that focus on a “small select, community of the best placed, best informed and best favoured to hijack” the black empowerment process. Although the objective of the Act refers to women, co-operatives, workers, there are no provisions in the Act targeting such groups; any measures focusing to increase their involvement in BEE will depend on codes of practice and guidelines that the Minister of Trade and Industry may issue in terms of the Act.

Part 2 follows in Isandla Development Communiqué no 10.