Special report on a decade of democracy - black economic empowerment

When the African National Congress (ANC) came to power in 1994 it identified black economic empowerment as a major vehicle for addressing the economic injustices of apartheid. However, questions have been raised as to whether the current process has resulted in the enrichment of an elite few rather than empowerment of the millions who still remain excluded from participating in the economy. President Thabo Mbeki's government has repeatedly referred to South Africa's "two economies in one country": the first being an advanced, sophisticated economy, based on skilled labour, which is becoming more globally competitive; the second has remained a mainly informal, marginalised, unskilled economy, populated by the employed and those unemployable by the formal sector. In its policy document, "South Africa's Economic Transformation: A Strategy for Broad-Based Black Economic Empowerment", the government noted that apartheid systematically and purposefully restricted the majority of South Africans from meaningful economic participation. "The period since 1994 has seen the South African economy undergo profound restructuring. Ten years of consistent economic growth has been recorded. Macroeconomic stabilisation has largely been achieved, providing a platform for accelerating the growth rate. The economy has become increasingly integrated into global markets, and has become a successful exporter of manufactured goods and value-added services," the report stated. This has been accompanied by various legislative steps to scrap the last vestiges of apartheid law, which reserved certain jobs for whites, and encourage companies to diversify their ownership profile in order to tender for state business. The government has also attempted to address the educational imbalances of the past, but has admitted that much still needs to be done. Despite the economic successes of the past 10 years, "vast racial and gender inequalities in the distribution of and access to wealth, income, skills and employment persist" and, "as a consequence, our economy continues to perform below its full potential", the state observes in its Black Economic Empowerment (BEE) strategy document. BEE charters for the mining and financial sectors were recently announced. Initially they caused a stir in the markets, with one of South Africa's largest petroleum groups, SASOL, declaring BEE a risk in its report to the New York stock exchange, but most big businesses have come to realise the importance of changing their ownership profile. In recent years a flurry of BEE equity deals have been concluded. One of the more recent, and significant, being the sale of a 10 percent stake in one of the country's big four banks, ABSA, to a BEE consortium. As with similar deals in the mining sector, the consortium is led by a former politician, ex-Gauteng premier Tokyo Sexwale. The former trade union leader and rumoured potential presidential candidate, Cyril Ramaphosa, has major interests in media and telecommunications, while his brother-in-law, Patrice Motsepe, is a major player in mining. They are but a sample of the political elite who have gone on to become leading business figures. Earnst and Young Management Services reported that in 2003, R42.2 billion (US $6.5 billion) worth of BEE deals were made. But the beneficiaries of these deals belonged largely to the politically well-connected elite. This has had the opposition Democratic Alliance (DA) in an uproar ahead of the presidential and legislative elections on 14 April. Of the R42.2 billion ($6.5 billion) worth of BEE deals concluded in 2003, "60 percent ... or R25.3 billion ($3.8 billion), accrued to the companies of two men: Patrice Motsepe and Tokyo Sexwale", DA spokesman Mike Lowe was quoted as saying. The BusinnessMap Foundation noted in its recent report on BEE that while the market capitalisation of black-controlled companies listed on the Johannesburg Stock Exchange (JSE) increased by 32 percent, from R44 billion ($6.7 billion) at the start of 2003 to R58 billion ($8.9 billion) by the end, black control of total market capitalisation on the JSE remained at 3 percent. The number of black-controlled companies listed on the JSE also dropped from 22 to 21 during 2003 - far below the peak of 38 in August 1999.

SA has become an exporter of manufactured goods

It was evident that although "black control could increase in absolute terms, its increase could be insignificant relative to overall growth in market cap" on the JSE. Economist Dr Azar Jammine noted that the 3 percent of total JSE market capitalisation controlled by black-owned, or partly owned, firms was "an historical figure, which is in the process of changing, given the variety of [BEE] deals being announced". "Some deals are based on debt and acquisition of shares over time," he said. "Quite clearly there's been a lot of deals that will result in that share [of the JSE's capitalisation] rising quite substantially over the next few years." SKILLS DEVELOPMENT KEY TO BEE SUCCESS However, Jammine noted that "on the one hand one should be grateful for all these deals - because they are basically defusing a potentially tense standoff between what would have been white-owned business and black aspirations, and one can only welcome these moves from a psychological and perceptional perspective - but one is waiting to see to what extent such transfer of ownership does, in fact, translate into real and more fundamental economic empowerment for black people." BEE was really "about the upliftment of the ordinary black person into a decent job, and a job that satisfies him". "And for that to be achieved, there has to be considerable focus on development of skills and education, and one senses that the focus of BEE has been far too much on ownership and control, and too little on skills development and education, which, in my view, is the true economic empowerment," Jammine said. Nevertheless, he challenged the assertion that the series of BEE deals would benefit only the more well-known black elite. These deals "go more broadly than Sexwale and Motsepe - there are many more [black elites] becoming quite wealthy, who I have never heard of - but the fact is, there are millions out there who have nothing, and have no chance of aspiring to a better standard of living". For this reason skills development and education were "absolutely crucial, yet there's not enough focus on that. We are told that it will follow from the ownership aspect, but there's no guarantee - one does not necessarily lead to the other. I'm not sure that the process is in place. Government is acutely aware of this - it's a difficult issue because you cannot just develop skills overnight". In a bid to boost the skills levels of people who will be entering the job market, a skills levy has been instituted on corporate South Africa and 24 Sector Education and Training Authorities (SETAs) were created in terms of the Skills Development Act 97 of 1998. Of the various SETA programmes, BANKSETA for the banking sector is "one of the more successful ones". A key to this success is the recently launched Letsema Learnership, a national accelerated skills development programme, facilitated and quality-assured by the banking sector. "This initiative hopes to develop 5,000 learners over the next three years, and was initiated to assist in the skills development of the future South African workforce. It is envisaged that the programme will impart the requisite skills for employment in the banking sector, as well as other sectors/industries," said a press statement from ABSA on its involvement in the scheme. Letsema is essentially a series of training programmes that lead to a workplace qualification. Both the Skills Development Act and the Financial Services Charter identified learnerships as one way of ensuring the development of skills. The BANKSETA programme is aimed at unemployed matriculants and graduates from previously disadvantaged communities in all nine provinces. Over the next three years, 75 percent of the learners will be high school matriculants (3,750), with the remaining 25 percent (1,250) being unemployed graduates. In the first year there will be 800 learners (600 matriculants and 200 graduates). The second year will see 1,700 participants, with 2,500 being recruited in the third year. The programme is co-funded by BANKSETA and the National Skills Fund, with provision for the payment of institutional learning costs as well as learner salaries. The project is being driven by BANKSETA, supported by the country's four major banks: ABSA, Standard Bank, First National Bank and Nedcor.

Many South Africans live in poverty

The first intake of 800 learners began on Monday, 29 March 2004, with each bank hosting 200 learners (150 matriculants and 50 graduates). EMPOWERMENT VS ENRICHMENT "The SETA idea is a positive one but, by all accounts, companies have not taken full advantage of the facilities offered by SETA to develop their workforces, and human capital more generally. [Conversely,] many of the SETAs have just been sitting on their hands and have been grossly unsuccessful, whereas with BANKSETA, quite a few banks have exploited that opportunity. But really, there's still a long way to go for it to reach through the general economy," Jammine said. Government initiatives to incentivise white capital to invest in BEE, through a "BEE scorecard" for prospective suppliers to the state, were "slightly encouraging". However, observers have noted that, when rating companies, the BEE scorecard gives more weight to the ownership and management/control of a company than it does to skills development. The danger in this is that many companies will only diversify their ownership profile in order not to lose state business. "Many of these supposedly BEE companies are actually still being run by whites, and yes, you got a nice [black] guy at the top and couple of directors, but the actual businesses are still being run by whites. To me that's not empowerment, that's just enrichment - and it's a very important distinction," said Jammine. As the tension between white-owned business and black aspirations is gradually diffused by the transfer of ownership to black consortia, Jammine warned that "the threat now is the potential tension between the black elite who have benefited, and the grassroots blacks who feel they have been left behind and had no benefit from that empowerment". David Thayser, who wrote the Earnst and Young book on Mergers and Acquisitions, told IRIN that "the fact that there's a few well-known players [benefiting from BEE] is symptomatic of where we are" in the process of BEE. He noted that "a lot of deals that have come through recently have attempted to be broad-based empowerment. A feature of the ABSA deal was that a certain percentage of shares was set aside for employees - it's a targeted employee share scheme", aimed at benefiting largely black and female workers. "There's hardly a client of any size that we deal with these days that is not wondering about an empowerment partner, because we all deal with government and parastatatls at one level or another," added Thayser. In its final report the BEE Commission, established by President Mbeki to advise on a BEE strategy for the country, noted that "the country still has one of the most unequal distributions of income in the world", and a reflection of the extremely low levels of black participation in the economy. "Sixty-five percent of Africans live in conditions of abject poverty. The gap between rich and poor has remained relatively constant over the past three decades. South Africa now ranks third in the world in terms of levels of inequality," the commission said. "Only 12 percent of Africans have a matriculation certificate or a tertiary qualification. About 24 percent of Africans over the age of 20 have had no formal schooling at all." The government hopes to change these figures drastically. In its BEE strategy document it states that "every piece of legislation enacted; every policy programme introduced and implemented since 1994, has sought to redress the legacy of apartheid". However, "the systematic dispossession and disempowerment of black people that has defined South Africa for so long, requires an equally systematic response from government in order to achieve redress". Making successful implementation of BEE central to South Africa's growth and transformation. See following links: www.dti.gov.za www.empowerdex.co.za www.gcis.gov.za www.businessmap.co.za