Economic Watch

Is it time to rethink Black Economic Empowerment?

Prinesha Naidoo
Prinesha Naidoo.jpg

Changes to the Black Economic Empowerment (BEE) model - the government policy geared toward including previously disadvantaged people in the mainstream economy - may lessen the extent to which post-apartheid South Africa’s economy remains divided across racial lines.

“Capital in this country is still white and male, and the face of poverty is black, African and female,” said former Public Protector Thuli Madonsela.

Addressing delegates at an Association of Black Securities and Investment Professionals (ABSIP) conference in Johannesburg, she said that BEE has been confused with political economic empowerment.

According to her, BEE should provide those who are excelling in their chosen fields and still facing economic exclusion based on the colour of their skin, with opportunities to start small and grow, irrespective of their political connections or lack thereof.

“I honestly believe that a lot of the people today that are millionaires and possibly billionaires would be gone tomorrow if we removed government tenders. And that, for me, is not economic transformation,” she said.

Madonsela called for a revision to the existing BEE model in order to foster sustainable economic transformation and a more equitable redistribution of resources.

Instead of only focusing on giving black people money to buy into existing business, she said government should seek to broaden the “economic cake” by investing in start-ups too.  

In a separate address, former finance minister and ex-minister in the Presidency Trevor Manuel raised concerns over the revised BEE scorecard criteria. To do business with government entities, companies must comply and score highly across a range of elements.

“The revised scorecards have produced a situation where the three priority elements - ownership, skills development and enterprise and supplier development - now account for about 80% of the potential BEE points,” he said.

A limited pool

In theory, meeting and measuring ownership targets appears easy. But a limited pool of BEE equity, hampered by lock-up periods attached to empowerment shares sold at discounted rates and the erosion of shareholder value, prevents the transfer of real economic value, Manuel explained.

“Too frequently the new BEE shareholders end up with the transactions under water, and themselves highly indebted. Furthermore, we observe that increasingly external finance is no longer available. For this reason there needs to be an examination of the 25% ownership interest. It is estimated that the cost of empowerment is 30% of empowered share. So who actually benefits?” he asked.

Manuel went on to add that skills development is marked by slow progress, particularly in the financial services sector where young black professionals leave corporates in order to establish or join fund manager boutiques.

“The slowness observed may not always be a result of a reluctance by companies to train professionals for management, but perhaps as a consequence of a more general societal pressure to admire more rapid gratification,” he said.

From his perspective, the potential 40 points available based on enterprise and supplier development is an “exceedingly difficult target to attain”. 

Madonsela, whose State of Capture report probed allegations of influence peddling by the politically-connected Gupta family, also said principled, ethical, service-centred leadership is necessary for sustainable economic transformation.

“Sometimes people think corruption can advance people fast but I think it advances the wrong people and it advances those who are not going to be able to stay in this space and it often advances consumers rather than entrepreneurs. … Those people are not transforming the economy because they temporarily make things look good but at a permanent level things are going to fall apart,” she said.

Also read: Time has come to liberate SA from 'liberation'

(This article was first published by MoneyWeb.)

by Prinesha Naidoo

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