Making Sense of Black Economic Empowerment

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Making sense of Black Economic Empowerment

COURTESY
Monique TERRAZAS
MONIQUE
MONIQUE TERRAZAS - FREELANCE WRITER
(SOUTH AFRICA)

In 1948, the Afrikaner nation was politically liberated from English rule. This political liberation was both preceded and followed by National Party programmes to economically empower the Afrikaner people who were marginalized by English domination of the economy. Thus, policies were fast tracked and legislation, such as the Marketing Act, was enacted to favour white Afrikaans-speakers and build Afrikaner participation in the economy, through companies such as Sanlam and Gencor.

A strategy that worked well
This strategy was no doubt successful. And, as the old adage says, “Why reinvent the wheel?” The present government, having achieved political liberation, is now copying what worked well in the past: the economic liberation of the people who were disadvantaged by the previous government. It is envisioned that the black people in this country will benefit from this economic empowerment in the same way as the Afrikaner people did – rising up from being marginalized to becoming successful businessmen. With one difference: this time, no one will be discriminated against or excluded by law. In 1998, the Employment Equity Act created a stir, despite the firm requirement in the Act that people who are not historically disadvantaged, may not be excluded from employment, continued employment or advancement by any employment policy or practice.

Broad-Based Black Economic Empowerment Act
At the beginning of this year, the government enacted the Broad-Based Black Economic Empowerment Act (download a copy at http://www.info.gov.za/gazette/acts/2003/a53-03.pdf) , causing much of the same rumbling. The most crucial element of the resistance by many seems to be a lack of information and understanding of the intentions and vision of BEE.

In terms of the Empowerment Act, two concepts must be highlighted:
Firstly, “broad-based” means the process is inclusive and is not intended to create a situation where a small white elite enriches a small black elite. This situation is unfortunately evident, as companies take a short-term view and cut corners, adhering to the letter and not the spirit of the law. “Broad-based” means, according to the Act, “women, workers, youth, people with disabilities and people living in rural areas”. The intention is that the majority of South Africans are to be included in the mainstream economy, creating a more sustainable market and political stability.

Secondly the term to be highlighted is “black”, according to the Empowerment Act “a generic term which means Africans, Coloureds and Indians.” The term “Previously Disadvantaged Individuals”, as broadly used by government, also includes women and the physically challenged of all races.

The issue at stake is the long-term sustainability and economic growth of South Africa.

As South Africa celebrate 10 years of democracy, all South Africans can be proud of what the country has achieved in terms of the better-than-ever economy, the World Cup 2010 vote of confidence from the international community and the peaceful integration of the myriad of cultures in the country.

Huge problems to be addressed
Yet, huge problems, that prevent the economy from performing at its full potential, remain to be addressed. Poverty is probably the most pressing, with crime directly related to it. Unfortunately, poverty still runs along racial lines, with the vast majority of the poor being black. The lack of skills among South Africans is also alarming, especially when considered with an unemployment figure of 40% the majority being young adults.

Changing profile
Following political freedom and democracy in South Africa, the profile of the economically active people is rapidly changing. At the moment, the figure stands at around 4 million economically active white people and around 11 million economically active black people, in the formal sector. The implication for companies that sell goods and services is clear: in numbers the black market is almost three times the size of the white market and this necessitates a radical change in the way companies approach their future.

It is also clear that 15 million economically active people in a total population of 45 million is problematic. There is an urgent need to bring the majority of South Africans into the mainstream of the economy, where they can meaningfully participate. A broader base of economically active people can only benefit everyone in the country.

South Africans are known for their ingenuity and entrepreneurship. The innovative ideas and new inventions that remain dormant and will be unleashed when all South Africans participate in the economy is an exciting possibility and could rapidly see South Africa becoming more competitive internationally.

There are further huge implications for employers in this country – the need for skills development and training has become critical to ensure a sustainable and educated labour force, which can help drive the economy to be globally competitive. To address this issue, the Skills Development Act and Skills Development Levy Act were promulgated, to encourage employers to train unemployed workers and claim the expenses back from the Department of Labour, via SETAs. The process is funded by a 1% of payroll levy companies must pay to the South African Department of Labour.

Major concern
Another major concern is the long-term stability of the country. It is well-known that countries with wealth disparities that are also ethnically or racially defined, are usually, but not always, more unstable than countries with a larger degree of financial and racial homegeneity.

In the same way the government is compelled to address the land issue in South Africa in a fair and structured way, poverty and the distribution of wealth must be addressed to avoid the issues being turned into a political platform for revolution.

No exclusion on race
The process of BEE does not intend to exclude any racial or ethnic group, nor is it to simply redistribute wealth that already exists. The intention is to create more wealth, and that this wealth will be more equitably distributed among all South Africans, through skills transfer, development and growth.

The South African Department of Trade and Industry’s (the dti) BEE Strategy document (download a copy from http://www.thedti.gov.za) states that the way to grow the economy is through more enterprises producing more value-added goods and services, attracting investment and creating employment. “Thus, a core component of the BEE strategy is the creation and nurturing of new enterprises undertaking new forms of economic and value-adding activities. We seek in BEE a new vitality in our economy by facilitating new entrants to all aspects of the economy.”

Scorecard
To ensure a structured and transparent approach to BEE, the government will use the scorecard approach, measuring direct ownership and control, human resources development and employment equity, as well as preferential procurement and enterprise development.

Thus, BEE is not an ownership only issue, but is a broad approach. The government demonstrates its understanding that BEE ownership is not a quick fix and that different sectors and different companies will not be able to contribute in the same way.

The scorecard will be issued as a Code of Good Conduct, as a flexible framework for the various industry sectors, as they draw up their BEE Charters.

Explaining the scorecard system
The “balanced scorecard”system has been adopted for the BEE process to ensure flexibility as BEE is established across a diverse economy, with diverse and unique companies operating in various sectors, yet creates a framework for the consistent measurement of the progress of BEE implementation.

The Department of Trade an Industry’s (the dti) proposed BEE Scorecard focuses equally (30% of the total score each) on direct empowerment, through ownership (20%) and management (10%) of enterprises and assets; human resource development through skills development (20%) and employment equity (10%); and indirect empowerment in the form of preferential procurement (20%) and enterprise development (10%). The remaining (10%) is to be determined by the sector or enterprise and allows for flexibility according to the unique circumstances. This could include corporate social investment, beneficiation of raw materials or the support of rural enterprises.

This flexibility will allow for a company with no black ownership to still score well on the scorecard, by emphasising the other areas, such as skills development and procurement. It may even be possible for such a company to score better than a black-owned company, who does not score in any other area. Thus, the scorecard approach, to some extent, does address the problem of “fronting” and creates a more level playing field. (See: What is "Fronting") FRONTING

It is expected that the dti’s proposed scorecard will be amended and published as a Code of Practice by the end of the year.

Conclusion
BEE is not a fast-track down the same road as Zimbabwe. It is a long-term strategy, designed to avoid precisely what happened in Zimbabwe. In addition, it is a strategy to ensure the long-term growth of the South African economy, in a situation that is both politically stable and conducive to growth. In the end, it is the commitment to the spirit of BEE and participation of all South Africans that will make BEE a resounding success for all.

By Monique METCALFE
MONIQUE
(First appeared in FAnews)
http://www.fanews.co.za

COMMENTS RECEIVED

23 June 2004

Hi Monique,
I read your article "Making sense of Black Economic Empowerment" on Peter's website and just wanted to congratulate you on a really nice
piece of literature. It really has lifted the veil of what encompasses BEE in the new SA.
Well done!!
With kind regards
Keith Temlett

23 June 2004

Hello Peter
Thank you for bringing up such an important article. I wish if most of the African Countries can follow what South Africa is doing on introducing BEE. I also support the BEE.
Warm Regards
Patience F Chituku
Bells Car Hire
Zimbabwe

22 June 2004

Hi Monique,
This is an extremely well written and insightful article on such an elusive topic. You have successfully demystified some very complex issues in your systematic approach to the subject. I have been doing a considerable amount of work on informing the Dutch business community in SA on the issues relating to BEE. Your article will prove to be a very useful tool in my future efforts to outline the process and the potential impact of BEE.
Where could I found out more about FAnews? I very briefly had a look at the website (www.FAnews.co.za) but was not easily able to find out the background of this publication/company.
Best regards,
David Chard
Project Manager
SA Netherlands Chamber of Commerce

22 June 2004

Thanks Peter for sending me this link, I learnt alot from the article and forwarded to a few contacts of mine who would find it quite intresting.
The article brings new light to the subject.
Kind Regards
Ryan Muller
Research & Projects Manager
Excellante International

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