For many South Africans, the democratic dispensation that overthrew the obscenity of apartheid in South Africa was only a partial victory. As welcome as the political triumph was, winning the economic struggle was yet to be achieved.
The hard truth was that the country’s major businesses were firmly entrenched in the hands of white citizens, and the majority black population was still impoverished. In its efforts to avoid civil war, the immediate post-apartheid political dispensation made no provision for the dismantling of the white-dominated economy.
Belatedly, big business did begin to take note of South Africa’s burgeoning inequalities. In 1996, economists from Anglo American, Old Mutual and Standard Bank – three of the most powerful commercial and historically white-dominated entities in South Africa – produced a report entitled Growth for All.
They produced the report at the behest of the South Africa Foundation, which represented the country’s largest domestic and international companies.
They argued that existing policies would continue to yield just 3% growth, when at least 6% growth would be needed to tackle unemployment of around 30%.
At first, the government’s response was to merely “encourage” the business community to stimulate employment and black economic empowerment. That policy yielded limited success.
There were increasing calls for a radical path of socio-economic transformation, premised on growth; job creation; and an equitable distribution of income, wealth and assets.
In September 1998 Cyril Ramaphosa – now President of South Africa – chaired a Black Economic Empowerment (BEE) commission that would, he declared, set the guidelines to facilitate broader participation in the economy by black people. The purpose of BEE was to bridge the gap between formal and substantive equality – to ensure that all people in South Africa fully enjoyed the right to equality.
Subsequently introduced legislation provided a number of ways in which this could be achieved.
Companies that wished to obtain licences or concessions from the state, or to transact with organs of the state, would have to show evidence of black empowerment, and could be ranked on a scorecard accordingly.
But as millions of South Africans struggle to emerge from the poverty trap in an underperforming economy, what has become of the high hopes for BEE? This timely book, by veteran journalist Chris Bishop, looks at the impacts of the policies, and profiles the generation of black entrepreneurs who rose to prominence and riches.
This is no dry academic overview. Bishop seeks to tell the story of BEE “through the eyes of those who have lived it, supported it, fashioned it, worked in it, suffered through it, made millions from it, opposed it and even went to court over it”. Through revealing profiles of BEE billionaires and others with insight into the system, Bishop strives to answer the question: is BEE an effective tool for redressing the balances of apartheid?
The individual stories are extraordinary. Sandile Zungu, the “Great Gatsby of BEE” emerges from the sprawling township of Umlazi to become a politically-connected BEE deal-maker extraordinaire, and ultimately a football club owner.
We follow Tshepo Mahloele, the son of a Mamelodi taxi driver, through the crash and burn of his furniture business to his enormous success brokering deals in banking and infrastructure. Now one of the richest and most influential media moguls on the continent, he oversees his empire from a palatial home.
Bishop draws these portraits with wit, sympathy, and psychological insight. He does not lose sight along the way of one of the most persistent criticisms of BEE. Has it merely inserted a minority of black entrepreneurs into the previously white-dominated economic elite, rather than benefiting black South Africans at large?
That was long the view of some of BEE’s high-profile critics. As early as 2004, the late Archbishop Desmond Tutu declared in an address at the Nelson Mandela Foundation that BEE “seemed to benefit a small ‘recycled’ elite”.
Bishop gives numbers that support this view. A working paper of the World Inequality Lab in September 2021 showed that between 1993 and 2019 the incomes of the top 10% of black earners in South Africa increased by 200%. Over the same period, the incomes of the bottom 50% of black earners decreased by more than 20%.
Fronting up to failure
Bishop also delves into one of BEE’s most pernicious aspects – the illegal practice of “fronting”. In one of this book’s outstanding chapters, snappily entitled “The BEE Sheriff on the Trail of the Bad Guys”, Bishop quotes Zodwa Ntuli, the commissioner who oversees compliance in the implementation of black empowerment policies, defining fronting as taking “a very simple form, at times, a very straightforward form, where an unsuspecting black person, who is either a worker or domestic worker [or] a gardener, is then listed as a shareholder just for the purpose of the company looking black.
“But then it also works in a sophisticated manner, when deals are structured in such a way that even with people that are knowledgeable of these deals… the financing arrangements that are involved are such that the deal will never actually result in a transfer of that particular shareholding into black hands.”
Bishop adds that the penalties for fronting are stiff. A director may be imprisoned for up to ten years. A company can be fined up to 10% of its turnover or banned from doing business with government for up to ten years.
Despite these penalties the practice of fronting remains stubbornly part of the black empowerment scene, undermining those schemes that are designed actually to transform.
By 2021, of thirty fronting cases referred to the police and the National Prosecuting Authority (NPA), not one had been processed. An 18-year review by the the Broad-Based Black Economic Empowerment Commission, says Bishop, found “a world where white males still dominate the corridors of power”.
Time for real change
Given these immense – and persistent – challenges, is it time for a major overhaul? Having quoted the mixed feelings of the entrepreneurs who have been lucky enough to succeed through the policy, Bishop agrees that it’s time for change.
“Everyone agrees that the booming BEE industry has made millions for lawyers, banks and consultants, yet has failed the poor of South Africa, who appear to be falling behind on the wrong side of one of the largest wealth gaps in the world. It doesn’t matter if there are lots of Rolls-Royces on the roads if those roads are full of potholes, to paraphrase one commentator. Every South African should be concerned by this.”
“Overall, the system does need to be re-evaluated. This will require an honest look at just how many people have been hauled out of poverty by BEE. (The answer: not enough.) Those in power need to do a bit of soul-searching to see how they can improve the system.”
Indeed, government seems to agree. A spokesperson tells Bishop that management control and ownership by designated groups remain low in key sectors of the economy, many firms still battle with enterprise and supplier development, and the approach to promoting black management participation, skills development, enterprise development and procurement from black women and the youth must all change.
An advisory council has been appointed to review progress and make recommendations on areas of improvement.
Despite the evident success of some black entrepreneurs through BEE, Bishop argues in a pointed conclusion to this fascinating book that reform cannot come soon enough: “The system is likely to hobble along, year in, year out, benefiting the few, while the lawyers, consultants and banks make a fortune in fees. Surely South Africa, a nation that has struggled for so long and been through so much, deserves better?”
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