Sara Gon | 22 January 2025
SA’s minister of trade, industry, and competition, Parks Tau, has proposed establishing a R100 billion Transformation Fund by exacting contributions from the private sector.
This will be done by:
Diverting to the Transformation Fund the 3% of net after-tax profits which companies are required to spend on enterprise and supplier development (ESD) under the B-BBEE Codes of Good Practice;
Forcing multi-national companies that refuse to hand over equity to black partners to contribute up to 25% of the value of their South African operations as an “equity equivalent” cash contribution, and
Using “public interest” provisions to withhold his department’s permission from companies pursuing a merger or an acquisition unless they pay money into the Transformation Fund.
These proposals are not just “deeply worrying”, as the DA’s trade and industry spokesperson, Toby Chance, has called them; they are perverse. The BEE Codes and the Competition Commission’s public interest provisions are to investment what mosquito repellant is to mosquitoes.
Supposedly, this large pot of money will be responsibly managed by public and private sector stakeholders through a special entity housed within the government’s National Empowerment Fund. Its purpose will be to channel money – in the form of loans, grants and equity funding – to the ruling party’s preferred groups, such as black South Africans, women, youth, people with disabilities, and those living in rural and township areas.
Obscene levels of unemployment
But three decades into democracy and many experiments in black economic empowerment later, any monetary spend should aim at initiatives that will diminish our obscene levels of unemployment by giving companies every encouragement to grow while being profitable. Picking favourites, as the ANC government is intent on doing, distorts markets, dampens economic growth, and creates a class of connected cronies who rig the game to enrich themselves at the expense of the underprivileged.
The government’s task should be to facilitate the ability of any company to employ and empower the unemployed, irrespective of company ownership.
Investment, both local and foreign, is already being discouraged in so many ways. Tau’s proposal will exacerbate the disinclination to invest. The ANC continues to ignore, or fails to understand, that global business is not moved to invest in South Africa because it was once the moral darling of the world. South Africa as a country means little when better alternatives are available.
The expertise small business owners desperately need to acquire is that which allows a business to grow and an owner to generate a decent income. These are the skills needed to administer their businesses. Small businesses need to know how to quote properly, how to keep a set of books, how to estimate the length of a job as accurately as possible, how to better cost the materials and other expenses required for a job in advance and understand the economics of pricing etc. In other words, how to professionalise existing skills. Cut the red tape and incentivise the successful to give administrative support to those who have potential and are prepared to work hard.
Knowing how to manage a small business will also improve the owners’ ability to seek capital more successfully. The ANC seems to be wedded to the myth that whites as a group succeed in raising capital because they are white. In reality, raising capital is difficult for everyone.
Perverse policy
Crucially, no one will prosper if cities are not repaired and properly managed. This will affect those who stand to benefit from the government’s BBBEE largesse. Instead, more people will be harmed. This perverse policy will further crush the remaining life out of the economy and make it harder still for poor people to find jobs and get ahead.
It remains critically important to find effective ways to increase opportunities for the disadvantaged. This cannot be done without overcoming key barriers to upward mobility – meagre economic growth, a poor and inappropriate public education system, stubbornly high unemployment, and high levels of corruption and criminality.
Intensifying BEE or fiddling with it and other transformation policies will not help to overcome these problems. On the contrary, the erosion of property rights and business autonomy will raise these barriers still higher. So too will the further race-based exclusion of skills, experience, and entrepreneurship from a moribund economy.
The IRR proposes that South Africa should move away from race-based policies and embrace a system of “Economic Empowerment for the Disadvantaged” (EED).
EED does not use race as a proxy for disadvantage. Instead, it focuses directly on disadvantage, using income and other indicators of socio-economic status to identify those most in need of help. This way racial classification and racial preferences can fall away.
Empower poor people
EED focuses not on outputs like numerical quotas, but rather on providing the inputs to empower poor people. It seeks to overcome these by focusing on all the right “Es” − rapid economic growth, excellent education, very much more employment, and the promotion of vibrant and successful entrepreneurship.
The IRR has been doing socio-economic polling for many years and consistently sees the same results. The 2024 poll revealed that 63% of respondents said the government must remove barriers to economic growth and allow businesses to create jobs.
The same poll revealed that 53% of those polled believed that appointments should be made on the basis of merit, but there should be special training to help previously disadvantaged groups; 23% believed that all appointments should be on the basis of merit alone without any special training being available. Just 9% said that only black people should be appointed to jobs for a very long time ahead and 11% said that only black people should be appointed until those in employment were demographically representative of the population.
While the politically connected might have something to lose from moving away from race-based policies such as BEE, the vast majority of South Africans have literally nothing to lose and everything to gain by implementing a non-racial policy such as EED.
‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’.