THE controversy over the decision by the National Empowerment Fund to fund Ndalo Luxury Ventures’ luxury store Luminance, owned by Khanyi Dhlomo, to the tune of more than R34 million has once again cast the spotlight on Black Economic Empowerment (BEE) and the role that this democratic South Africa’s flagship socio-economic policy should and can play in addressing the systemic economic challenges that define and scar modern-day South Africa.
The transaction was criticised by many as serving the interests of super-rich elites – if not a close-knit cycle of friends, acquaintances and family – and not small, marginalised and struggling black entrepreneurs.
So much was the dust generated from this transaction that Trade and Industry Minister Rob Davies was forced to issue a new directive to all agencies falling under his mandate that outlines guidelines on their procurement, developmental activities and lending.
Linda Ensor, reporting for Business Day, documented that the guidelines stipulate – among other requirements – that government funds may not be used to support the importation of finished goods and services.
Further, the minister directed that funds would be prioritised to support productive sectors of the economy, namely agriculture, mining and manufacturing as well as value-added services such as tourism, business process services and the creative industries.
However, in closely following the discourse that accompanied the disclosure of the Luminance deal and the responses from different sectors and groupings, it became apparent that there is need for some sober reflection on BEE initiatives, their design, implementation and overall purpose.
Unbeknown to many, BEE is anchored on legislation – the Broad-Based Black Economic Empowerment Act, 2003.
The Act has a raft of objectives, key of these being: promotion of economic transformation in order to enable meaningful participation of black people in the economy; achievement of a substantial change in the racial composition of ownership and management structures and in the skilled occupations of existing and new enterprises; and increasing the extent to which communities, workers, cooperatives and other collective enterprises own and manage existing and new enterprises and increasing their access to economic activities, infrastructure and skills training.
Other objectives include: increasing the extent to which black women own and manage existing and new enterprises, and increasing their access to economic activities, infrastructure and skills training; and empowering rural and local communities by enabling access to economic activities, land, infrastructure, ownership and skills.
Admittedly, these are very noble objectives.
However, the execution of the legislation over the last decade has exposed several loopholes, a key one being the manipulation of BEE processes by business and political elites to amass obscene fortunes while the majority of the black population that were the intended beneficiaries of the legislation continue to wallow in abject poverty.
To address some of these loopholes, an Amendment Bill to amend the Broad-Based Black Economic Empowerment Act of 2003 is currently before parliament.
Key amendments include insertion of clauses that seek to promote compliance by organs of state and public entities and to strengthen the evaluation and monitoring of compliance as well as the creation of incentive schemes to support black-owned and managed enterprises.
In the face of all the negative publicity that oftentimes has accompanied discourses on BEE, it is tempting to conclude that BEE initiatives do not meet their intended objectives.
Inasmuch as progress has been slow at the best of times, objective research indicates that some progress is being achieved on the BEE front.
An authoritative 2012 BEE survey by KPMG South Africa entitled “Shifting the BEE Landscape” documents that more customers are exerting pressure on their suppliers to comply with minimum B-BBEE levels.
Effectively, BEE compliance is gradually becoming a business imperative and not just a competitive advantage.
The survey further reports that other drivers of compliance include legislation, competitors, reputational image, boards of directors and shareholders.
Truth be told, however, in a country where the gap between the rich and the poor keeps widening year on year and government interventions don’t seem to achieve much in addressing income differentials between different racial groups, some radical measures will need to be adopted for BEE to achieve its promise.
Seemingly, BEE’s focus this far has been on mega-ventures and deals largely driven by political and business elites on the assumption that some kind of trickle-down-economics dynamic will kick in with some residual benefits accruing for the poorest of the poor in the form of incomes and jobs.
To a large extent, this trickle-down-economics dynamic has either been slow to kick in, or it has been arrested by the political and business elites who hoard much of the proceeds from such deals for themselves and close-knit cycle of friends and family.
A way out of this vicious cycle of aggrandisement would be to pay more attention to the skills development and training requirements in all BEE transactions.
As such, no government money should be provided to BEE ventures that do not have solid and certifiable skills development and training components.
There is an urgent need to move away from tokenism that currently defines BEE initiatives in which rural and local communities get token shares – often below 30 percent – and don’t have much say in the managerial and operational end of BEE initiatives.
Why should these approaches be the diamond standard in all BEE initiatives?
Because in the words of former World Bank president James Wolfensohn in 2005: “Poor people are the most important resources in the fight against poverty.
“They have imagination, guts, knowledge, experience and deep motivation to move out of poverty.
“They long to belong and participate in communities on an equal footing with others.
“Most of all, they do not want charity.
“They want opportunity – economic opportunity that gives them fair returns for their labour.”
- Dr Munene Mwaniki is a senior lecturer/researcher at the University of the Free State. You can follow him on Twitter @munenemwaniki.