We are seated in the lounge of The Water Club located on the FDR Drive in New York City. The flames of the wood fire simmer in Polo Radebe’s eyes as she tells of South Africa’s war against the economic legacy of apartheid. “Ten percent of the population still controls 100 percent of the economy and they are still trying to hold on to that,” Radebe says. She is the director of Black Economic Empowerment in South Africa’s Department of Trade and Industry. Her voice trembles a little. It’s not anger, I realize quickly, just her enthusiasm for the war.
Most of the last 12 years saw the country without the regulatory framework to implement its Black Economic Empowerment initiative, Radebe recounts. Empowerment took the form of whites selling shares of companies listed on the Johannesburg Stock Exchange to Black investors. But the financing mechanism for these sales dragged the new shareholders deep into debt.
“These deals were structured so that the ability of Blacks to repay loans was based on the performance of the shares. When stock markets crashed in 1997 and 1998, it hurt them,” Radebe says. When the dust settled, the 11 percent of equity on the JSE that had been transferred to Blacks between 1994 and 1997 had fallen to 3 percent.
This prompted a group called the Black Management Forum to establish a Black Economic Empowerment Commission, which in turn issued an “Integrated BEE Strategy” to address the weaknesses of the government’s empowerment initiative and the circumvention tactics of whites. White business owners, for example, would not give the kind of skills training to Blacks that would get them into managerial positions. And they wouldn’t embrace Black suppliers.
“We thought the market would have found creative ways to address these things but it didn’t. So we came up with regulations in response to the funny things it did,” Radebe says.
The government in 2003 launched a seven-pronged empowerment strategy detailed in a document titled “South Africa’s Economic Transformation: A Strategy for Broad-based Black Economic Empowerment (B-BBEE).” It outlines steps to achieve:
- Equity ownership
- Proper representation of Blacks at senior management levels
- Employment equity in general
- Skills development through on-the-job training and the education system: Each business sector now has a Sector Education & Training Authority and every company is expected to spend a prescribed percentage of its budget on skills training.
- Preferential procurement (in Ameri-canese, “supplier diversity”). The dual challenge here, Radebe says, is that whites are reluctant to diversify their established supplier base and Black-owned companies are so new to entrepreneurship that they may not be able to deliver. The government has set procurement targets to address the former, while the latter will be addressed by the next element of the B-BBEE strategy.
- Enterprise development, including facilitating access to capital
- The “residual element,” or “social investment” by white companies to address socioeconomic challenges, such as unemployment among Blacks (officially, 28 percent; unofficially, 40 percent) and the absence of Blacks in math and science.
The B-BBEE document was followed in 2004 by the Codes of Good Practice, which provides specific information about and expectations for Black equity ownership and creating wealth for Blacks. The code on management, for example, calls for the appointment of Blacks to executive directorships, which allows them to have more say in company matters. Benefits for Black women are also enshrined in the codes.
B-BBEE and the codes are already showing results. The Black presence on the board of JSE companies has doubled to 25 percent since 2002, with the presence of Black women alone tripling in the same period. “We’re now talking about a Black middle class,” Radebe says. “The biggest jump in middle-class growth came in 2005. The biggest number of car sales in the country was last year, with most of the luxury cars bought by Blacks.”
I hear foreign investors and local white business owners don’t like this BEE pressure, I say. “The business confidence index prepared by the white-dominated South Africa Chamber of Business shows no discontent,” Radebe replies.
And is there a role for Blacks in the diaspora in South Africa’s economic transformation? I ask. She calls over Sadiq Jaffer, chief director for investment promotion and facilitation with Trade and Investment South Africa. He calls in Mudunwazi Baloyi, economic minister at the embassy in Washington, D.C., and the man to see for investing professionally or commercially in South Africa. Between them I get an answer. There’s a need for project management skills; there are investment opportunities in call centers, tourism, construction and new industries like biotechnology; and the infrastructure needs upgrading to support the targeted 6 percent annual economic growth.
By Rosalind McLymont