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Not yet (Economic) Uhuru

October 7, 2014

IF you’d listened to the disgruntled speeches at the Black Management Forum (BMF) conference this week, you’d swear the attendees were the most put-upon members of society. The luxury sedans crowding the parking lot, however, suggested this particular group could more accurately be considered among the wealthiest and most fortunate.

The rhetoric suggested that 20 years of affirmative action and black economic empowerment (BEE) had done little or nothing for either the conference-goers or the cause of transformation.

“The numbers talk for themselves,” says Sandile Zungu, 47, vice president of the Black Business Council, of which the BMF is a subsidiary. Mr Zungu has one of the sharpest minds in the country and would have been, as he is, one of South Africa’s most successful entrepreneurs with or without affirmative action and BEE.

He went to school in the Durban township of Umlazi, was awarded a scholarship to do post matric at Hilton College, and sailed through a mechanical engineering degree at the University of Cape Town and an MBA at UCT’s Graduate School of Business.

Mr Zungu helped to bankroll Jacob Zuma’s bid for the presidency, is one of his closest advisers and a member of the president’s Broad-Based Black Economic Empowerment (BBBEE) Advisory Council.

Whatever you might say about former BMF president and government spokesman Jimmy Manyi, who added his shrill voice to the litany of complaints from the podium, Mr Zungu has no axe to grind and no chip on the shoulder. Mr Zungu (arguably, unlike Mr Manyi) is the kind of guy white corporate types need to listen to and take seriously.

“Twenty years into our democracy, the ownership and management of the economy is far less than satisfactory from a black empowerment point of view,” he says.

The dissatisfaction with this state of affairs, which was vocalised at the BMF conference, “permeates throughout the society”.

There is a “perception” that white corporate South Africa is only paying lip service to the notion of transformation: sure, they’re ticking the affirmative action and BEE boxes, appointing blacks to management and board positions as required. But “they’re not allowing black entrepreneurs into the mainstream of the economy”, says Mr Zungu.

Black entrepreneurs are still being kept out by poor access to capital. Government developmental financial institutions are “hampered” by weak balance sheets and a reluctance to fund equity transactions.

One might think that what South Africa needs are black entrepreneurs who build their own businesses and create jobs, rather than buy existing businesses.

“Yes,” says Mr Zungu, “but to start a meaningful business you must have a sufficiently strong balance sheet. You need equity to provide this.”

As much as the banks might be to blame, the government’s own track record of support for black suppliers has been “pathetic”, he says. This is not least because of the government’s failure to pay them on time. Inclusion in government supply chains has been a “curse” for many black entrepreneurs.

“On one hand, the government seeks to advance black businesses. But on the other hand, they seek to limit the advance of black businesses,” says Mr Zungu.

The preferential procurement policy is meant to favour emerging suppliers, but the problem is that it gives a 90% weighting to the price offered by a supplier. By doing this, the policy favours multinationals and large corporations, who have the scale and infrastructure to cut their prices.

“Price is very important, because they have to be competitive, but it is not a blunt instrument. The only winners are the multinationals and large corporations. Locals can’t compete. This is in conflict with the government’s localisation strategy, which is part of the industrial policy action plan, and with the stated endeavour to create black industrialists.”

What about all those emerging suppliers who do get contracts, but fail to deliver?

Mr Zungu answers that this is because they’re not properly supported, which reflects a weak commitment to enterprise development. “That’s why I say whites — not all whites, but many whites — don’t want to change. If whites were genuinely interested in change, they would have done more to embrace enterprise development. The attitude and the mind-set must be about more than just ticking boxes.”

The South African Chamber of Commerce and Industry says that by revising the BEE codes and BEE act, as it recently did, the BBBEE Advisory Council on which Mr Zungu sits has moved the goalposts in a way that is unfair for businesses that have invested heavily in meeting the original targets.

“Those who are not happy with the pace of transformation do not see it as moving the goalposts,” he says. “They see it as emboldening the instruments for change.

“Those who are content with doing nothing but ticking boxes and saying they are complying, will see this as moving the goalposts. The fact is we need to create an entrepreneurial culture. This will be driven by enterprise development and therefore greater weighting needs to go towards this.”

Meanwhile, if one looks at our unsustainable and growing fiscal, current account and trade deficits, the bankruptcy of Eskom and South African Airways, the dysfunctional municipalities that are now failing to deliver water as well as just about everything else, the growing service delivery protests that police have admitted they won’t be able to control for much longer, the assault on independent institutions such as the public protector, parliament and the National Prosecuting Authority, and the likelihood of a ratings downgrade to below investment grade, it is clear that we are becoming a failed state.

So shouldn’t the BMF’s brainpower be concentrating on how to save South Africa from becoming Zimbabwe, rather than whingeing about the failures of black economic empowerment? After all, what good is economic empowerment when there is no economy?

Mr Zungu snaps back: “How can we be a failed state when our economy is growing?”At barely more than 1%?

“We are growing as an economy, economic growth is being recorded year on year,” he says.

“I’ll be the first to say we have to grow by at least 6% every year, year on year, for us to create the jobs we need. Absolutely. We are not growing fast enough. But we are growing. And therefore it is completely misplaced to define a country with an economy which is growing as becoming a failed state.”

If one of Mr Zuma’s closest business advisers truly believes this, then the failure of BEE to create more billionaires could soon be the least of our problems.

• This article was first published in Sunday Times: Business Times

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From → BBBEE, Economy

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