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Black Economic Empowerment, like charity, is not investment

Guest post by: Gavin Chait

Article Overview: South African businesses have become one of the largest investment blocks in Africa. Many African countries regularly fret that they are losing their local business ownership to their cousins down South. Every sector of South African business is represented in this new scramble to invest; from mining to telecommunications to retail.

Black Economic Empowerment, like charity, is not investment

South African businesses have become one of the largest investment blocks in Africa. Many African countries regularly fret that they are losing their local business ownership to their cousins down South. Every sector of South African business is represented in this new scramble to invest; from mining to telecommunications to retail.

What makes this investment more remarkable is the tacit belief, emotionally expressed by members of the audience at a recent Graduate School of Business (GSB) Distinguished Speakers Program, that, “Without legislated BEE South African companies would never invest in black people.”

Vuyo Jack, CEO of Empowerdex, speaking at the event, did his best to make the fog of the BEE Codes of Good Practice clear. Most business owners left the engagement bewildered and confused.

All legislation has unintended consequences and the consequences of government’s continual focus on “Black Economic Empowerment” is becoming clear.

One analyst, who chose to remain anonymous, declared, “Investment which should have gone into capacity building has gone into empowerment.” He pointed out that rising prices at the till have a lot to do with production shortages. Companies should have been building new plants and factories to take advantage of the consumer boom. They haven’t.

It may very well be that South African businesses see no value in the local informal sector. The question is how did this belief form?

A few hard facts: 27 million people live in South Africa’s informal sector; they spend R 100 billion a year and their economy is growing at 10.9%. This is bigger and faster than virtually every other African country. It is three times faster than South Africa’s formal economic growth.

How often have you heard a politician mention this? How often have you seen a leading beneficiary of BEE share deals declare their intention of developing business products aimed at the townships?

Instead, from the President down, we hear about the problems of the “second economy” and how we must bridge people out of the poverty of the informal sector and into the wealth of the “first economy”. What happens if the informal sector isn’t poor at all? There is certainly a wealth gap, but growth implies investment and that implies rapidly rising standards of living.

The King Commission on Corporate Governance made the recommendation that companies invest 1% of earnings into social investment projects. Companies repackaged charity involvements into new Corporate Social Investment (CSI) departments and passed anything relating to the informal sector along to that department.

BEE is being similarly treated; often with the first black management appointee being head of their new BEE departments. Businesses have calculated the cost of empowerment to their businesses; consider it a tax, and pass on the costs to their customers.

Charity has very specific associations: that the beneficiary has nothing of value to offer. Even car guards invest their time in watching parked cars rather than simply begging.

There are significant opportunities in the informal sector. Chinese traders have already seen this and, unencumbered by any legislative overhead, they are ploughing into a market that is on our doorstep. Chinese products are growing at 15% in the townships, outpacing local growth and displacing South African goods.

If you thought that the textiles industry was a one-off you are sadly mistaken. Wait until Haier starts selling their R 150 fridges here.

The sadness of BEE is not that it is necessary but that it has divided South Africa from itself. Instead of seeing our informal sector as a remarkable and exciting place to invest, companies see BEE and CSI as part of their charity duty. And that diminishes us all.

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Article Tags: African countries, African country, Black Economic Empowerment, informal sector, investment, investment, South Africa, South Africa, South African businesses, unintended consequences



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Re: Ideas For Business - [quote="Stas Z":191lb7aa]Hi, I'm Lucy's partner for this project and I think I came up with an idea of how to attract people. Sure selling is one thing, but heres something that definitely attracts people and thats charity! Everywhere you look today, even in the subway their selling pizzas that cost much higher then what you could buy at the store, but mostly people buy them because they know their money would go to charity and that makes them feel good and makes them think that they have just made a difference. I still have not figured out the percentage but if we donate like 25% of the money earned to charity for example, more people would buy. Charity is used in business to help people out but as well as attract more customers to their business. I know this might sound like a stupid idea but hey you can never know for sure until you try your ideas. Thats what business is all about.[/quote:191lb7aa] Finding a charity that is important to the people you will market to is a big help. Its also good if you are personally enthusiastic about the charity. If you do a good size event with a charity, there are great ways to promote and lots of free promotion - but that would be a big event and you need the support of the charity. Shri
Re: Ideas For Business - Hi, I'm Lucy's partner for this project and I think I came up with an idea of how to attract people. Sure selling is one thing, but heres something that definitely attracts people and thats charity! Everywhere you look today, even in the subway their selling pizzas that cost much higher then what you could buy at the store, but mostly people buy them because they know their money would go to charity and that makes them feel good and makes them think that they have just made a difference. I still have not figured out the percentage but if we donate like 25% of the money earned to charity for example, more people would buy. Charity is used in business to help people out but as well as attract more customers to their business. I know this might sound like a stupid idea but hey you can never know for sure until you try your ideas. Thats what business is all about.
Fundraising for 3rd world Entrepreneurs - How great to learn that Evan is doing something for Entrepreneurs in Africa! It just makes me even more thankful to be part of this forum! After helping create a new charity for animals in my local community last year, I created a vision for a charity empowering Women Entrepreneurs. It won't happen for a while yet, but I know it is something I will do within the next few years. As we allow ourselves to think bigger, the opportunity to impact people becomes much bigger as well. Does anyone else have a desire to really make a difference in the world through this means?
Re: OT: Shop For Museums - [quote="ChrisH":umtugzcr]So, if you were looking at the same or a similar item at two different places and one was giving a percentage to charity and the other wasn't - which one would you choose?? Chris[/quote:umtugzcr] If ALL things were equal, except one vendor was giving a charitable donation, then sure I'd support the socially responsible buisness... but otherwise, I'd buy from the one that was more convenient for myself (e.g. let's say the store that didn't give to charity was closer or had an easier website to navigate through).
Re: OT: Shop For Museums - [quote="Kevin":2odw2s8a]While I'm all in favor of supporting worthy causes... I'm not sure that donating a small portion of profits to a non-profit organization/charity would entice me to spend more money with a particular retailer/vendor. I mean, if a person wanted to make a difference, wouldn't it just be easier to give a direct donation?[/quote:2odw2s8a] There are a good number of places that use this strategy and they even offer the option on Ebay listings. That is a way for people to buy what they want and still be able to do something good for someone else. So, if you were looking at the same or a similar item at two different places and one was giving a percentage to charity and the other wasn't - which one would you choose?? Chris


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