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.
To learn more about this author, visit Gavin Chait's Website.
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