‘BEE fuelling economic revolution’

29 May 2006

South Africa’s drive to bring the long-excluded majority of its people into the mainstream of its economic life is paying healthy dividends. It is pushing the growth rate – nearly 5% last year – on to a higher trajectory. It has helped the 12-year-old democracy move ahead of India as a destination for foreign direct investment. It was a factor in the 47% total return on equities traded on the JSE last year.

Broadly defined, the black economic empowerment strategy hammered out between government and business is helping fuel an economic and social revolution as millions start to enjoy disposable income and upward mobility for the first time. This is making SA an exciting place to do business and one that holds the promise of long-term stability.

How real is the transformation? Consider this. Just over 20 years ago, South Africa’s most famous newspaper, the Rand Daily Mail, closed because its readership was increasingly black and of no interest to advertisers. Today, SA’s most successful newspaper is the Daily Sun, a three-year-old start-up targeted at the black working class. Its circulation is 450 000 and rising, and advertisers are clamouring for space.

Nearly half a million black adults moved into the middle income bracket last year, according to the South African Advertising and Research Foundation. The number of black people in the upper brackets grew 30% and the proportion of blacks in the top income bracket is now 20%, up from close to zero a decade ago. The rise of black consumers can be seen in surging sales of consumer goods, financial services, property, cars and tourism. This is strongly tied to empowerment. Factors driving it include the rapid increase of black people in white-collar public- and private-sector jobs and the growth of black-owned business.

There has been understandable criticism that empowerment in its narrowest form – the encouragement of business to put a more representative share of ownership and control in black hands – has in some instances simply served to enrich a small elite. This was perhaps inevitable as businesses scrambled to find what they considered to be bankable and “connected” partners as a new era dawned.

Naturally, some of the brightest black brains, who would have had few other choices other than to embrace the political movement for change during the apartheid era, later might be attracted into business once the opportunities arose. The threat of so-called crony capitalism is being replaced with the promise of building an entrepreneurial culture. The government’s recently published empowerment codes are a step forward. The corporate sector is also climbing the learning curve.

The private sector likewise has a responsibility to ensure that empowerment really does undo the horrifying distortions left by apartheid so that a just and prosperous future can rise from its ashes. Empowerment deals such as the ones announced by De Beers, Merrill Lynch and my own company over the past year are increasingly the norm. Beneficiaries will own a growing stake in these companies’ South African subsidiaries. They include employees, customers, emerging businesses as well as strategic black business partners who bring real bottom-line value to the table and are rewarded accordingly.

The authorities deserve credit for deliberately avoiding a prescriptive approach to empowerment. Having set broad objectives, they left it to industry sectors to work out how to achieve them.

Consultations continue on the details of the scorecard system government proposes to use in awarding contracts, licences and mineral rights.

Under the system, companies will earn points for meeting equity ownership targets, appointing black people and women to management positions, developing skills and talent and procuring from small business. The government is sensitive to reservations some foreign companies have about selling equity in their South African subsidiaries and is willing to consider awarding points for “equity equivalents” that advance the common objective.

Black economic empowerment is a shared endeavour. What we are trying to achieve is difficult. There are no perfect models to follow. But even with the mistakes we have made, the rewards of getting it right are already manifest in our dynamic economy.

And we will get it right. South Africans are pragmatic problem-solvers who listen and strive to build consensus as the foundation for lasting solutions. That is one very good reason anyone wanting to do business in SA would want to find local partners – they add real value.

Jim Sutcliffe is the chief executive officer of Old Mutual. This article originally appeared in the Financial Times.