Joel Netshitenzhe, arguably the ANC’s leading intellectual, finally joined the great BEE squabble last week — and in the process did himself no good.
Netshitenzhe is a thoughtful man, a close aide to Nelson Mandela when he became president. He is also executive director of the Mapungubwe Institute, the nearest thing the ANC has to a tied think-tank.
So it was a surprise to read an ill-tempered speech he gave last week saying that “the policy of economic empowerment is under attack … for promoting racism and a so-called ‘race to the bottom’, for worsening inequality, for undermining economic growth and for encouraging corruption.
“From the chambers of parliament to billboards meant to welcome G20 Summit visitors, to meetings and selfies in the White House, and celebrated think-tanks in the most powerful country in the world, the battle has been joined. And so, because ‘bad, bad things are happening in South Africa’, we are all expected to cower in terror, beg for forgiveness and mend our ways.”
But you don’t have to be a frothing Trump-loving white racist, blind to our past, to worry that BEE is not doing its job and that it may be contributing to our cripplingly low rates of economic growth, driven by extremely poor rates of fixed capital investment. We aren’t building enough roads, bridges, factories or products to create wealth and grow the economy, and every road, bridge, factory or product we create has a BEE box to tick attached to it.
Netshitenzhe says BEE, or redress, “is not expected, on its own, to resolve binding constraints to growth such as infrastructure; poor skills; low fixed capital formation; and international demand for the goods we produce”, but actually BEE, or redress, or transformation, is everywhere. It’s the core political, social, economic and industrial project of the ANC, and it is perfectly reasonable to judge its progress by what we see around us.
Early BEE deals worked. They created extremely wealthy black citizens, and the more they have to lose by way of poor management of the economy, the safer I feel as a citizen. The same for the many agile and creative young black managers and leaders constantly rising to the top of our political economy.
But you can’t ignore the ugly side of chasing transformation to the nth degree. Take a white entrepreneur bottling spices for the food industry. To import an onion powder not made locally, they would have to sign an irrevocable undertaking with the department of trade, industry & competition that should anyone start making powdered onion here, they would have to buy that.
Why? Because the department has a black industrialist programme and knows it can have a local black supplier up and running (with state support) in no time.
Or take scrap metal — to feed nascent black foundries, it is now almost impossible to export scrap. And not only are scrap prices capped, but dealers are also forced to pay for its transport to mainly government-funded furnaces. As a result, scrap is a less interesting business than it used to be, and much of it is hoarded.
Read: EDITORIAL: Imagine a South Africa without BEE
Part of the problem Netshitenzhe has is that, to put some industrial lipstick on black empowerment the state not only has to stay at the centre of the economy, where it so far has done the most damage to transformation, but it also has to distort the very markets it is trying to transform.
To keep ArcelorMittal SA (Amsa) making steel here, it introduced huge import tariffs on steel. But it couldn’t protect Amsa from the cheap scrap it had created for its BEE industrialists, so Amsa has now closed its big integrated plant in Newcastle. Soon, artificially cheap scrap will be turned (with state support) into products to directly threaten Amsa’s last plant in Vereeniging as well.
Yet Netshitenzhe has no trouble asserting that “at the core of this is the need for BEE to be underpinned by strategies that change the structure of the economy. This applies to industrial policy, the proportion of productive sectors and financial services, and the relationship between manufacturing and the primary sectors.”
What is he smoking? He looks to Southeast Asian countries like Malaysia, which pursued policies to bring indigenous populations into the centre of their economies, but that was long ago, and we’ve never seen the scale of fixed investment that poured into the Asian Tigers between 1960 and 1990.
Now it may be too late. The world has changed. No industrialisation will happen here unless the rules change, simple as that. As I write, the last of our ferrochrome and anthracite smelters, both supplying key materials to the steel industry, are issuing final redundancy notices to staff.
But under BEE rules anyone wanting to invest here has to find local black investors for 30% of their business. Who is going to do that? Expropriation without compensation is a screaming red alert to investors, as will be the new requirement to hire according to a list of racial quotas you’ll be given. Or a new business licensing programme in the offing that will make more redress demands on investors.
Netshitenzhe’s speech may have cheered up some people, but it doesn’t rescue BEE. And even when he reaches out to a fine article written for News24 recently by Investec CEO Fani Titi, he sees only the bits that suit him: “economic inclusion, implemented with integrity and in the broad interests of society, is not merely consistent with, but supportive of, investment, business confidence, and productivity… The progress made over the past 30 years in transforming the management, control and ownership of an economy dominated by an exclusively white and male elite is nothing short of remarkable.”
Titi came into that job via an old-style BEE programme, and as a loyal client of Investec, I can confirm he does a magnificent job. But in the same piece he adds this: “It is time to question whether the current transformation policy framework still serves the people of South Africa. The evidence suggests that we need a more innovative approach, premised on effectiveness, integrity, accountability and a foundational commitment to rapid economic growth.
“The most delicate question is one we can no longer postpone: At what point should South Africa move beyond race as the primary proxy for disadvantage? Race shaped our history… But inequality and underdevelopment are complex, global problems in which race is but one of many factors. Race cannot forever remain the organising principle of our economy.”
Quite. What is needed now is frank discussion about how to get our levels of fixed capital formation from a wretched 15% of GDP to north of 25%, where we create new jobs and change our future for the better, as the Asians did all those years ago. We must be tough on BEE as part of that.
And once we are pumping (it’ll be minerals and food, not cars and steel), we will have the money to smash poverty and end the misery of millions of fellow citizens who deserve a much better deal than they have been getting for the past 30 years.
• Bruce is a former editor of Business Day and the Financial Mail.
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