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Incomes need transforming

Opinion
I read with interest the other day the report that "Nigeria’s Dangote Flour Mills, which failed to make a profit under Tiger Brands’ control, has reported a 10.6 billion naira (R445 million) after tax profit for the 15 months to December”.

The 60-year-old Dangote’s fortunes began with a modest capital contribution from his grandfather back in 1977, and a commodity trading business was born, at a time when South African blacks were precluded from the mainstream economy in the country of their birth.

The report further points out: “After four successive years of losses, Tiger Brands sold the Nigerian-based consumer products’ company back to Aliko Dangote for $1 in December 2015. At the time Dangote, who is Africa’s richest man, undertook to inject 10billion naira to revitalise the loss making company”. Today Dangote Group is a home-grown, large international player able to stand on its own.

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A worker lifts a bag of flour at the Dangote Flour Mills in Nigeria, in this file picture. The company failed to make a profit under the control of Tiger Brands, which subsequently sold it back to Aliko Dangote. The author says that there are many lessons to be learnt from Nigeria an other countries in Africa. Photo: Reuters

According to a report by Adams Odunago, Nigeria has 9 100 dollar millionaires, Egypt’s Cairo 10 200, and Johannesburg 23 400. Another report cites South Africa to have grown its dollar millionaire population between 2005 and 2015 from 25 500 to 46 500 people. Of course there are a number of black millions represented in those numbers, though hugely under-represented. Numbers don’t lie!

There are many lessons relating to the indigenisation of Africa’s economies to be learnt from Nigeria and other countries on the continent. The continent provides exceptional opportunities for multinationals, and many South African companies are already major players, and of course the Tiger Brands story is one of hard lessons learnt.

With a few exceptions, black-owned companies, on the other hand, are not sufficiently resourced or developed to become international traders, which means their scope for growth has to be home turf, where access to new opportunities should be easier to facilitate.

Firstly, through their own intuitiveness and initiative. Secondly, through deliberate interventions that take cognisance of historic inequalities, utilising appropriate legislative instruments.

This does not mean people must sit back and wait for opportunities and hope for manna from heaven. It means people must roll up their sleeves and get on with it without an attitude of entitlement. Of course, state interventions must provide a soft landing for those who make the most effort.

Misinformation

There is generalised expression that black economic empowerment (BEE) has failed. There is nothing wrong with expressing varying opinions except that any opinion should not be skilful misinformation.

I came across an editorial line that reads “Successive ANC governments have been active in supporting transformation, and the fruits of this policy (affirmative action) have been impressive, even given the huge scale of the problem." True! Except I suspect the point is made to agitate an obviously incorrect notion. It sought to support the view that says the black middle class is “now numerically larger than its white middle class" and therefore dismissive of the notion of radical economic transformation.

There are varying measures used to determine attributes of a middle class. One of the missing attributes relating to the measure of the middle class in the South African context is that of historical wealth - a story for the next column.

A recent report by Stats SA, cited the following average household’s incomes: black African: R60 613; coloured: R112 172; Indian/Asian: R251 541; and white: R365 134.

Read also: Addressing Inequality

Clearly, while there have been significant movements in closing historical income disparities, blacks are still lagging far behind.

A Stellenbosch University (SU) research report has some noteworthy findings relating to the narrative on the growth of the middle class. Professor Hennie Kotze, research fellow at the Centre for International and Comparative Politics at SU, says “previous studies on emergent black affluence often focused on the implications for the consumer market, but said little about the impact on the social and political landscape”.

Dr Cindy Steenkamp elaborates: “Class identity is complex. The middle class label was only weakly correlated with traditional notions of what it means to be middle class." She says the report “cautions against over-optimistic predictions of economic growth, political stability or social cohesion, based on the recent surge”.

Of course it is in South Africa’s best interests that we extol the virtues of a black middle class where appropriate, but it shouldn’t be for partisan reasons or distortion of facts on the ground.

The same editorial noted earlier suggests that “black South Africans directly own just slightly less than white South Africans of the JSE. Indirectly -in other words, via pension funds- black South Africans own more of the JSE than whites”. Now, really?

Does it mean the majority must continue to own spaza shops, and find solace that pension funds warehouse their wealth? The "Old Boys' Club”, as enclaves of commercial dominance above the majority of this country, must continue dominating trade and contracting with organs of state and the private sector alike, while pension funds do it for blacks?

Xolani Qubeka

Investment decisions by pension funds cannot substitute individual aspirations to create sufficient wealth for themselves and their families. Dividends accrued from investments made by these funds are re-invested in terms of the rules of the respective funds. Since the advent of democracy, the government has enacted a plethora of regulations and legislations, among which are the following:

* The Promotion of Equality and Prevention of Unfair Discrimination Act;

* Extension of Security of Tenure Act;

* Restitution of Land Rights Act;

* Employment Equity Act;

* National Empowerment Fund Act;

* Telecommunications Act

* Preferential Procurement Policy Framework Act;

* Broad-Based Black Economic Empowerment Act;

* The Minerals and Petroleum Development Act; The list goes on Add black industrialist programmes to it.

Realistically, while the spirit and intent of BEE continues to be a correct and sincere one, some or all these measures have had limited impact or penetration.

Of course, BEE was never about destroying established white businesses to make space for black ones, but rather to ensure that black companies are given preference in accessing opportunities with the hope that this would contribute towards narrowing the huge wealth gap-catching up.

The perceived failures of BEE could be attributed to its architecture, which is more premised as a compliance tool rather than an agent for redress. Its core elements are hugely pitted against black entrepreneurs, as if its architects have in their minds more the interests of white business than black aspirations whose interests it sought to promote.

Read also: #Budget2017: SA must be transformed much faster

Conversely, BEE instruments in their current form have as their biggest success managed to further entrench white monopoly capital. Sadly, the process stalled the acceleration of economic transformation to the extent that any notable success becomes an unintended consequence.

It is about time that existing legislative instruments are reviewed, those that don’t work are scrapped, and a new regime ushered in, something more clearly defined, meaningful and targeted, and perhaps radical economic transformation is the one. It needs to be properly promulgated so as to bring certainty and stability.

Value chains

Radical economic transformation should be based on a re-industrialisation trajectory, and aimed at creating and supporting new enterprises that would be integrated into major value chains of large companies.

There are already regulations such as the Revised Codes of Good Practice on BEE (the Codes) which provide an ideal platform to engender a symbiotic relationship between SMMEs and large corporates.

The benefits and effectiveness of the Codes have yet to be explored fully. It is an ideal tool to accentuate partnerships that would propel increased economic activity, instigate unprecedented manufacturing possibilities as well as produce new suppliers through newly diversified supply chains.

The road ahead is a long one. It needs a nation converging towards a common national goal - our destiny is intertwined, and the challenges are huge but not insurmountable. If its name is radical economic transformation, so be it. It is an ideal we should start getting used to.

Xolani Qubeka is founder of the Small Business Development Institute, and non-executive chairperson of Redisa. He writes in his private capacity. E-mail.

BUSINESS REPORT

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