Why BEE should be abolished

By Moeletsi Mbeki

Black economic empowerment is one of the most destructive policies adopted by the ANC government since the advent of democracy in 1994.

Sadly, conventional wisdom in South Africa thinks BEE has been a pillar of strength for South Africa's democracy. The reality is that while BEE has enriched a significant minority among the blacks, for the great majority of black South Africans evidence shows that their condition has been deteriorating over the last 15 years.

South Africa's human development index has declined systemically in the past decade, culminating in a steep fall in life expectancy. In 1999 South Africa was ranked 94 in the index; by 2007, it had dropped to 129 out of 182 countries.

Our life expectancy has dropped from 53.9 years in 1999 to 51.5 in 2007. These figures reflect the deterioration in living conditions for South Africa's black masses, especially Africans and coloureds.

When the new black political elite gained control of state power in 1994 it faced several difficult questions, including what to do with its new political power.

Should it use its power to enrich the black masses who had been exploited, especially by the mining industry, for the better part of 100 years? Should rich whites be allowed to keep their wealth or should it be taxed and to what extent?

Big business had anticipated all the questions and came up with its own solution. It offered to transfer a small part of its assets to individual leaders of the black resistance movement in return for them leaving the business environment as they found it. The leaders found this offer of instant wealth hard to resist.

The co-option of the black nationalist elite by big business came to be known as black economic empowerment or BEE.

Sanlam created Nail by transferring control of one of its small subsidiaries, Metropolitan Life, 85 percent of whose policyholders were black, to several ANC and Pan Africanist Congress affiliated leaders. The device used was to split shares of MetLife into a small package, dubbed high-voting shares, which gave the politicians who were funded by a loan from the IDC, control of the company.

Overnight the politicians were transformed into multi-millionaires without having had to lift a finger because all the financial wizardry was performed by Sanlam's senior executives. All that the politicians had to do was show up at the launch party of Nail and thank their benefactor. Even the debt the politicians incurred was largely fictitious as MetLife had to pay it back to the IDC.

The feeding frenzy of politicians and their senior civil servants and parastatal bosses thus began and continues to this day, with state revenue now thrown in.

This financial razzmatazz was designed to achieve a number of objectives. It was intended to wean the ANC and PAC from radical economic ambitions, such as nationalising major elements of the economy, by putting cash in the politicians' private pockets, packaged to look like atonement for the sins of apartheid - that is, reparations to black people in general.

It was also meant to provide the economic oligarchs who control the commanding heights of the South African economy with prominent and influential seats at the high table of the ANC government's economic policy formulation system.

It was to allow those economic oligarchs who wanted to shift their company's primary listings and headquarters from Johannesburg to London to do so. It was to give the oligarchs and their companies the first bite at government contracts that interested them.

And it was intended to protect the oligarchs from foreign and domestic competition while opening up the rest of the economy, especially the consumer goods and manufacturing sector, to the chill winds of international competition.

With the wealth of the rich whites thus protected through BEE, the only other source besides BEE shares for the enrichment of the new black political elite available was state revenue. This has proven to be the central internal contradiction of South Africa's era of black rule.

This contradiction can be summed up as follows: who gets what share of state revenue between the black elite's private consumption and the poor people's welfare consumption; investment in social and physical infrastructure; payments to other claimants such as workers in the public sector.

Competition between these claims on state revenue has become increasingly explosive. South Africa is, therefore, now entering a new phase of conflict - between the black political elite and the masses over how to distribute state revenue between them.

This struggle is commonly referred to as a struggle over service delivery which, in a limited way, it is.

South Africa's largest companies - despite their deal with the black politicians - realised that conflict between the black political elite and black masses was inevitable and would probably be even fiercer than the struggle between the black masses and Afrikaner nationalism.

Thus, within five years of black politicians taking control of the state in 1994, South Africa's largest companies - Anglo American Corporation, Old Mutual, Billiton, South African Breweries and Dimension Data - moved their head offices and their primary listings from Joburg to London.

So, has BEE achieved the objectives of its creators? There is no doubt it has. A new class of rich blacks, many of them ANC politicians and former politicians, has emerged in South Africa whose interests are virtually indistinguishable from those of the old economic oligarchy that has controlled the South African economy for over a century.

This new class supports the perpetuation of the migrant labour system and South Africa's continued reliance on mineral exports. And the business environment has not changed from the system put in place by the National Party in the 1950s.

Meanwhile, the condition of the masses continues to deteriorate. This is why, in my view, BEE must be abolished if we are not to tear the country apart.

  • Moeletsi Mbeki is deputy chairman of the SA Institute of International Affairs, an independent think tank based at the University of the Witwatersrand. He is the author of Architects of Poverty: Why African Capitalism Needs Changing. This paper was a presentation made at the Gordon Institute of Business Science.

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