A long-running debate over a post-apartheid wealth redistribution programme was reignited this week in South Africa in the wake of critical comments from the country's finance minister.
Just months after new rules were introduced to try to prevent abuse in Black Economic Empowerment (BEE) deals, Trevor Manuel, in an interview with the Financial Times, admitted the system was "flawed" and "needed review."
BEE was introduced following the end of apartheid to try to increase black participation in the economy, by making companies transfer stakes in their businesses to what it calls "previously disadvantaged individuals."
African, Coloured and Indian South Africans are all considered black for the purposes of the scheme, which rates companies on their diversity, using seven criteria, ranging from ownership to skills development. A good BEE rating is seen as indispensable to bagging government contracts, or even to supplying companies that do business with government, because the BEE rating includes marks for purchasing from black or BEE-compliant companies.
To avoid being sidelined, some white business owners have taken to signing away a share in their company to a black person or entity, putting his, her or their names on the letterhead and, without any greater involvement from the BEE partner, gone about advertising their compliance.
Now the scheme is being pilloried as a get-rich-quick scheme for a tiny politically-connected black minority and for failing to improve the lot of poor South Africans.
Manuel himself admitted that the scheme was beset by cases of people being approached to strike BEE deals as token blacks. He cited the example of a friend whose white business partners made abundantly clear: "We want you there, You are a good man. But actually we do not need you close to what we do. We will run the business."
Earlier this year a black former director of a company, allegedly snubbed in a similar manner, sued his white partners for "using him to secure BEE contracts."
White business owners who called a radio phone-in programme on public radio this week railed against having to part with a share of their business just to remain in business, terming it "extortion" and wondering sniffily "why don't blacks get their own businesses."
Pasquale Vannucci, the owner of a telecommunications equipment company, says his experience of BEE has been positive. Vannucci's Telsaf Data began looking for a BEE partner about 10 years ago. Three years later the company had its man in Patience Headbush, a black business owner with a knowledge of the industry and "not someone who was put there simply because of the colour of his skin" - although the search was prompted by the need to find a black partner.
Headbush bought a 25-per-cent stake in the company, which he has increased over time to a majority 51 per cent. His stake gives Telsaf Data top marks in the ownership category, which accounts for a hefty 20 out of 100 points.
In the mould of many BEE beneficiaries Headbush was already "quite well-off with several businesses" when approached by Telsaf to join the company, so that aspect of the deal involved empowering the already empowered.
Where BEE has made a difference, says Vannucci, is in the lower echelons of the company. In ten years Telsaf's workforce has gone from "completely white" to 60 per cent black, fulfilling another of seven criteria: employment equity.
"Some (black workers) went from cleaning gardens to doing the installation of microwave links. That would have been unthinkable ten years ago," Vannucci says proudly. In 2004, in an attempt to clamp down on the practise of BEE fronting, the government enacted legislation to make black economic empowerment more "broad-based."
The code of conduct that followed in February this year took onboard some of the key criticisms of BEE by relaxing conditions for foreign companies on transfer of ownership, lowering the threshold for black ownership to 25 per cent and giving bonus points for deals that empower black women.
Manuel's call this week for a review so soon after the revamping of the programme has surprised many, including top BEE rating agency EmpowerdDex. The agency said in a statement: "We believe that there is no need to review the policies yet as the codes were gazetted only this year and only through implementation by the companies will we know what works and what doesn't."
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