TIPS 1999 Annual Forum

at Glenburn Lodge, Muldersdrift

19-22 September, 1999

Rethinking Black Economic Empowerment in the Post-Apartheid

South Africa

By

O’mano Emma Edigheji

Doctoral Candidate
Department of Sociology and Political Science
Norwegian University of Science and Technology
Trondheim, Norway
E-mail: [Link]@[Link]

&

Research Associate
Graduate School of Public and Development Management
University of the Witwatersrand
South Africa
E-mail: edighejo@[Link]
Introduction

Since the introduction of the concept of Black Economic Empowerment (BEE) into the South
African socio-economic and political lexicon in the late 1980s, the concept has become an
amorphous, slippery and catch phrase for politicians, journalists and academics of various
ideological persuasions. BEE is generating controversy amongst labour unions, business
organisations, government officials and people in the street, invoking hopes, fears and scepticism
from various quarters. Books, newspapers and magazine articles have been written on the subject
and conferences, seminars and workshops have been organised on the theme of BEE. It has also
found its way into a wide range of political parties and government's documents since the 1994
non-racial and non-sexist democratic elections. Yet, the concept has been elusive and ill-defined as
even the African National Congress (ANC) and the government have not come up with a clear
definition or a coherent BEE strategy. Embodied in its various usages, however, is a struggle for the
heart and shape of the present and future transformation of the South African state and society.

The concept of BEE has however been used interchangeably with that of Affirmative Action (AA).
But rather than attempt to resolve the differences between BEE and AA, this paper explores the
trajectory of the discourse on BEE for the purposes of policy implication and transformation of the
South African state and society. I nonetheless draw on the AA literature because some of the
contending views on BEE are replicated in the AA debate. Singh's (1996) distinctions of AA could
be usefully applied to the debate of BEE. She identifies two versions of AA -- the minimalist and
maximalist. These two have become the dominant approaches to the discourse and practices of
BEE in the post-apartheid period.

This paper seeks to provide a coherent definition of BEE, which has the empowerment of the
people as its prime objective. In the first section, I examine how the concept of empowerment has
been used in the field of development. In section two, I introduce and critique the minimalist
approach that emphasises individual empowerment especially through the creation of a filthy rich
black business class without addressing the extreme poverty experienced by majority of the black
population. In section three, I discuss the maximalist approach, which emphasises collective
empowerment, that is, uplifting the living conditions of the majority of the black population. In
section four, I analyse one of the government initiatives to promote BEE with a view of highlighting
which of the two approaches have dominated the state policy.

2
In the concluding section, I argue for a broad-based approach to BEE. It stresses that individual --
the creation of a black business class and collective empowerment -- the reduction of poverty within
the black community are intertwined processes. This constitutes the meaning of genuine
empowerment – the simultaneous empowerment of individuals and the community.

Conceptualising Empowerment

Before proceeding with an examination of the two approaches to BEE, I should develop a
conceptual framework of empowerment and its usage in the field of development. John Friedmann
(1992), a professor of urban planning at the University of California, Los Angeles, provides an
appropriate conceptual basis for an understanding of empowerment. He defines empowerment as
an alternative development, which places emphasis on the improvement in the conditions of life and
livelihood of the excluded majority. Empowerment is an alternative development because it aims to
redress the historical process of systematic disempowerment or exclusion of the vast majority of
people from economic and political power. Disempowerment denies the majority of ‘human
flourishment’ as their lives are characterised by “hunger, poor health, poor education, a life of
backbreaking labour, a constant fear of dispossession, and chaotic social relations (p12)”.
According to Friedman, empowerment aims to humanise the system that has shut out the majority,
and its long-term aim is to fundamentally transform the whole of society including the structures of
power.

In contrast to neo-classical economics which approaches the question of growth from the
perspective of the firms, empowerment as an alternative development addresses the question of an
improvement in the conditions of life and livelihood from a perspective of the household, notes
Friedmann. Although empowerment is “centred on people rather than profits, it faces a profit-driven
development as its dialectical other” (p9). Thus unlike neo-classical economics which takes the
individual as its unit of analysis, empowerment takes the household as its unit of analysis.

According to Friedmann, “Economic science works with a model of “economic man,” understood
as a rational, utility-maximising being with a built-in moral calculus: that whatever promotes one’s
material interest also furthers the interest of all individuals together, provided that their actions are
governed by the rules of market competition” (p31 –32). Alternative development on the other
hand, works on the model of the household. Households are composed of natural persons, that is,
moral human beings, who from birth engage in dynamic interactions with others. Moral beings are
obligated to each other via competition, collaboration, and their relations are guided by a complex
moral code. Moral beings also desire affections, self-expression and esteem, unlike commodities.
Furthermore, according to Friedmann, households through a process of joint decision-making
collectively produce their own lives and livelihood. The households are therefore productive and

3
proactive units. Thus unlike neo-classical theory which treat the household as a consumption unit
and a private activity, alternative development treats households as both production-centred and
public. As production units, households require the co-operative relations of others, relationships
that are founded on reciprocity and trust.

In the pursuit of life and livelihoods, each household requires three types of powers: social, political
and psychological, argues Friedmann.

He defines social power “as an increase in a household’s access to the bases of its productive
wealth” (p33). These include access to information, knowledge and skills, participation in social
organisations and finance. Political power means access of individual household members to the
process by which decisions, especially those affecting their future, are made. This could be done
through participation in political associations, community groups, trade unions, peasant organisations,
etc. Psychological power is defined as an individual sense of potency. It is demonstrated in self-
confident behaviour and its presence increases the household’s capacity to continue to struggle for
social and political power. As Friedman points out, psychological empowerment is often the result of
successful action at the social or political fronts.

Alternative development therefore seeks “the empowerment of households and their individual
members in all three senses…Alternative development must be seen as a process that seeks the
empowerment of households and their individual members … (p33).

Although without direct reference to it, Friedmann conceptual framework provides a basis to
understand economic empowerment. Economic empowerment can be defined as a process to
fundamentally transform the structures of a society, especially the social and economic structures1.
Its central objective is the improvement of life and livelihood of the excluded majority. This is
achieved not through handouts to individuals but through increase in the productive access bases
of the household. This includes access to skill development and training, employment opportunities,
financial resources, and participation in social organisations.

Friedman eloquently argues that successful empowerment requires a strong and proactive state.
Such a state is accountable to its citizens (and not currency speculators), and it devolves powers to
local units of governance and the people themselves, organised in their own communities, to manage
problems that are best handled at those levels.

Against this conceptual framework, I will proceed to examine the two approaches to BEE in South
Africa.

1
One element of this is to make the corporate business more socially responsible.

4
The Minimalist Approach to BEE

The minimalist approach takes the individual black entrepreneurial, managerial and professional class
as its unit of analysis. Broadly defined, the minimalist approach emphasises a proportional
representation of previously marginalised groups of people in the public and private sectors. In
other words, it focuses BEE discourse and practice on the career mobility/advancement of black
managerial, professional and business ranks. This approach does not seek to alter the conditions
that simultaneously engendered privileges for the minority on the one hand, and sustained
exploitation and marginalisation of the majority on the other. Rather, it seeks to alter the racial
composition of privileges and exploitations, that is, to create a new circuit of racial capital
accumulation. In its narrow sense, the minimalist approach defines BEE in terms of development
of black-owned businesses or creation of black business class. This has become the dominant
position within the minimalist approach. It is best represented by former Deputy Minister of Trade
and Industry, Ms Phumzile Mlambo-Ngcuka (1997) to whom BEE means making a few black
businesspersons “filthy rich”. As Freund and Padayachee (1998) rightly observed, the minimalist
approach to BEE “is largely a class creation project, the promotion of a new class of wealthy and
powerful African movers and shakers”. A leading ANC intellectual and former Tourism Minister,
Pallo Jordan bestowed on this emerging black bourgeoisie as the prime hope for setting “a new
agenda of corporate social and civil responsibility” (Jordan, 1998) in the new South Africa. They
have therefore been labelled patriotic bourgeoisie.

To the minimalists, to paraphrase Phinda Madi writing in Breakwater Monitor (1997), BEE occurs
every time a group of black persons acquire share certificates in previously white-owned companies
or secures an equity stake in government-initiated businesses, the latter via casino licences, the
privatisation and commercialisation of state assets. In other words, the minimalist approach defines
BEE in terms of share acquisitions by the black business class in previously white-owned businesses
or the establishment of joint ventures between black and white entities2. Not surprisingly,
newspaper headlines on BEE have focused on share-acquisition by the emerging black business
class.

Most of these emerging black entrepreneurs are closely allied to the ANC and have been described
as Comrades in Business (Adam, Slabbert and Moodley, 1997). The comrades in business have
used their political connections to increase their income, wealth and asset base. Indeed some have

2
The minimalists do not take into account whether the black equity stake is in the minority or not. Thus
companies where blacks acquire less than one percent shares have been labelled BEE companies. Can such
companies really be so called? The answer would be a resounding no if we take Friedmann’s definition of
empowerment as the base line.

5
become millionaires in a very short space of time. One major area where the increase in the asset
base of the emerging black entrepreneurs is noticeable is the Johannesburg Stock Exchange (JSE)
where black equity stakes have increased from less than 1% in 1994 to between 7% and 8% in
mid-1999 of its total capitalisation. Simultaneously however, in the name of corporate restructuring
the comrades in business are presiding over the downsizing of the workforce in companies where
they have control. Thus rather then seek to fundamentally transform the corporate structure, the
emerging black business class have become comfortable with it as long as they become ‘stinking
rich’.

Therefore, the impact of the deracialisation of equity ownership, which the minimalist approach
promotes, has been very limited. As Simon Segal (1998) rightly observed, most of the black
operating companies cannot stand on their own and their contribution to job creation and skills
development remains limited. Not only are the management and operational sides of these
companies still under white control but these acquisitions and mergers are being financed by white
South African capital or foreign banks or companies. Few examples will illustrate this point. The
Sunday Business Times (August 22 1999) reports that none of the directors of Wiphold Financial
Services that is being set up by Women Investment Portfolio Holdings3 (Wiphold) black
empowerment group is black. They are all white males. In a similar report, the Financial Mail
(August 20 1999) notes that majority of the Executive directors of two leading BEE companies,
African Life and Metropolitan Life are all white males. Blacks are relegated to token positions of
non-executive directors4. This approach to BEE therefore reinforces white control over the
economy and provides marginal access to a few blacks into the ownership structure of the corporate
sector. In a telling conclusion, Segal notes, “black economic empowerment is evolving into
something that is not black, economic or empowering, but rather white, political and enriching. It has
also failed to change racial mindsets, is vulnerable to JSE’s performance ... (Segal, 1998: 80)”.

Because the emerging black business class has depended on share acquisition through which it has
inserted itself into the global economy, it has been subjected to the volatility of the global financial
market. Thus as a result of the 1998 Asian contagion or more appropriately, the global economic
crisis some of the BEE companies such as the New Africa Investment Limited (NAIL) lost over half
of their share value. Coupled with increased interest rates, these firms are in the red and repayment
of loans becomes impossible.

3
Wiphold is a black empowerment company led by women.
4
Indeed most of the so-called empowerment companies are initiated by white consultants and investment
bankers. These whites constitute the management and appoint blacks to non-executive positions to make them
more acceptable and gain access to government contract. As Madi points out, the white consultants are has
become the kingmakers in the so-called BEE companies.

6
Another major implication of the minimalist approach to BEE is that it is fostering a process of social
exclusion in the new South Africa as majority of blacks, and mostly rural women remain
unemployed, and are denied the fruits of social transformation – without access to physical and
social infrastructure. At the same time, a new filthy rich black and professional class enjoys the
benefits of the democratic transition – with access to corporate ownership, leading positions in the
public sector and lived in previously white-suburbs. Put differently, a minimalist to BEE promotes the
empowerment of few blacks individuals and the disempowerment of the vast majority of the black
population. This has resulted in the increased polarisation of the black community, that is widened
the gap between the rich and the poor within the black population. As Hermann Giliomme of the
University of Cape observed “A huge gap has opened up between the top quintile of the blacks and
the lowest two. There’s a 60 times differential between the top 10% of blacks and the poorest
10%” (in the Financial Mail, November 29 1996). In the same edition of the Financial Mail, Kane-
Berman notes that the “richer to poorer ratio within the black population is 29:1, compared with a
3,4:1 ratio of white to black earnings in the manufacturing sector”.

I therefore concur with President Thabo Mbeki (1998) that the new South Africa is a country of
two nations. But in contrast to Mbeki, the two nations are defined by access to material conditions
and privileges, as well as gender.

Within the minimalist approach to BEE, there is what I refer to as the psychological dimension. Its
proponents such as the then General Secretary of the National Union of Mineworkers (NUM) and
current General Secretary of the ANC, Kgalema Motlanthe (cited in Enterprise, November 1996)
and Thami Mazwai (cited Sunday Independent:
[Link] point out that the success of black
businesses will give a psychological boost to the black community. According to this perspective,
the success of black-owned companies would give inspiration to the black people and dispel the
illusion that business success is a white-only phenomenon. This is what I call the psychological
benefit and underpinning of BEE. The success of black companies is likely to inspire confidence and
motivate the black community to engage in productive socio-economic activities. The black
community having been stigmatised and dehumanised over the years, the success of black-owned
businesses could ignite and spread a sense of self-worth in the community as a whole. One analyst
of economic empowerment celebrated the emergence the black petit bourgeoisie thus:

It is people like Nthato Motlana who inspires a lot of young black business aspirants to a
point beyond just wishing to be shopkeepers or street vendors. People like Mzi Khumalo
prove that the existence of black mining magnates is likely to become a reality in our lifetime.
People like Cyril Ramaphosa help to break down the stereotype that blacks do not have the
mental capacity to handle a multimillion business empire. The celebration of big black

7
 business is a phenomenon whose time has come. The author, and indeed many people in all
four corners of South Africa and beyond are proud of these heroes. They are becoming
5
the stuff of which legends are made (Madi 1997: 57).

International experiences show that psychological motivation has been a crucial but not the major
and only reason for the implementation of empowerment related programmes in countries such as
Malaysia.

Solomon (1976) writing on the subject of empowering African-Americans from a social work
perspective supports this argument. According to her, empowerment is a process whereby persons
who had been stigmatised throughout their lives are assisted in skills development and
the exercise of interpersonal influence, as well as in the performance of valued social roles6.
Although the psychological imperative of empowerment is essential, BEE should not be limited to
psychological massaging for the South African black community nor should it be regarded as a
residual or accidental benefit of transition, as the proponents of self-enrichment would want to have
it. This is one major limitation of the minimalist approach. It confines the majority of the black
population to that of spectators that celebrates the success of others within their community. This is
in contrast to Friedmann, who as noted earlier, argues that psychological empowerment flows from
the individual sense of potency, and it is derived from access to employment, skill development and
training, finances, information, etc.

The minimalist approach to BEE has been severely criticised from various quarters. The South
African Communist Party (SACP) points out that such an approach could give rise to a limited
version of a national democratic project (The African Communist, 1996). Cyril Ramaphosa,
former ANC General Secretary and a major beneficiary of BEE concurs thus: “To define black
economic empowerment only by the transfer of share ownership is short-sighted and skews the
central thesis of South Africa’s transformation” (cited in Turok, 1999: 119) (emphasis mine).
Indeed, it has become a means to dismantle the state or reduce its role in the economy and the
implementation of cost recovery social policy. This is because privatisation and commercialisation of
state assets, as well as outsourcing of government services are carried out in the name of promoting
black entrepreneurs. The minimalist approach is therefore synonymous with a minimalist state that is
broadly supportive of the emerging black bourgeoisie but not overtly proactive in the empowerment
of the majority of the black population.

5
The author followed the statement with a caveat expressing concern whether this was not a premature
celebration fearing that most of the deals would lead to massive debts by the black business class. In other
words it is not yet Uhuru.
6
Even this definition goes beyond the creation of a business class. It also entails the skill development, etc.

8
Other critics such as Mbigi (1996) points out that a minimalist approach to BEE is both tragic and
naive because, in his view, there can be no empowerment without the collective solidarity and
advancement of the black community. Consequently, he calls on "black business people,
professionals and managers to avoid this elite isolation and alienation" by constantly affirming their
support and solidarity with workers and the black community. (Mbigi in Business Day, November
28, 1996).

While cautioning against the minimalist approach, Nzimande (1996) notes:

We need to challenge the notion that black economic empowerment only means the
development of a black bourgeoisie or a "patriotic bourgeoisie" -- an ambiguous concept,
yet to be defined by those who advocate it. Black economic empowerment should be
rescued from this perspective and be given concrete meaning directed at empowering the
mass of the people of our country. There is no reason why we should not be exploring
alternative forms of economic ownership, like co-operatives. Embedded in the meaning of
black economic empowerment as articulated by those aspiring to be capitalists is the notion
of individual empowerment as opposed to collective economic empowerment of the
working class, landless rural masses and small businesses (Nzimande, in The African
Communist, 1996).

The Maximalist Approach to BEE

The other framework to BEE could be broadly referred to as the maximalist approach. It
emphasises a comprehensive restructuring of institutions and society, which would effectively alter
power relations in the political and economic spheres, rather than the replacement of white
individuals with black ones. The approach entails the generation and redistribution of resources to
the vast majority of the people, ranging from skills and educational training to land redistribution.
Additionally, the maximalists stress the overall democratisation and transformation of institutions and
organisational culture, rather than the mere inclusion of a few individuals from the previously
disadvantaged communities in the ownership and management structures of the economy.

Sono (1991) eloquently articulates this approach to economic empowerment when he defines BEE
as a corrective, creative and constructive mechanism for the redistribution of justice. It involves the
shifting of power -- politically, commercially, economically and educationally -- from the traditional
centres to the new demand sectors -- the black population. According to him, BEE should facilitate
the economic empowerment of the black people who were disempowered, incapacitated and

9
marginalised, in diverse ways, under apartheid. BEE also refers to the abilities of individuals to
freely conduct economic activities of their choice.

Conceptually, this approach places at its core the simultaneous empowerment of the black people as
a collective and the individual as an entity. In other words, BEE encompasses the collective and
individual empowerment of the black people. The logic is that empowerment emanated from the
need to redress the collective racial, gender and class inequalities engendered by apartheid.
Consequently, BEE-related companies should therefore be socially and politically rooted with the
aim of empowering the black community at large. By extension, BEE related - firms represent the
co-existence of two conflicting, but mutually reinforcing interests, that are socio-political or collective
(which is developmental) and economic interest of the entrepreneur (which is profit-maximising).
This realisation prompted the Business Day (November 28, 1996) to assert that BEE should be
rooted on the collective destiny of the black people which must form the basis and inspiration for
empowerment-related business companies. Gqubule (1996) forcefully makes this point when he
asserts:

In these days of corporate largesse (or reparations), it is important that the benefits of
empowerment are spread as widely as possible to the black communities. By definition,
reparations cannot be bestowed on a few individuals. This is especially so when black
empowerment companies get deals, government contracts and licenses in the name of
empowerment and benefit from state initiatives related to privatisation and deregulation...
(Duma Gqubule, in The Sunday Independent, December 15, 1996).

Although the ANC doesn’t have a clear definition or a coherent strategy on BEE, its November
1996 discussion document, ‘The State and Social Transformation’, provides a glimpse of ANC
thinking on the subject. In the document, the ANC argues that BEE is part of the overall
transformation and democratisation of the South African state and society. Consequently, it asserts
that BEE "should be aimed at maximising the number of ordinary communities who increase their
share of participation, not only in creating improved material conditions, but also in determining the
depth, direction and pace of economic transformation" (ANC, November 1996). In the same vein,
an adviser of the ANC, Don Mkhwanazi (cited in The Sunday Independent, October 27,
1996:14) points out that "it (BEE) involves the ownership and control of productive assets of our
country, namely, land, capital, management and entrepreneurship and labour by the blacks in the
mainstream of the economy, in all sectors at all levels". Central to this perspective is the question of
collective ownership of resources, and participation and improvement of the well being of the black
community in the socio-political and economic life of South Africa. It is however doubtful whether
this is the official ANC definition/policy of BEE as the document referred to is a discussion
document and Mkhwanazi’s definition have been contradicted by other key members of the ANC,

10
as discussed in the previous section. The inability of the ANC, as well as the government, to clearly
define BEE and situate it within the broader transformation project could explain the dominance of
the minimalist approach both in discourse and practice.

Key members of the black business community, however, support the maximalist approach to BEE.
For example, the Acting Chief Executive of Nafcoc Investment Holding, Mashudu Ramano aptly
defined it thus: "Empowerment means democratisation of ownership of economic resources, creation
of a significant entrepreneurial class amongst blacks, increased human capital development among
blacks, improved living conditions of blacks and elimination of race in economic activities (Mashudu
Ramano cited in The Sunday Independent:
[Link]

Also the Congress of South African Trade Unions (Cosatu) conceptualisation of BEE falls within the
maximalist approach. To Cosatu, BEE should be part and parcel of the broader and fundamental
transformation of the state and society. It’s then general secretary (current premier of Gauteng),
Sam Shilowa, opined that the mere replacement of white individuals with blacks is "tokenism". He
calls for a meaningful empowerment of workers and the black communities in the ownership, control
and management of economic resources (Shilowa, 1994). The need to broaden the ownership of
resources and participation of workers in particular and the black community in general informs the
setting-up of investment companies by the trade unions7, which are involved in several empowerment
ventures including partnership with black-owned businesses.

This conceptualisation treats redistribution and economic growth as a single strategy that can be
achieved simultaneously. It rejects the rigid separation of redistribution and growth, in contrast to
neo-classical economists. Redistribution without growth would likely have disastrous effects on
economic development. Also, growth without redistribution would likely result in socio-economic
and political instability, which in turn would impact adversely on the economic realm since an
unstable condition is an inauspicious environment for investment and growth.

To the South African Communist Party (SACP), one of the ANC alliance partners, BEE is one
mechanism to realise the objectives of the Reconstruction and Development Programme (RDP),
thereby deepening the national democratic revolution. Consequently, it argued that BEE should
represent and promote the broader social interests of the working people including the urban and
rural poor (The African Communist, Editorial, No 145, Third Quarter 1996).

7
The setting up of investment companies is generating debates within and outside the unions. Critics point out
that some of the union investment firms are focussed on share acquisition and have no contribution to
employment creation or valued added. It is also feared that rather union leaders rather working to improve the
conditions of their members focuses on obtaining shares from the Stock Exchange. Additionally, it is feared that
the investment by unions will blunt their militant culture (See Segal, 1998).

11
This approach is premised on the argument that it is only through democratic economic
empowerment that social and political stability can be sustained8. Anything else, the SACP warned,
would lead to authoritarianism. The African Communist editorial aptly captured this:

As the structural limitations of upward mobility for the previously oppressed majority, as
advocated by the minimalists, become more apparent, as pressures mount for "more
delivery", there are dangers that the newly arrived taking their place alongside of an older
white elite, will increasingly identify with top-down managerialism (in the name of
professionalism), and the use of authority -- seeing in the excluded 70% less the motor force
for ongoing transformation, and more a threat to newly acquired privilege and power
(emphasis mine) (The African Communist, 1996: 4).

From this perspective, economic empowerment is part and parcel of the democratic transformation
of the South African state and society. In summary, BEE in its truest sense occurs “every time a
black person acquires the means to earn a living...” (Madi 1997).

At this juncture, we should examine how these two approaches have shaped government policy on
BEE. Such an analysis will shed light on the dominant approach to BEE. Towards this end, I will
focus on the National Empowerment Fund (NEF) which was launched recently by the government.

National Empowerment Fund9

The NEF is the boldest initiative taken so far by the government to promote (HDP) Historically
Disadvantaged People (hereafter referred to as black) owned businesses. Through the NEF, the
government intends to create investment opportunities for black people that will generate income
and capital growth. It aimed to empower the black community through the sales of small amounts of
shares to as a large number of black people as possible, rather than to a few black individuals 10
(Industrial Development Corporation, 1997). Two kinds of opportunities for black empowerment

8
International experiences give credence to this argument. In countries that are racially divided and where the
ethnic minority dominated the economy, if after independence the post-colonial state pursued economic growth
at the expense of undertaking measures to empower the vast majority of the previously marginalised racial group,
the outcome has been racial riots that threatened the socio-political stability. The 13 May 1969 racial riot in
Malaysia is a case in point. It broke out against the background of Malay economic backwardness and a
festering resentment against Chinese wealth. The collapse of the Suharto regime in 1998 is partly due to the fact
that the minority ethnic group, the Chinese, controlled the economy most of the indigenous people, the Malays,
were mired in poverty. In the ensued riots, Chinese businesses were looted or destroyed.
9
Because the NEF is structured along the National Unit Trust (ASN) of Malaysia that was very successful, in
terms of ensuring the participation of ordinary Malays (including housewives, market women, farmers, etc), in the
analysis that follows I will compare the two schemes to highlight the limitations of the latter.
10
As our analysis will soon show, the instruments for their achievement will contradict these noble objectives.

12
have been identified, that is, distribution on a mass basis to individuals and facilitation of the direct
investment of black consortia/groups into restructured companies.

These would be achieved through a unit investment trust (hereafter referred to as Trust A) and direct
investment (hereafter referred to as Trust B). In other words, Trust A and Trust B would
accommodate the individuals and the black consortia respectively.

Shares would be made available to black businesses in state privatised companies, or to be more
fashionable, in state restructured companies such as Telkom (the state owned telecommunication
company. Ten percent of Telkom’s shares are reported to be reserved for BEE purposes).
Likewise for Sun Air (currently being liquidated), Airports Company, Aventura, Eskom (the state
owned energy company), etc. These shares would be sold to the black community at below the
market rate or at discounted prices. To spread the ownership and to ensure participation by as
many people as possible, it is envisaged that the unit price will be R20 and individual ownership
limited to a maximum amount of R50, 000. Although it is open to all race groups, Trust A would
focus on the small black businessperson. For easy accessibility, it is proposed that these units would
be distributed to the public through the post office, black-owned banks, etc. Also, Trust A would
have a diversified portfolio as a way of striking a balance between immediate income-generating
investments and those that would offer capital growth. NEF is also aimed at broadening ownership
and encouraging savings among the black people (IDC, ibid).

As a "warehousing trust", it is proposed Trust B would hold equity stakes in restructured parastatals
until these are sold, at a competitive price, to black business groups/consortia (IDC, ibid). One
shortcoming of Trust B is that, without a fixed quota, one or few black groups/consortia will
dominate and acquire all shares in restructured public companies. Also, since there is no fixed
percentage of the amount of shares that blacks could own in joint ventures with white or foreign
partners, black partners (with little or no control in their establishment) could use their names to
acquire the state's restructured companies on behalf of their non-black partners. These will
negate/defeat the aim of economic empowerment. Put differently, without a fixed quota, blacks
could act as fronts for white and foreign investors.

Most of the "deals" entered into by the black consortia, some championed by those the SACP
(1997) referred to as "comrade capitalists" have this feature, that is, acting as fronts for white and
foreign capital. Strydom (1997) writing in The Star Business Report (October 10, 1997) aptly
captured the adverse implication of this on economic empowerment thus: "the white establishment
uses black faces to gain access to the new government and often pays the blacks in the form of
shares in their companies... so at the end of the day, it is a handful of black people that are being
enriched". She went on to note that enrichment of few individuals couldn’t be referred to as

13
economic empowerment. According to the president of the Micro Business Chamber, Lawrence
Mavundla (1996 cited in the Business Report, November 6, 1996) it is only about 300 people,
who are already rich that are benefiting from such deals. Consequently, he concluded that economic
empowerment is a sham.

While these few black individuals are becoming "filthy rich" and black equity share ownership in the
JSE increased from less than 1% in 1994 to about 5% in 1997, there is hardly any doubt that the
majority of the black population have not benefited in terms of improvement of their living
conditions, for example, through job creation. In 1997, the government-owned Central Statistics
Services reported that between December 1994 and March 1997, no new jobs have been created
in the South African economy. Indeed, a total of 152096 jobs have been lost in almost the same
period, and by mid 1999, the figure of the job loss was in the region of 500,000. In other words,
whilst on the one hand black equity participation is increasing and a few black individuals are
enriching themselves, on the other hand, the hordes of the unemployed is increasing. One question
that this brings forth is whether these "deals" are adding values to the economy. If the job losses are
any indication, the answer will be a

resounding no. Eskom chairman, Reuel Khoza, acknowledged this in his address to the last congress
of Nafcoc when he lamented that:

Black business measures itself and the deals it concludes by the size of turnover or asset
base and rarely by the quality of these revenues and assets and even less by the size and
quality of the returns (Khoza, 1997 cited in Business Day, September 16 1997).

Another worrisome feature of these "deals”, is their concentration in the primary sector, particularly
in mining and their mad rush to other African countries to acquire mining concerns. Unfortunately
these deals are hailed as the commercial equivalent of the political transition (Sunday Independent,
20 October, 1996). There is a lack of strategic thinking by the black business community on which
sectors they should concentrate on to enhance their economic power, the quality of their investment
and ultimately, the creation of jobs for the majority of the black population, as well as the
transformation of the corporate culture. Khan and Hemson (1997) eloquently summed up the
nature and effects of these empowerment deals thus:

Despite the media hype of empowerment taking a slice of the white establishments' control
over the commanding heights, the investment of billions of rands of black peoples' funds in
forming pyramids, buying into existing companies, and engaging in joint ventures has not

14
 produced significant gains in employment of black workers or even a substantially larger
number of black managers. Far from being focused on the goals of the RDP or some other
such programme for black advancement for the working class in terms of housing, health,
community development, or establishing new manufacturing plants, black empowerment
does not seem yet to equal the social responsibility programmes of existing conglomerates.
Certainly their investment is not in these fields (Khan and Hemson, 1997: 19).

Also there is an absence of coherent government policy to enable black businesses to contribute to
value added, as well as, enhance the competitiveness of the South African economy. Government
efforts to promote black businesses focus on the SMMEs, most of which are survivalist businesses
and in the ancillary sectors. Apart from its small business initiatives, the other programmes by the
government to promote black businesses are state tenders, and the privatisation and
commercialisation of public corporations and utilities. Even the Industrial Development Corporation
(IDC), a government parastatal that financed industrial development, has a generic approach in its
programmes to promote black business. Consequently, the state does not privilege a particular type
of manufacturing nor has it created a focal point for the black business community. What this
shows is that, unlike the East Asian NICs and Malaysia, South Africa's state intervention is neither
selective nor targeted.

The generic approach to BEE could be explained by the absence of coherent and effective industrial
policy in the post-apartheid period (Fine, 1997), as well as the absence of an overall economic
planning agency/body. These factors were crucial for the successful industrial and economic
transformation of Korea, Taiwan and, to a large extent, Malaysia (Wade 1990; Evans 1995;
Campos and Root 1996). The Reconstruction and Development Programme (RDP) office could
have played the role of a super ministry with responsibility for economic policy formulation, planning,
co-ordination, etc. Indeed, it could have been the body to create a unified economic vision and
mobilise society around it. Unfortunately, it was given a low status, headed by a junior minister and
was subsequently closed down and its function transferred to line ministries and the deputy
president's office. Several reasons accounted for the closure of the RDP. This includes policy
differences among, and competition between key ministries and the RDP office, as well as poor co-
ordination between it and other departments (Michie and Padayachee, 1997).

Although the NEF scheme aims to discourage early withdrawal (i.e. 3 years), there is no mechanism
to discourage "fronting", that is, to ensure that the poor do not hold shares/units on behalf of rich
individuals who might want to conceal their excessive capital accumulation. The implication is that
the aim of spreading ownership/participation to large members of the black community will probably
be defeated. Furthermore, unlike the Malaysian ASN that specified that participants in its scheme
could sell off their units only to the ASN, it is not clear how or through which means participants of

15
the NEF would dispose of their shares. Surprisingly, it is being proposed that within a period of 5 to
6 years, the units should be "listed". The probable implication of this is that these units would be
freely traded in the stock or open market. If this is the case, two scenarios are anticipated. Either,
poor individuals will sell off their shares to rich black individuals or to white and foreign investors. In
both cases, the objective of empowering the black community will be defeated. Furthermore, it is
also difficult to fathom why Trust A is open to all race groups if the purpose of the NEF is to
empower previously disadvantaged race groups, in this case the black people who were
marginalised/disempowered by apartheid's political economy. This is in contrast to the Malaysian
case where participation in the ASN scheme was limited to the Bumiputeras. Since Trust A aimed to
accommodate the individual person, it is would have been more appropriate if it is limited to blacks,
especially workers, peasants, informal traders, housewives, etc. A management staff of IDC,
interviewed by the author, points out that if Trust A is opened to all race groups, it could be hijacked
or dominated by other race groups, particularly by whites (Author interview, 9 October 1997).

However, it is also envisaged that the state through the NEF will play the following major roles in
promoting black businesses:

(a) Marketing drive to persuade black people to participate in the scheme, that is, to invest in
the Trust,
(b) Equity education programme for black investors,
© Provision of interest free loans to the Trusts,
(d) Provision of seed capital for the Trusts, and
(e) The ultimate guarantor for the first three years of the minimum value of the individual
investor's unit.

Additionally, the state will accept deferred payments of between 7 and 10 years for loans advanced
to the Trusts.

These measures bear semblance to the Malaysian ASN. But the success of the ASN depended on
political will11 by the Malay political elites to carry them through, in addition to a more favourable

11
After the racial riot in 1969, the Malay political elite recognised that its legitimacy depended on its capacity to
promote what Campos and Root (1996) refers to as Shared Growth, that is improving the living standard of
ordinary Malays (or Bumis), creating a Malay entrepreneurial class, and expanding the economy. These were
there the principles encapsulated in the New Economic Policy (NEP) that came into effect in 1971. Since then the
Malaysian political leadership has been resolute in its determination to achieved these set goals and it has
adopted policies towards this end even in the face of opposition by International Financial Institutions such as
the IMF and the World Bank. Only recently, in 1998, the Mahahtir Mohmad’s government imposed currency
control to stabilise its currency that was under siege from international financial speculators. This was in the face
of opposition by the IMF and the World Bank. Joseph Stiglitz was to concede later that financial regulation has
not been to the Malaysian economy, contrary to the fears of the IMF and the World Bank.

16
international economic climate. It is doubtful whether these conditions are present in the South
African context.

The management of Trust A is vested on a Board of Trustees to be appointed by investors

themselves. The board will, however, be made up of representatives of government, business and
the black community. It is envisaged that this will guarantee that the Trust remains under the control
of the black community. As noted earlier, opening participation to all race groups is likely to make
the realisation of this objective impossible.

But one merit of Trust B is that it is the only initiative by government that locates or sees black
businesses beyond the confines of small businesses.

Although it is proposed that the Trusts will also receive funding from "investors and donors" (IDC,
1997), there is no clarity as to whether these will be white or foreign investors and if so what their
role would be. It is also proposed that there should be an "alliance between black professional firms
and banks" and "traditional institutions” in order to transfer skills and capacity" (IDC: ibid). While
this is a welcome initiative, the government not only failed to spell out how it intends to attract the
"traditional institutions" to participate in such an alliance but it also failed to identify which type of
investors it intends to attract. In other words, the proposal is silent on the incentives to attract
"traditional institutions" (both local and foreign) to participate in such an alliance.

Another shortcoming of the proposed NEF is the limitation of the government guarantor's role to the
first three years. Critics point out that this is ill-informed as it is unlikely that these Trusts and the
black investors would have matured after three years.

The third category of Trust proposed is the Entrepreneurs Trust, known as Trust C. By this, Trust
A will enter partnership with various investors such as the IDC with the aim of contributing "equity to
viable but under funded empowerment ventures" (establishments, expansions or buy-outs) (IDC,
1997: 9). As the deputy minister of Trade and Industry, Ms Mlambo-Ngcuka, puts it, Trust C is
aimed to fast-track the creation of excellent and world-class companies owned by blacks (See
Business Report, May 28 1997). Trust A will be allowed to invest only five percent of its total
assets base in Trust C. The management and administration of Trust C is to be the responsibility of
a trustees set up in accordance with a Trust deed and management agreement.

A black female entrepreneur while welcoming the Trust schemes, questioned the rationale behind it
in the face of government failure to meet the basic needs of the poor. According to her, " where
will the poor, the homeless, the hungry, etc get money to invest in the Trust scheme?".
Consequently, she calls on the government to proactively adopt measures to meet the basic needs of

17
black South Africans in particular and all South Africans in general. This in her view is what
economic empowerment means (author interview, 8 September 1997). Put differently, creating a
black business class and meeting the basic needs of South Africans especially the poor should
constitute the core of economic empowerment.

From the foregoing analysis of the NEF scheme, it is clear that government policies to promote BEE
have been dominated by the minimalist approach, with its attendant implication for transformation.

Conclusion: Towards a People-centred Approach

The two approaches discussed above treats individual and collective empowerment as antagonist
and separate developments. The major theme of the minimalist approach is its emphasis on
individual empowerment. On the other hand, the maximalist stresses the importance of collective
empowerment. I will argue that both approaches miss the point. I argue that the transformation of
the South African state, economic and society should engender the simultaneous rise of black
entrepreneurs and eradication of poverty. In other words, all black South Africans should share the
fruits of economic empowerment. This is what I called shared empowerment. This is because, as
noted earlier, BEE flows from attempts to redress the shared experience of oppression and
exploitation by the black people. Black capital however, constitutes an important component of, and
has a crucial role to play in the transformation of South Africa.

Henderson’s (1993) analysis of the significance of empowering African-Americans and the role
African-American-owned businesses could play in the process therefore constitutes a useful starting
point to understand empowerment. In line with Friedmann conceptual framework, Henderson
argues that economic empowerment is a source of individual financial wealth, community capital
formation, self-esteem for business owners, employees and their communities, skills formation and
capacity building, and even political power. Henderson subsequently identified five components of
empowerment for African Americans, which could be applicable in the South African context.
These are:

(1) The formulation of strategic goals and objectives by the individuals and institutions that
focus on the creation, expansion, distribution, and the utilisation of human, financial,
technological, and information resources, particularly for a given group or organisation;

18
(2) The mobilisation of those resources through strategic interaction with individuals, institutions
and communities within and beyond the current range or field of interaction to achieve even
higher levels of resource attainment;

(3) As resource mobilisation generates higher levels of resource attainment, entrepreneurs build
skills, capacities, and networks that position them for even greater resource development
and diversification;

(4) As resource development and diversification occurs, entrepreneurs are able to transact,
contract, and interact across more and more community, financial, institutional, and other
boundaries within and beyond locations, further extending their networks, skills, and
resource base; and

(5) The enabling and building of individual, organisational, and institutional networks, of which
the empowered organisation is part. In other words, when one force is empowered, most
forces connected with it are actually and potentially empowered. (Henderson, 1993:
91-92).

Economic empowerment, from this perspective occurs first and foremost when the entrepreneur
takes the decision to become an entrepreneur and then mobilises the requisite resources to actualise
his/her objectives. Second, economic empowerment occurs when various networks, within and
outside the community, are created to generate employment, capital formation, and increased
productivity for/by the community at large. In this sense, BEE has a two-dimensional, yet
inseparable, imperatives:

(i) The conception, development, and enrichment of economically and socially productive
businesses, and
(ii) The mutually enriching and collectively productive relationship between the business
organisation and the black community at the level of the individual, the households and the
community as a collective.

Therefore economic empowerment does not negate the need for the creation of black
entrepreneurial class. But it seeks appropriate mechanisms that incorporate it as one of the several
objectives to be mutually achieved. As Friedmann points out, individual and community
empowerment are inseparable and integral objectives that can be simultaneously pursued and
achieved. This was the case in Malaysia. This strategy should include alternative investment strategy
by the black community including workers and community groups’ co-operatives, investing in socio-
economic activities within the black community that would uplift their living conditions.

19
Consequently, the development of black businesses is therefore a means towards an end: the general
empowerment of the black community.

In conclusion, economic empowerment should be rooted socially, aiming to fundamentally transform

both the black community in particular and the South African society in general. Economic
empowerment should be seen as part of the struggle for liberation and social transformation of the
state and society. Having achieved political power, the economic sphere becomes the most critical
source of real power for blacks and business ownership and eradication of poverty are the ultimate
manifestations of economic liberation. Its success will require not a minimalist state but an activist
state that will articulate a clear vision of BEE and mobilise society around it.

20
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