Stronger BEE the only cure for failed empowerment

Black economic empowerment (BEE) has not worked but that is no reason to scrap it, says Black Business Council CEO Xolani Qubeka.

In the face of voluminous evidence that BEE encourages corruption and discourages investment and entrepreneurship, the council wants it to be strengthened.

The politically well-connected and highly influential black business lobby group, which split from Business Unity South Africa not long ago after accusing it of being too pro-white business, has been pressuring the trade and industry portfolio committee, which is considering amendments to the Black Economic Empowerment Act, and says it will also march on the National Treasury to get its way.

Critics of BEE include Qubeka's heroes, Richard Maponya and Sam Motsuenyane, as well as, more recently, Nigerian billionaire Aliko Dangote, who warned South Africa at the World Economic Forum in Cape Town that BEE was an obstacle to trade and investment.

They believe the pro-BEE lobby headed by the council is out of touch with reality and swimming against a growing tide of BEE scepticism.

But Qubeka, 58, says those who want BEE scrapped are "focusing on the past".

BEE has not worked because white businesses, "the major beneficiaries of BEE up to now", used it "to ensure their survival in the new democracy" by buying the support and influence of a few well-connected blacks. These white businesses became "empowered" as a result and won lucrative government contracts. But they did little to encourage or support emerging black businesses.

This needs to change and the only way it can change is through more BEE, not less, he says.

The council wants the government to increase the weighting given to equity, or ownership, in the BEE scorecard and expand "set asides", which he accuses the treasury of having all but abolished.

Qubeka says BEE is the only way to expand the economic base, although the evidence is that granting equity in traditionally white-owned companies has merely redistributed what was already there. It has not added to it.

"We don't want the type of BEE that has ensued for the last 18 years," he says. "Our strategy is not only blacks buying shares in established white companies."

When the council talks about equity, it means bona fide black business people buying stakes in traditionally white-owned companies to acquire skills, critical mass, economies of scale and access to markets.

It does not mean fat cats using share transactions as a vehicle for personal enrichment.

"We want capable black people with sufficient potential to be able to operate in specific market segments - to be able to buy equity in companies with a view to those companies eventually exiting, or the new black entrants taking majority ownership."

The government must ensure that they get the necessary funding from the Industrial Development Corporation and National Empowerment Fund.

According to the council, these white companies will be encouraged to sell stakes to black companies - which ultimately intend cannibalising them - by the fact that if they do not, they will not qualify for business from the government or state-owned enterprises.

Qubeka struggles to explain how black companies piggybacking on successful white companies amounts to economic growth rather than redistribution. But he insists that this is the only way of increasing the number of black industrialists in South Africa.

"So we want to see more equity in white companies, but for the right reasons. We don't want white companies just doing it for the scorecard, because that is fronting."

But, of course, they would be doing it for the scorecard because having the "right" scorecard would be the only way of securing government or public sector business.

He cannot say how the council's vision of BEE would prevent fronting. He simply repeats that the council wants to see equity as "a tool for industrialising blacks more so than has been the case".

He says the council wants relatively less importance to be attached to pricing than to equity and localisation, meaning the use of local - in other words, black - skills.

But where will these skills come from, because at the moment there are almost 900000 skilled-job vacancies in South Africa?

Qubeka tends to agree with one of the initiators of the revived Black Business Council, Jimmy Manyi, who believes that if white companies are sufficiently incentivised to find black civil engineers, fitters and turners and project managers, they will find them. They will find them soon enough, goes the Manyi theory, if winning a fat government contract depends on it.

Qubeka does concede that scrapping the apprenticeship system and replacing it with sector education training authorities (Setas) was a disaster. He says the council wants a return to this system, and the reopening of the technikons that the government closed, as soon as possible. The same skills problem, one might think, would render impractical the council's demand that 40% of the government's planned R900-billion-plus infrastructure programme be set aside for black companies.

"There is a lot of goodwill from ordinary white people in this country who are keen to work with black companies to mentor them," he says. There are also "many unemployed Indian engineers who could come here".

The council will use its influence with the government to get the immigration laws relaxed, "but we don't want a wholesale opening up of the market, otherwise South Africa will not be able to develop its own skills".

He agrees that relegating pricing to third place on the list would harm competitiveness, but not for long. "Black businesses don't have the capacity to compete on price and therefore greater weight [than is the case in the current Preferential Procurement Policy Framework Act] needs to be given to other factors, such as localisation and enterprise development. "In time, once they've got the economies of scale and critical mass, this will change and their prices will come down."

Qubeka says that far from disincentivising black entrepreneurs, BEE practised the Black Business Council way will create them by forcing white companies to open up their supply chains to emerging businesses.

He agrees that another way to incentivise entrepreneurs is to cut red tape. For this reason, among others, he says the council is strongly opposed to the Department of Trade and Industry's planned Business Licensing Bill.

"This will create another bureaucracy. You will need squads of police and inspectors to implement it and that will promote corruption. We don't have the capacity to police existing issues. We believe it will stifle entrepreneurship. If you want to be a hawker, why should you be licensed?"

Trade and Industry Minister Rob Davies says township businesses want it. Qubeka doubts this. "We are not aware of that. Our main affiliates have spaza shops and shebeens and tourism businesses in the townships and they oppose it.

"We want to know what it is the ministry is trying to achieve."

Maybe the council should save its marching legs for him.