To my mind
IT CAME AS NO SURPRISE last week when President Kgalema Motlanthe reaffirmed Government’s commitment to affirmative action. His pronouncement came in response to concerns voiced by Pieter Mulder, leader of the Freedom Front Plus, about the counterproductive nature of affirmative action, which stands in the way of many able young white South Africans’ desire to contribute to this country’s development.
It was equally unsurprising that in justifying Government’s position Motlanthe turned to the kinds of statistics provided in the labour force survey.
In 2007, 30% of black South Africans were unemployed, as opposed to just 4% of whites. Research data released in September last year, showed 5,5% of black graduates couldn’t find work while the figures for other population groups were negligible.
As additional evidence for the necessity of affirmative action, Motlanthe referred to the breakdown of management positions in the private sector according to population groups: namely, 54% white, 29% black, 9% Indian and 7% coloured.
However, he also said those “strange things” to which Mulder referred and which occur in the course of addressing and redressing the injustices of the past, “should be dealt with concretely”.
That kind of levelheaded approach is now also needed in dealing with black economic empowerment assets, which the global economic crisis has subjected to considerable risk.
Due to a lack of black capital, empowerment transactions have thus far been almost exclusively debt financed. Moreover, such transactions have been concluded on the assumption share prices would keep rising.
In SA’s mining industry empowerment deals were closed, which gave black investors access to cash flow or dividends that would have enabled them to finance the debt incurred in attaining a 26% share in mining companies.
However, the recent slump in mining share prices, resources prices and mining earnings has led to a very different reality. In some respects it reminds you of the sub-prime crisis that originated in the United States, where economic activity was widely based on the assumption the upward trend in house prices would continue indefinitely.
At the recent Mining Indaba in Cape Town voices were raised in favour of preventing empowerment bankruptcy and safeguarding the long-term viability of such shareholdings. The suggestion was made that high-risk empowerment entities dependent on the financial support of their mining partners should be tossed a corporate lifeboat. Such intervention would be needed to ensure that theoretically black-owned mining companies still meet their empowerment requirements.
Yet if black economic empowerment were to be carried through to its logical conclusion then its beneficiaries, who have theoretically been empowered by the artificial transfer of wealth and ownership, should also accept the full risks borne by companies in the face of unpredictable market forces and economic cycles.
The time might now be ripe to reconsider the extent to which the beneficiaries of empowerment should continue to receive preferential treatment. This doesn’t mean affirmative action or empowerment should be abolished. But it may be high time, in light of current economic realities, to introduce a measure of normality into a system geared towards redressing the abnormalities of the past.