Placing substantial resources towards future growth
IN ONE OF my earlier articles I made a point that “it takes a lot of money to make lots of money”. The issue of capital has taken unprecedented prominence in the recent past with arguments bordering around white monopoly capital or monopoly capital.
Former President Thabo Mbeki also brought up the subject during his recent Power FM live interview, bringing another slant on the narrative with a very academic argument using some technical jargon.
However, the vesting question remains, how do we ensure that substantial equity of the economy vests in the hands of the majority of South Africa’s indigenous citizens?
Former president Mandela, during his address at the ANC National Conference in 1997 in Mafikeng, North West, said the following: “The wider and critical struggle of our era is to secure an acceptance and actualisation of the proposition that while capital might be owned privately, there must be an institutionalised system of social accountability for the owners of capital.
“In this context, it may very well be that the success of our strategy for black economic empowerment will address not only the objective of the creation of a non-racial South Africa. It might also be relevant to the creation of the system according to which the owners of capital will, willingly, understand and accept the idea that business success can no longer be measured solely by reference to profit.
“According to this thesis, to which we must subscribe, success must also be measured with reference to a system of social accountability for capital, which reflects its impact both on human existence and the quality of that existence”.
Let’s use the phrase “owners of capital” for now so as not to sound opportunistic or sloganeering, after all Tata’s rationale seems to find resonance across all sides of current arguments.
uTatu’Mandela had an expectation that the owners of capital, while profit orientated, such orientation would not be solely that. That in recognition of the huge disparities of the past on the one hand, and the substantial historical wealth on the other, there would be recognition of the responsibility on the part of the owners of capital that it is not sustainable to retain the historical levels of disparities without steering a revolution.
These levels would, if not broken down, diminish the prospects for success of the BEE strategy that Rolihlahla envisaged.
The fact is that the economic system in its current form is inimical to the participation of new entrants at all levels, because of huge barriers to entry. The key is to open up key market segments and value chains and to enable participation by black people, not just as consumers, but as part of the entire economic system as entrepreneurs.
Saki Macozoma was quoted in the Financial Mail in December 2000 as saying “Black people must use the resource they are beginning to command to promote programmes aimed at taking the majority out of poverty and on to a developmental trajectory. If poverty and disease decimate the majority SA will continue as an enclave economy, its ability to attract investment will diminish because SA will have no skilled labour or consumers”.
This is a question major BEE beneficiaries in particular should be addressing. Are we investing or doing enough to emulate what Naspers, Sanlam and others did in developing the Afrikaner economic hegemony? How do we use our newly-gained resources to bring others in to the system?
It goes much further, and talks to those black people in state-ownened companies, in the 3 tiers of the government, and who command resources, and influence those policies and key decisions with the major impact on procurement of goods and services. But it also talks to those black people who sit in boards and executive management of large companies in the private sector.
The experiences of many young and old employees of some of the companies that are black controlled, with black chairpersons and chief executives is not pleasant. The experiences of black professional companies such as lawyers and accounting firms is not pleasant, with these companies still procuring services from white audit and law firms.
Organised black business and entrepreneurs alike are not winning because of lack of trying. Many attempts have been made in pursuit of contributing towards the design of a policy environment that ensures the creation of an inclusive economic system. The weekend of the October 31 to November 2, 1993, has significance in the journey towards deracialising South Africa’s economy.
Coincidentally, a group off about 230 individuals representing organised black business that included Nafcoc, Fabcos, the BMF converged in Mopane, Kruger National Park, where they held an indaba with a 60-strong ANC contingent led by the late stalwart Walter Sisulu, Nkobi Holdings, Saki Macozoma, Tito Mboweni, Trevor Manuel, Popo Molefe, Andile Ngcaba, to quote but a few.
On the other side of the countryside, 30 individuals that included Ashley Mabogoane, Seth Palatse, Jabu Mabuza, the late Lot Ndlovu, converged at the luxurious Phinda Lodge where they engaged with former president Thabo Mbeki, and I am unaware of any other ANC representative.
I was part of the Mopane détente, in the company of esteemed leaders and entrepreneurs that were inspired by Willie Ramoshaba, and included David Moshapalo, Gaby and Nana Magomola, Cawe Mahlathi, Dupree Vilakazi, Leslie Mampe, Danisa Baloyi, late Joas Mogale, the list is long.
These two endeavours were aimed at charting a common agenda between black business and the ANC which at the time was readying itself to govern.
The outcome of Mopane was the historic Mopane Memorandum of Understanding, which was eventually signed at Shell House. Its essence was to form a social compact that would engender a common agenda that would enable the creation of a new deracialised economic order.
One of the major outcomes, among other key ones, of the memorandum was the creation of what was then termed National Enabling Fund (NEF), an entity that would be at the centre of mobilising much needed funding to finance black owned companies in the process of deracialising the economy.
The expectation was that the NEF was going to be substantially resourced through funds galvanised through the public purse initially, but that more funds would be raised in the private sector, locally and internationally, but the government was to be the key father-in-law. Today that funding agency is the National Empowerment Fund, which I must say has been the step child that at times almost looked like going through tough love.
In 1998, inspired by the resolution of the BMF, the then Black Business Council (BBC) established what is historically known as the Black Economic Empowerment Commission which was chaired by now Deputy President Cyril Ramaphosa. One of the major recommendations was the creation of a National BEE Integrated Strategy, with various strategic objectives some of which are:
A national Procurement Agency located within the Department of Trade and Industry (dti) aimed at transforming the public and private sector procurement environment. A National Black Economic Empowerment Act; an enabling legislation aimed at creating uniformity in the policy and establishing the necessary institutional support and instruments with which to drive the BEE strategy, etc.
An empowerment framework for the public sector restructuring that outlines empowerment principles to be followed.
Recommendations on the streamlining and co-ordination of public sector funding initiatives through a National Empowerment Funding Agency.
You will note that consistently the role of an NEF type institution was placed at the epicentre of delivering what today is termed radical economic transformation. Funding remains fundamental to the deracialisation of the economy and it cannot be downplayed.
The elephant in the room, however, is access to substantial capital by black entrepreneurs and enterprises alike so that they are able to create sustainable businesses with depth, and attract competent people that are able to build the capability necessary to build the desired core competencies.
Of course, the government is beginning to respond more decisively with a marked departure from the past, but much more is needed if we are to make a major impact.
One major intervention by the dti is the enactment of the Black Industrialist Policy that resulted in the creation of the Black Industrialist (BI) Fund, which has begun to gain traction. The announcement by Trade and Industry Minister Dr Rob Davies is the collaboration with FNB in expanding the BI funding which is a welcome development, and should be broadened across the private sector.
It is also noteworthy that the efforts of the department of economic development (EDD) in opening up major value chains of large companies are beginning to make an impact on the development of sustainable markets for SMMEs.
EDD has been consistent in ensuring that foreign direct investment does not only vest in share transactions, but that these investors should commit to developing and supporting black companies to become major suppliers of these local companies where investment is made.
Another major development is the enactment of the Preferential Procurement Policy Framework Act (PPPFA)regulation 2017 that introduces set asides for SMMEs.
Of course this is a modest start by the National Treasury (and thanks to foresight by former chief procurement officer Kenneth Brown), and the total repeal of the PPPFA and its replacement by the new Public Procurement Act (PPA) would go a long way in ushering a new more empowering piece of legislation. In this regard, the Department of Small Business Development (DSBD) played a pivotal role to ensure the 30 percent set aside is integrated in the process, while the PPA is being conceived.
The government must use the set aside programme to drive local economic development (LED) with SMMEs as the key driver, with the primary purpose of placing SMMEs at the epicentre of LED and to position them to access significant opportunities at local level and to respond to the respective Integrated Development Plans (IDPs).
The vexing question is how do we create regional value chains as part of economic development and local job creation using enterprise and supplier development?
Through Salga local authorities should identify those key things necessary to drive development that supports and caters for the needs of small enterprises at local level, including development of policies and by-laws that protect certain aspects of trade by ring-fencing specified products and services for local enterprises. The 30 percent set-aside regulation provides an ideal instrument to promote SMMEs at local level.
The DSBD should be at the centre of the developing industrial infrastructure, through utilising grant and incentive schemes and influence the Treasury and the SA Reserve Bank in introducing a special taxation dispensation through monetary and fiscal stimulus.
We should deliberately target the creation and support of at least 100 000 enterprises in specified high growth sectors and provide them with steroids and long-term contracts. We need to increase the number of wealthy black people many folds.
The deliberate creation and support for the development of wealthy black people is central to the expansion of the broader buying power necessary to expand the fiscus, rev up economic growth through creating real jobs, expand consumption, and prop up personal savings using increased disposable incomes.
However, it cannot occur in a vacuum. It requires a new economic transformation epoch engendered more by the private sector rather than through organs of the state only. The procurement spend of the private sector is much larger than that of the public sector, there is scope and latitude on the private sector where there is a much larger pool of older entrepreneurs whose market sell-by date is on due date.
Some of these enterprises may be affected by non-compliance to BEE provisions and are good candidates for joint ventures and acquisitions.
There is also scope to encourage joint ventures with white-owned companies, especially Afrikaner-owned ones who would bring a lot of home grown value to such partnerships with a lot of IP and expertiseIn facilitating access to significant financial resources, the government should re-assign the mandates of DFIs and redesign lending models.
The time is now! Xolani Qubeka is the chief executive of Small Business Development Institute. xolani.qubeka@ sbdi.org.za
We should deliberately target the creation and support of at least 100 000 enterprises in specified high growth sectors
Former South African president Nelson Mandela waves to the audience with his successor Thabo Mbeki before the start of the 4th annual Nelson Mandela lecture at Wits Univesirty in Johannesburg mon July 29, 2006. Mandela said that capital must have social accountability.