Here’s one way to tackle empowerment

How do you fix black economic empowerment and youth unemployment? The quick answer is: not the way we are trying to do it now. The longer answer is massively complicated, long-term, diverse, difficult, and not likely to happen without setbacks. But I do have one suggestion.

As far as black economic empowerment is concerned, personally I fall into an odd camp. Even though I’m suspicious of market interventionism and I find racial categorisation, even if intended positively, to be noxious at root, I just think black empowerment is such a historical necessity that it cannot be repudiated.

As a matter of fact, there has been much more successful black economic empowerment than its critics claim. In 2015, research house Intellidex calculated that the value created by BEE deals done by the JSE’s 100 largest companies since 2002 collectively generated R317bn for beneficiaries.

Yet, the problems with BEE are becoming overwhelming. There is even some discussion in government about changing the rules. So what are the problems?

The first is obvious. BEE is too often being used as a kind of cover for what would otherwise be known as outright theft. The examples are so ubiquitous now, they hardly need elucidating.

Second, there are enormous interpretive difficulties in application. There is a huge number of examples, but let me just cite one. Mining legislation requires the project managers to involve the community in their projects. But who is “the community”?

The core of the current dispute at Richards Bay Minerals, which has already claimed the life of one senior executive, is that two different groups are claiming that they are “the community”.

The third problem with BEE is that it’s being dovetailed into political party funding machinations, and the result is that it has become part of factionalisation of the ANC.

Fourth, it’s arbitrary. Just one example of many is the small coterie of senior ANC members, including Gugu Mtshali and Pilisiwe Twala-Tau (the partners of former deputy president Kgalema Motlanthe and former Johannesburg mayor Parks Tau) who made absolutely enormous amounts of money on the Capitec BEE deal.

When BEE was essentially a voluntary programme introduced with the consent of all parties in a gradual and logical way, the result was broadly happy. But now it’s such an article of absolute devotion in government, it’s become a bludgeon with which to smash enterprises over the head.

It sounds impossible to fix, but it may not be. Why not have a single entity, or perhaps a few large entities, funded by a tax on dividends that benefits all black South Africans?

Instead of the existing dividends tax going to government, where it will largely be wasted on paying hopelessly over the odds for cartoon characters, it should go to a dedicated development finance institution that will invest in black business, or any business, and ultimately pay regular dividends.

How would the finances of that work? Technically, the market capitalisation of the stocks on the JSE comes to about $1.13-trillion, the 19th largest in the world. SA’s formal GDP is about R350-billion – no country on the planet has such a huge gap between the two. Why not use this amazing resource?

If you assume a dividend yield on JSE stocks of 2.5%, and 20% of that goes to The Big BEE Fund, you are looking at an annual income of around $60-billion. Currently, government is reporting an income for dividend tax much smaller than that; around R30-billion a year. In either case, if you distributed it instantly to all adult black South Africans, the number would be trivial – R100 to R300 per person per year.

But invest it and, using normal market returns, compound it up over 10 years, and suddenly you are looking at a value of about R500-billion, even using the government’s income number. If The Big BEE Fund starts paying dividends from there, all of a sudden the numbers look mouthwatering: somewhere around R40,000 per person per month.

This is all massively theoretical, of course. But imagine what you might gain. First, a fair system where all adult black South Africans benefit equally. You could then throw all the rules and commissions and bureaucratic red tape into the dustbin.

The system would be automatically flexible, because companies pay more dividends when they are doing well and less when they are doing badly.

Of course, the political elite would be pissed off, but hey, over them one struggles to generate too much sympathy.

So, would it work? Absolutely. Will it be implemented? Absolutely not.