Case Study: Black economic empowerment has not worked well. Nor will it end soon The controversy is one of many to dog the Africa National Congress (ANC) policy of 'black economic empowerment' (BEE). When apartheid ended in 1994, the ANC promised to make black South Africans richer. To this end, it has promoted the transfer of stakes in white-owned businesses to a new class of black investors. Change at the top, it was claimed, would foster change further down by removing blockages to the hiring and promotion of blacks. Few blacks had been able to accumulate capital under apartheid, so stakes were typically sold at a discount and financed by loans, often from the companies themselves, many of which judged it wise to woo influential black shareholders. The transfers were originally voluntary, but the ANC, impatient at the slow pace of change, now uses state power to speed them up. One of the accelerators is the award of licences in mining, telecoms and other regulated sectors. If a firm is not sufficiently 'empowered' - i.e., if too few of its shares and jobs are in black hands - it will not win or retain an operating licence. State-backed lenders favour black-owned businesses. State-owned enterprises in transport and energy favour black-owned suppliers. Various laws add to the pressure. The Employment Equity Act of 1998 obliges biggish firms to try to make their workforces racially 'representative'. Those that employ more than 50 people are required to report at least every other year on their progress towards making their staff 75% black, 10% coloured (mixed race), 3% Indian, and so on, at every level from shop floor to boardroom. Failure to show 'reasonable' efforts at compliance can result in fines of up to 900,000 rand ($97,000). Businesses with an annual turnover above 35m Rand are also expected to obey a 2003 act which called for 'broad-based BEE'. This set targets for black ownership as well as the promotion and training of black workers. Private firms can bolster their empowerment rankings by buying from black-owned suppliers or by helping to set them up. Not going anywhere The lot of poorer blacks, however, has not improved much. Many are frozen out of the workplace altogether. The unemployment rate among blacks is 28.5%, compared with 5.6% for whites. If those who want work but have given up looking for it are included, the jobless rate is a whopping 41.6% for blacks compared with 7.5% for whites. Some believe the policy has been essential, if flawed. 'The reality is that without BEE there would not have been the same level of black participation in the economy,' says Martin Kingston of Rothschild, which advises companies on BEE. But the gains must be weighed against the policy's unintended consequences. Pitifully few black South Africans have grown rich by creating entirely new businesses, perhaps because it seems so much easier to make money by acquiring stakes in existing firms. The collapse in stock prices in 2008 left many would-be tycoons with assets that were worth less than the loans taken out to buy them. In BEE deals, political connections often matter more than business skills. A costly bureaucracy has grown up to enforce racial targets, which even black-owned firms have to contend with. Posts are left vacant for want of qualified black staff. Some businesses re-employ white professionals as freelance consultants to plug skills shortages without falling foul of the law. The binding constraint on greater black participation in the economy is education, says Lucy Holborn from the South African Institute of Race Relations, a think-tank that has called for BEE to be scrapped. The proportion of professionals who are black is 36%, fairly close to the share of degrees held by blacks, which is around 40%. But that falls short of the 75% share of the total workforce who are black. It is no good setting quotas if there are not the skilled workers to fill them, says Ms Holborn. Few business folk or politicians have echoed the call to junk BEE. The ANC is not about to lose power and no sensible business wants to offend it. Far from scrapping BEE rules, the government is seeking stiffer penalties for firms that flout them. (Source: The Economist (2013) Fool's gold, 27th April 2013) Questions 1. What was the threat affecting Blacks in South Africa especially when they were not empowered after apartheid? 2. Why is a lack of education a binding constraint for the achievement of Blacks in South Africa? 3. What contradiction is there between companies seeking qualified Black people and the government's threat to those companies not adopting it