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Minister Essop Pahad
Address: Nafcoc 2004 Conference & 40th anniversary celebrations
22 November 2004
Black Economic Empowerment in perspective
Thank you for the opportunity of participating in this historic 40th anniversary conference of Nafcoc. Allow me to pay tribute to the men and women who have led the struggle for the economic emancipation of black South Africans through Nafcoc. It has been a long and noble struggle and it is finally bearing fruit. It is, therefore, sad that when we finally make real progress in achieving the economic emancipation of black South Africa that this important dimension of our struggle for freedom seems to be misunderstood, perhaps intentionally, by some who were the beneficiaries of a violent, brutal, racist society.
Economic oppression was at the very core of the system of apartheid. It was the suppression of black entrepreneurs, indeed the destruction of a class of black farmers and business people that created the poverty in African communities that forced black workers to seek work on the mines and the farms.
Not many people remember today why Chinese and Indian labourers were imported into South Africa a hundred years ago to work on the plantations and the mines. It was because most African communities in South Africa were still self-sufficient and were not prepared to work for the low wages offered by the mine-owners and the farmers. It was to force Africans to work on the farms that their farmers and business leaders were cut down like mealies at the end of summer.
When the industrialisation of South Africa began in the second half of the 19th century, African South Africans seized emerging business opportunities. They opened stores, established mines, and entered the world of commercial agriculture. But their entrepreneurial instincts were soon crushed. Laws and regulations increasingly forced Africans out of the proprietorship of businesses. Cecil John Rhodes as Prime Minister of the Cape Colony pushed through legislation that destroyed the basis of African commercial farmers in the Eastern Cape. Historians believe his main motivation was to weaken Africans economically so that they would be forced to work on his diamond and gold mines, which were short of cheap labour.(1)
In 1913 the Land Act of the Union of South Africa banned Africans from owning land outside areas scheduled for them — eventually less than 13 per cent of the land area of South Africa. Almost all of the 13 per cent was restricted to communal ownership, further inhibiting the development of African commercial farmers and farming. Many African farmers managed to operate for years as sharecroppers or labour tenants on what had become white farms, but they were gradually squeezed out as the whites became more wealthy and powerful. (2) White mining companies benefited through access to migrant workers whose work options narrowed dramatically, while white farmers gained though their virtual racial monopoly of commercial farming, and through cheap wage labour.
Black traders and manufacturers were not otherwise restricted by law before 1923, but white local governments still hindered their development. The 1923 Native (Urban Areas) Act confined African residents in urban areas to “Native Locations” and undermined their right to permanence. It also specified that urban local authorities could allow African traders to operate in the African rural “villages” and urban “locations”.
In the Orange Free State province, African entrepreneurs were completely banned. The Orange Free State municipal association provided two reasons for banning African traders: firstly, to deny the recognition of “Native Locations in the urban areas as (permanent) townships”; and, secondly, “that the interests of White traders should be protected”. (3)
African traders could never doubt that their right to trade, like their right to residence, was limited by the perceived interests of whites. But things got far worse after the National Party came to power under the banner of apartheid in 1948. The same was true for “Indian” and “Coloured” entrepreneurs — the key law applicable to them was the Group Areas Act of 1950 which removed their right to own or run businesses outside of “their own group areas”.
In 1955 the Apartheid government explicitly excluded African traders from operating outside of the African reserves and locations, while those with businesses already in ‘White areas' (86 per cent of the country) were warned to look for alternative sites for their businesses in the locations. Two years later, even African entrepreneurs in African locations or reserves had to seek permission to run a business from the local “Native Administrator”. The Minister of Native Affairs explained. He said: “some Natives abuse their presence within the white urban area to trade in competition with the White traders. That is not something which I am prepared to tolerate.” (4)
From then on it was downhill, fast. The Afrikaner Sakekamer complained even that Africans were allowed to have trading licences in the locations. The Minister promised to do something to “make it clear to intending traders in the locations that their trading facilities are temporary; that they must go and continue their business in their own homeland areas”. (5)
The Minister kept his promise in a circular minute he issued in 1963 to local authorities. Firstly, Africans could assume no right to trade in the urban areas, even in African locations; secondly, Africans could not own commercial property in the locations or anywhere else in the urban areas; thirdly, each entrepreneur was allowed to run only one business, and not any branches thereof; and, fourth, the only businesses permitted were those confined to “the provision of the daily necessities of the Bantu” which excluded “dry cleaners, garages, and petrol filling stations” let alone banks or factories. (6) This restriction assumed that Africans did not own or operate motor vehicles, or wear dry-cleaned clothes, or if they did, that these were not necessities for “the Bantu”.
In 1968 the restrictions were tightened further to ensure that African business people did not have more than one physical business outlet, to stop them from expanding their business premises without permission, and to ban them from selling or delivering goods “to a non-African person who lives outside the urban Bantu residential area”. (7)
Meanwhile, the apartheid government made half-hearted gestures towards supporting the establishment of African commerce and industry in the Reserves/Bantustans/homelands. This was meant to keep alive the fiction of “separate development” — the rationale for apartheid. As the infrastructure and the people were poor in these remote regions, and trading opportunities were already controlled by white-owned wholesalers and retailers, this gesture could never remotely compensate for the unbridled assault on African entrepreneurs in the urban areas.
So, for Africans, the capitalist path to progress through accumulation as an entrepreneur was erased by the apartheid regime. Simultaneously, the whites-only government blocked African advancement through companies they did not own. It placed a cast-iron legal ceiling on the advancement of Africans through firms as wage and salary earners.
The “job colour bar” began as protection for white workers in skilled occupations on the gold mines around the beginning of the twentieth century. In the 1920s it extended into a “civilised labour policy” which gave preference to white skilled and unskilled workers in the public sector, while the private sector was persuaded to comply. Under the apartheid government, the job colour bar rigidified to the point that the government issued list after list of occupations which Africans were not allowed to have, and imposed minimum white-to-African ratios on some industries. The government also attacked working class solidarity across colour lines by defining African workers out of the formal system of industrial relations. (8)
With the advent of Bantu education policies, Africans were excluded from schools which taught scientific and technical subjects, and from universities which trained scientists and engineers. School attendance was made discretionary, not compulsory for Africans, and the standard of education for Africans plummeted under the approving gaze of the apartheid government. More and more explicitly, the apartheid government simply said that no Africans could be trained or employed as skilled workers.
Even those African workers employed as unskilled workers lost ground in the era of rampant apartheid. After their trade union rights were crushed, many African workers in the urban areas were made temporary migrants — none were allowed contracts of more than one year, and all had to “return” to their putative homelands once a year. In 1968, the Deputy Minister of Bantu Administration and Development declared that of the six million Africans in white areas, only two million were economically active. The rest were “surplus appendages” who should be deported to the Bantustans. It was the object of government policy “to rely on migratory labour to an increasing extent”. (9)
So the economic oppression of black South Africans was not simply an incidental by-product of apartheid—rather it was a systematic system designed to strengthen white businesses, especially the farmers and the miners.
This makes it all the more surprising that some political parties which claim that they believe in so called free market capitalism do not see the economic imperative of correcting the extreme distortions of the market caused by apartheid. They seem to forget the massive destruction of the black business class that devastated South Africa during the apartheid era. They offer no alternative measures for redress, and constantly snipe at the edges of the ANC government's efforts to rebuild a black business class.
The other side of the coin was the growth of immensely powerful white owned businesses in South Africa. What was the result of this enormous concentration of economic power in a small country? Was it, on balance, positive, through international market power and shared domestic resources, or did it stifle competition and entrepreneurship? Most analysts believe that the latter was true. The South African conglomerate was sluggish and conservative. Derek Keys, former Finance Minister, and previously and subsequently conglomerate executive manager put it quite simply— the investment behaviour of the South African conglomerate, including large manufacturing groups, is akin to that of a trustee, reluctant to invest in large projects with long payback periods, or in risky small ventures.
The conglomerates developed such great monopoly power that they began to stifle the lifeblood of the economy. Small businesses contribute far less in terms of output and employment in South Africa than in most other countries. South Africa plants are much larger than international averages, and small dynamic firms are inhibited.
The structure of South African capitalism emerged from the nature of the mining and financial sector, and the reluctance of the apartheid government to prevent their ever increasing dominance of the economy. There were two massive waves of mergers and acquisitions, one in the 1950s and early 1960s when new gold mining opportunities dwindled and one in the 1980s when international investor divested. The result was that in 1992, the top six conglomerates controlled companies accounting for 85.7% of the market capitalisation of the Johannesburg Stock Exchange (JSE). These were the Anglo American Corporation (with 33.7%), the Rembrandt Group (14.6%), Anglovaal (2.9%), the Liberty Group (4.7%), SA Mutual (14.2%), and Sanlam (15.6%).” (10)
It was the advent of a democratic South Africa that acted as a catalyst for the reduction of this overwhelming monopoly control and domination. The result is that the holdings of the big five groups — Anglo, Sanlam, Mutual, Liberty, and Rembrandt — slipped from control of companies accounting for 85.7 percent of the market capitalisation of the JSE in 1992 to 54.7 percent by 1998, though it rose again to 59.8 percent by 2002. Sixty percent of the economy is not small change. And yet some still question the ANC's desire to restructure the economy through stronger competition policies and through our empowerment strategy.
A proportion of the unbundled assets went to new black business people, but a significant amount, indeed an even greater amount, went to relatively new, entrepreneur led Afrikaans groups such as the Rand Merchant Bank group and Christo Wiese's retail and banking empire, 4.8 percent and 3.4 per cent respectively by the end of 1998, while Rembrandt itself grew from 7.8 percent in 1995 to 13.7 percent in 2002. (11) And yet some claim that we should leave empowerment to the market.
The stifling effects of the centralisation and concentration of the economy are evident in the performance of the South African economy in the decade before 1994. A paper by Ben Smit, head of the Bureau for Economic Research recently reviewed South Africa's performance in the last two decades. He reminds us that the rate of growth in the period 1984 to 1993 was just 1 percent per annum (compared with just under three percent per annum in the 1994 - 2003 decade). Worse still, the rate of growth of the economy in per capita terms was minus 1 percent. In other words the average wealth of South Africans shrank by more than 10 percent over that decade (compared with nearly 10 percent per capita growth for the decade1994 - 2003).
Even worse, the rate of investment in that decade — the decade during which the big companies swallowed what was left of the South African economy — the rate of investment grew by minus 3.2 percent per annum (compared with positive growth of investment of 4.6 percent 1994 - 2003).
Along with this, inflation averaged 14.3 percent for the 1984 - 1993 decade, and the government deficit before borrowing rose to 7 percent not including the debt of the Bantustans. I do not have to recount here our successes in fiscal and monetary management.
The point I am making is that the decade before democracy, which was also the decade of monopolisation in the private sector, was a decade of negative per capita growth and negative investment. The first decade of freedom, since we began to promote empowerment, was a decade of significant positive growth of investment and growth in per capita wealth — and whites have benefited as much as blacks if not more so from our relatively strong growth. Yet some persist in seeing empowerment as antithetical to growth and a better life for all. How can they be so visually challenged?
The policies of the ANC have long supported affirmative action and empowerment. Initially the emphasis was on affirmative action, in other words the reversal of the job colour bar. But in Ready to Govern, the product of the ANC's historic policy conference in 1992 contained the commitment to: “Democratising the economy and empowering the historically oppressed”.(12) In 1997 at the Mafikeng ANC National Conference we passed a resolution describing in some detail the aims of broad-based economic empowerment and called for the development of a suitable strategy. In 1998 Parliament passed the Employment Equity Act, and in May that year, with the support and encouragement of President Mbeki, the BEE Commission was established under the chairpersonship of Cyril Ramaphosa.
The commission reported two years later, and, also in 2000, the first BEE charter was developed — the charter for the Liquid Fuels industry. The final report of the BEE commission was published in March 2001. From then on the pace of empowerment strategy implementation accelerated. The ANC passed a resolution on BEE at the Stellenbosch Conference in 2002 where it defined BEE as a broad-based strategy. To quote from the resolution: “BEE is defined in its broadest sense as an integrated and coherent socio-economic process located in the context of the RDP. Its benefits must be shared across society, and its impacts, as wide as possible.”(13) Early in 2003 the DTI released its draft BEE policy document, and later that year the Broad-Based BEE Act was passed.
In the meantime, empowerment activity accelerated, symbolised in a growing list of BEE charters that were under negotiation or agreed to. BEE deal flow began to accelerate again. You will recall that the first round of BEE deals was cut short by setbacks in the economy reflected on the JSE, which resulted in several of the initial BEE deals coming unstuck, or having to be restructured.
While the deal flow is up again, no doubt to the satisfaction of the merchant bankers, ANC policy indicates quite clearly that while the transfer of equity in large corporations is important, it is just one element of a much broader strategy. Other key elements include procurement strategy, skills development and employment equity at the workplace. Indeed, while the power shifts entailed in the high profile deals are important, support for small business development, skills development and employment equity are critically important with regard to the long term democratisation of the economy.
It is important for all of us, including those in big white business and big black business to recall what the purpose of BEE is. As the 2002 ANC resolution put it, the “limited participation of black people in the economy limits our ability to expand the productive base, sustain economic development, eradicate poverty and contribute to a better life for all”. A few high profile deals, exciting and important as they are, are not going to achieve this on their own.
Let me not be misunderstood. Transferring the equity of the bigger public companies has not gone as quickly as some might hope, and others might fear. The Sunday Times recently reported in its Top 100 companies survey that of the 2 556 directors of companies quoted on the JSE, only 397 (15.6 percent) are black. And only 74 (2.9 percent) are black women. Whatever some politicians might say about representivity, this fails the representivity test badly. Anyone who doubts the importance of the new “charter” movement only needs to study these numbers.
And yet, we have to emphasise that equity is only one part of a much broader project. Skills development, employment equity, and small business development are at the beating heart of the process. It would be a mistake for white controlled companies to think that transferring their minimum equity obligations is the beginning and end of BEE. Equally for black controlled companies it is not enough to take control and return to business as usual. They are as obliged as any other business to make their contribution to skills development, employment equity and small business development, and they are just as obliged as white companies to ensure that their procurement practices meet our BEE objectives.
- E.g. Colin Bundy, The rise and fall of the South African peasantry, Heinemann, London, 1979.
- This story is vividly told through the eyes of one African farmer in Charles van Onselen's The seed is mine: the life of Kas Maine, a South-African sharecropper, 1894 - 1985, Hill & Wang, New York, 1996.
- Cited in Gillian P. Hart, Some Socio-Economic Aspects of African Entrepreneurship, Institute of Social and Economic Research, Rhodes University, Grahamstown, 1972, p. 100.
- Ibid. p. 103.
- Ibid, p. 104.
- Ibid, p. 105.
- Ibid. p. 106.
- See Robert Davies, Capital, State and White Labour in South Africa, 1900 — 1960, Harvester, Brighton, 1979 for a class analysis approach; Ralph Horwitz, The Political Economy of South Africa, Weidenfeld and Nicholson, for an economically conservative but anti-Afrikaner account, and, for something in between: Merle Lipton, Capitalism and Apartheid: South Africa, 1910—1986, Wildwood House, Aldershot, 1986.
- Merle Lipton, Capitalism and Apartheid: South Africa, 1910—1986, Wildwood House, Aldershot, 1986, p. 35.
- David Lewis, ‘Markets, Ownership and Manufacturing Performance' in Avril Joffe et al, Improving Manufacturing Performance in South Africa: Report of the Industrial Strategy Project, University of Cape Town Press, Cape Town, 1995, p. 149, summarising an unpublished paper by Robin McGregor.
- Sunday Times Business Times, 13 June 1999; Neo Chabane et al. ‘10 Year Review: Industrial structure and competition policy', unpublished paper, University of Witwatersrand, 2003.
- African National Congress, Ready to Govern, Johannesburg, 1992, par. D1.1.2.
- Resolutions adopted by the 51st Conference of the ANC, December 2002.
Issued by: The Presidency
22 November 2004
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