The gap between the rich and the poor keeps widening in South Africa, with 93% of the economy being controlled and owned by 8% of the population, the minority whites. Now that the African National Congress's national general council has come and gone, it is time to fully and speedily implement all the policies that seek to economically emancipate the majority of South Africans.
Until wealth as represented by the market value on the Johannesburg Securities Exchange (JSE) is a reflection of South Africa’s demographics, equality will remain a dream. Black business faces untold hardships and redress laws have so far failed to address these.
Nine out of 10 public listings on the JSE in the last 14 months were of companies owned by whites. The sight of blacks blowing the horn at JSE listing events is usually confined to African folk or traditional dance groups and the horn man. Or when a member of the black elite has agreed to be a symbolic face on a board.
Black-owned businesses on the JSE remain an endangered species and a common misconception that black owned and managed business does not succeed started with the failure of New Africa Investments Limited (NAIL). NAIL’s failure instilled the idea that black business investment in the stock market can be likened to “gambling” as NAIL’s funding model was vested on the share price performance of the underlying value. Various own goals occurred with businesses like New Harvest that saw black owners cashing out, their impatience ensuring no legacy was created.
With that aside, capital in South Africa remains uninterested in a black story. Oftentimes fundraising roadshows by black business yield zero interest from the capital markets, even those controlled by the government. Availability of funding is based on the colour of your skin.
The secretary-general of the African National Congress (ANC) invited me to be an observer at the ANC’s 4th national general council (NGC). On the sidelines it was evident from discussions held with various delegates that the ANC was alive to these issues and more.
The wealth gap that has widened in South Africa and the income inequality is a result of, among other things, the unavailability of a market for black business equity transactions. Blacks, by and large, have supported white-owned listed companies through sub-contracts and purchasing from them when fulfilling public tender contracts. Many black businesses are glorified middlemen who front for the wealthy minority-owned companies. The table below shows the total returns (capital growth plus dividends) of the JSE All Share index (ALSI) over the period 2003 to 2014 years.
When carefully analysed, the total returns against South Africa’s gross domestic product (GDP) growth over the specific years 2003 to 2007 paint a picture of a GDP growth structure that does not support the majority of South Africans but the minority which is invested in and controls the JSE.
From 2002 to 2008, South Africa grew at an average of 4.5% year-on-year, its fastest growth since democracy in 1994. Even though in 2008 the JSE had a negative return of -23.2%, the average annual total return over this period was 20.6%.
As the JSE is the most efficient way to fund business growth, it is very important that it is accessible to the majority both as investors and companies.
As Nelson Mandela was facing charges of travelling outside the country without authorisation in 1961, the ALSI had growth of close to 15% per year mainly due to mining gold and 40 other minerals. Accumulation of land by white farmers also added great value to their portfolios assisted through cheap bonded labour. Much of this money is now finding its way offshore in small South African Reserve Bank allowable tranches of a few millions per year and it will likely never find its way back.
With moderate tax rates in capital gains tax, this has not assisted the narrowing of the wealth gap and a wealthy estate tax should be considered by the government. Equally, the government must proceed with speed to implement the ANC NGC-reviewed policy of a national minimum wage – and when doing so adjust taxation categories to enable the effects to be felt in the pocket.
As the apartheid wealth continues to compound, the oppressed majority is left further behind with disastrous consequences, Albert Einstein said “compounding is the eighth wonder of the world”. The proof is in the widening gap between the rich and the poor. It is not enough to end global hunger when 99% of the world’s population remains slaves to the 1%.
In South Africa this gap is even wider and keeps widening yet 93% of the economy is controlled and owned by 8% of the population, the minority whites, whose wealth is at least 65% more.
A white family that had a JSE portfolio of R1-million with 20% returns per year over 30 years (1985) will today have over R237-million. There can never be a better illustration of the phantom of “born-frees”. Other than Bantustan leaders and a handful of black business people, no one else from the black majority was a millionaire.
Of the R5-trillion JSE market valuation, only R260-billion is in local black hands, with R2-trillion in white hands. The balance is held by foreign investors.
With this situation, there is no way South Africa will ever be able to weather the storms of global economic crises. All economies need to find reliance in domestic markets to be resilient. If local economies are segregated in favour of the minority, domestic consumption can never sustain the nation. It therefore is good for the minority to share and accept the transfer of wealth to the majority and help create a healthy middle class.
The ANC NGC has come and gone, it is now time to fully and speedily implement all the policies that seek to economically emancipate the majority.
The laws are now equal, blacks can invest on the JSE, but access is not equal, opportunity is not equal. It is this that makes freedom incomplete and transformation ever more urgent. DM
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