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Here’s how to fix South Africa’s youth unemployment and black economic empowerment in one go

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Tim Cohen is editor of Business Maverick. He is a business and political journalist and commentator of more years than he likes to admit. His freelance work has included contributions to the Wall Street Journal and the Financial Times, but he spent most of his life working for Business Day. After a mid-life crisis that didn't include the traditional fast car, Cohen now lives in the middle of nowhere in the Karoo.

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 that could take us a long way down the road. 

First published in the Daily Maverick 168 weekly newspaper.

We all know the famous Albert Einstein quote, “insanity is doing the same thing over and over again and expecting different results”. As it happens, he never said it – but why quibble about the origins, since the quote speaks for itself. 

South Africa is oddly in the same position, pretending that the same solutions we have been peddling for the past 25 years will have a different result. Occasionally, we see a crack in the edifice of the ANC’s economic policy; normally after the situation has become so dire, that pragmatism is the only remaining option. 

Over these past months, the third wave of Covid-19 and the economic crisis in general have resulted in some tiny changes on the edges of ANC policy. The Eskom monopoly on electricity has been marginally diluted by allowing mines to generate their own power, and the ANC’s decades-long stance that the State is the proper owner of over 750 corporations is being mitigated at least in the case of its second-biggest disaster, SAA. 

But generally the edifice remains. Arguably, were it not for the fact no sensible entity would buy SAA without control,  I doubt if government would ever have found a private “partner”. We have yet to see if this aversion to selling majority stakes in state-owned enterprises has changed, or just changed in the case where the finances and the politics are so prutrid that government has no choice. 

As far as black economic empowerment (BEE) is concerned, personally, I suspect 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, 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 R317-billion for beneficiaries. This is impressive stuff that really has no comparison internationally.

Yet, the problems with BEE are becoming overwhelming, so much so that there is even some discussion within 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. 

The second problem is the enormous interpretive difficulties in application. Here too there are a huge number of examples, but let me just cite one. Mining legislation requires the project managers to involve the community in their projects. Critically, “the community” has a veto on whether the project happens or not.  Sounds great, right? 

But who is “the community”? The core of the current dispute at Richard Bay Minerals, which has already claimed the life of one senior executive, is that two different communities are claiming that they are “the community”. The company announced two years ago that it had approved $463-million investment for the Zulti South development in 2019 to extend the operation’s mine life. But everything is now on hold and “the community” battles “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. 

The fourth problem is that it’s arbitrary and unfair among its intended recipients. 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. Even more egregious; the investors didn’t have to fund the deal themselves; it was all financed by the Public Investment Corporation. 

When this deal was first announced I actually asked Capitec whether this wasn’t corruption. No, they said, we were simply abiding by the law. But there is nothing in the law to say with whom you must abide by the law. The ANC bigwigs were enormously lucky because Capitec’s share price boomed over the years. But other BEE deals failed. The result is what an old friend calls the cappuccino society; lots of froth on top and a lot of darkness below. 

There is another problem too. When BEE was essentially a voluntary program 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 has become a kind of bludgeon with which to smash enterprises over the head. The rules are now all immovable and prescriptive. And, as we can see from the failure of the Burger King deal, the result is going to be horrible. Investors, local and foreign, don’t need to invest in “spade in the ground” projects in SA when they can invest in Amazon or Tencent or any other number of other vehicles or other countries. Why do politicians not understand that? 

This sounds like an impossible task to fix. But it may not be. Try this. Why not have a single entity, or perhaps a few large entities, funded by a tax on dividends that benefits all black South Africans. Every single one.

How would this work? Very simple; 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 which will invest in black business, or any business if it wants, and ultimately pay regular dividends. 

How would the finances of that work? One of the things South Africans generally don’t appreciate is how huge the JSE is in relation to the country. There is lots of double-counting here, but technically, the market capitalisation of all stocks on the JSE comes to around $1.13-trillion, the 19th largest in the world. SA’s formal GDP is around $350-billion – no country on the planet has such a huge gap between the two. Why not use this amazing local 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 investment of around $60-billion. Currently, government is reporting an income on the dividend tax line at 20% of all dividends paid at 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, somewhere between R100 and R300 per person per year. 

But invest it and using normal market returns over a decade, and if you compound it up, suddenly you are looking at a value of around 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 African’s 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 much too much sympathy. But here is the sad thing: unfortunately, they would also be the ones called on to put this system into practice. 

So, would it work? Absolutely. Will it be implemented. Absolutely not. DM168

The spelling of pedalling corrected to peddling. Apologies. 

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for free to Pick n Pay Smart Shoppers at these Pick n Pay stores.

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Comments - Please in order to comment.

  • Christopher Bedford says:

    “solutions we have been pedalling for the past 25 years” – what, like a bicycle? Come on, Mr Editor, that’s PEDDLING.

  • Derrick Kourie says:

    No, no, no! Your interesting proposal needs to be decoupled from race. The benefits of your proposed scheme should go to the poor, and therefore be based on a colour blind means test for all citizens. Just as it is becoming increasingly difficult to determine whether an historically disadvantaged person is still disadvantaged, it is also becoming increasingly difficult to determine who is “black”. We need to move away from race-based considerations in our country — the sooner, the better.

  • Karl Sittlinger says:

    Good balanced article, thank you. As for your suggestion, it all really hinges on transparency. We have often asked the ANC to ringfence funds and open its books. The ANC, due to its corruption and nepotism value chain, obviously has zero interest in this.
    The irony of course is that such transparency would have probably taken us a long way towards not needing a mechanism such as BEE, or rather what BEE could have been. Right now, it’s really just theft in many if not most cases.

  • Helen Lachenicht says:

    I like the sound of it, but as black South Africans are a big majority of our population I would hope it would simply include all South Africans, as with a certain country in the far north. I personally give the writer a gold star for a rare positive idea. So easy to criticise, so rare to suggest a solution seems the SA way 🙁

    • Derrick Kourie says:

      I like your modified proposal. How about a further modification: by default, all non-taxpaying South African adults become beneficiaries. If you’re a taxpayer, you may opt in, but would then pay tax on what you receive. The tax rate is differentiated in a way that discourages the wealthy from opting in.

  • Carsten Rasch says:

    What a great solution to the enduring problem of ending inequality. Unfortunately, sigh, inequality is the state ammo used to pummel the enemy of the people, namely White Monopoly Capital. If suddenly there was no inequality, there would rapidly be no ANC. Perhaps the DA could buy into this plan (and then contract Bell Pottinger to get it across to the people).

  • Charles Parr says:

    Tim, please explain how you got SA’s GDP to be R350 billion. That’s about the Zim GDP plus about 50%. Even SARS collects more than three times that in a year.

  • Peter Dexter says:

    Good idea but after nearly 30 years ditch the racial element and replace it with a means test. We have black billionaires with private jets. who are still receiving economic empowerment assistance “to address the disadvantage caused by apartheid” while millions of others live in shacks. (When will the billionaires disadvantage have been addressed?) South Africa desperately needs a large economically active middle class, irrespective of their race. In fact, I believe it should be illegal to ask any person their race. That’s what was wrong with apartheid.

  • Andy Miles says:

    Creative solutions welcome. Food for thought. How about we do a first for Africa? Promote a society that promotes individual human potential, not big brother promoting entitlement. Promote the exchange of goods and services for exchange of money. That’s how the great countries with sustainable economies did it over centuries. Cumulative individual action is key to success. This most successful methodology came long before government. The path to being a prosperous nation is a marathon, not a sprint. Government becomes the facilitator not the central gate keeper, rent seeking, decision maker. Thwarting overly complex legislation is repealed. Government focuses on defense of our Nation, our human rights for safety and security, thus the police, NPA etc, food and water security are properly resourced. The corruption is tackled using a specific chapter 9 institution, probably along with a special court that deals with corruption on a balance of probabilities test, not criminal beyond reasonable doubt. Much more punitive sentences for perpetrators. A civil service, resourced with skilled management is established at all levels of the public sector. This runs delivery separated from the politicians. The whole system follows the accountability already demanded by the Constitution. Elected officials represent the people, but are not involved in management of delivery. Oh and then I woke up. It’s 2100 and nothing changed. Africa always picking defeat out of the jaws of victory.

  • Rod H MacLeod says:

    I want to see the broad population take a dividend cut in bad times – that would be interesting. I mean, they even protest over service delivery that is not paid for, now they’re going to accept “market forces” in a dividend cut? Pie in the sky, and it would anyway be just another heavenly sent opportunity to sink snouts deeper into the trough. My vote would be “no”.

  • David Le Page says:

    So in essence, a sovereign wealth fund (like Alaska or Norway, and as already proposed by Mboweni, without details yet, I think) with black South Africans as beneficiaries, funded by a tax on dividends? Sounds like a good plan to me. Perhaps also good, given our lessons from the semi-capture of the PIC, to spread risk and create two or three funds (as Tim suggests).

  • John Bestwick says:

    Lots of logically sound business ideas but you forget you are dealing with a gangster state riven by corruption and theft in the typical African style of not being willng to work for rewards that can be stolen much easier.

  • Dragon Slayer says:

    Every government policy is specifically oriented to giving historically disadvantaged people every advantage possible – and I don’t have a problem with that! Yet 30 years on empowerment is still driven by taking for one group and ‘giving’ to another. The big companies seemingly make token appointments at Chair and non-executive level – grotesquely paid and without any operational accountability. In government incompetency is mitigated by subcontracting consultants who then subcontract to other consultants that were often previously doing the job😖.
    Is this empowerment or patronage? Is the cost passed on to consumers and the real driver of inflation? Legal compliance does not make it right.

  • Dragon Slayer says:

    So the answer is give everyone previously disadvantaged a perpetual free share of the value created by the JSE – Great lesson in socialism! The rest of us that have to buy their shares to beat inflation will know their return on investment massacred by patronage. My couch looks a better investment.

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