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.