Unemployment among blacks 5 times higher, South Africa reviews 2003 empowerment system – Firstpost

The head of South Africa’s flagship Black economic empowerment programme says he plans to introduce additional incentives and potential penalties to boost corporate participation and curb exploitation of the system aimed at addressing the country’s vast inequality.

The African National Congress, which ruled unopposed for 30 years until losing its parliamentary majority in elections in May, has been under intense pressure to improve the disadvantaged lives of black people who have been under white minority rule for decades.

The empowerment law, passed in 2003, created a scorecard system that incentivized companies to hire and promote black people, giving them tax breaks and access to government contracts.

Two decades later, black unemployment is five times higher than white unemployment and income inequality is the worst in the world, according to the World Bank, and critics say the empowerment policy has not worked.

“There is no society that can survive with this level of inequality,” Tshediso Matona, chair of the Broad-Based Black Economic Empowerment Commission, told Reuters.

Under the voluntary program, companies earn points in categories such as Black ownership, management control and skills development.

But Matona says some companies inflate their scores by incorrectly listing black people as managers, a practice commonly known as “spearheading” in South Africa and a crime under the law.

The commission, which refers cases of violations to state prosecutors, has received 1,348 complaints of pre-emption since 2017, Matona said. No one has yet been convicted of pre-emption, he added, without saying how many cases have been referred for prosecution, largely because the criminal justice system is “still trying to figure out how to work with the B-BBEE regulation”.

Public companies are required to disclose their Black empowerment status in their annual reports, but fewer and fewer companies do. In 2022, only 141 of nearly 400 public companies filed a report.

Matona said he hopes to increase incentives for companies to comply, but is considering “exposing and shaming” and possibly imposing fines on those who fail to file reports.

President Cyril Ramaphosa said he wanted to focus on showing companies the benefits of Black empowerment, but there would be penalties if they refused to comply.

Ramaphosa told reporters a week ago that racial inequality was an “existential challenge” for South Africa, adding: “We have a clear position on this issue (on black empowerment).”
“It needs to be done and it will be done.”

Matona did not go into detail about the proposals but said incentives could focus on increasing recognition for companies investing in skills and entrepreneurial development and should not be “too obsessed with ownership in existing businesses”.

He said he hoped the amendment would be submitted to Parliament within 12 months.
The inclusion of any punitive measures could put the ANC on a collision course with its coalition partner, the pro-business Democratic Alliance party, which has said it will resist them.

DA labour spokesman Michael Bagraim said: “Businesses do not exist for charity purposes, we must accept that.”

‘Blackwashing’ and education gaps

A common criticism of affirmative action, especially in its early years, is that it led to a small number of politicians becoming extremely wealthy through stock deals.

Economist Duma Gqubule said his research, based on analysis of companies’ annual reports and stock plans, showed that black ownership in the 50 largest firms listed on the Johannesburg Stock Exchange was just over 1 percent, well below the official average of 30 percent.

This was because legal loopholes allowed companies to count Black shareholders even after they sold their shares or use shareholding structures that artificially increased Black ownership; a practice Gqubule described as “Blackwashing.”

Matona blamed a lack of oversight by independent bodies that regulate Black empowerment scorecards and said the industry needed regulation.

His effort to shift focus from ownership to skills development and training also has its shortcomings, consultants and interns interviewed by Reuters said.

Companies have to pay for training courses for people of color to earn skill points, but they don’t have to hire them. Some hire consultancies to find people with disabilities to train because they earn more points, said the head of one such consultancy.

This often puts black job seekers in an education loop.

“They keep promising us jobs, but they never do,” said Nonhle Mnguni, a 22-year-old from Soweto who has been taking classes in business management, banking, shipping and call centre work since she finished high school.

Giles Von Broembsen, CEO of property management company Pretor Group, said his company runs training programmes for employees, more than half of whom are black, but sends them to training courses elsewhere to earn points.

“The points, scoring and system are very admirable but impractical,” he said.
While some political and economic analysts agree with Matona’s approach to greater compliance, others want the law to be repealed, saying it creates unnecessary bureaucracy, increases operating costs and discourages foreign investment.

“I think the whole thing should be cancelled,” said political analyst Moeletsi Mbeki. “(The state) should help entrepreneurs develop new businesses, regardless of their race.”