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12 FEBRUARY 2011
South Africa: Only a matter of time before the bomb explodes

by Moeletsi Mbeki: Author, political commentator and entrepreneur.

I can predict when SA’s "Tunisia Day" will arrive. Tunisia Day is when the masses rise against the powers that be, as happened recently in Tunisia. The year will be 2020, give or take a couple of years. The year 2020 is when China estimates that its current minerals-intensive industrialisation phase will be concluded.

For SA, this will mean the African National Congress (ANC) government will have to cut back on social grants, which it uses to placate the black poor and to get their votes. China’s current industrialisation phase has forced up the prices of SA’s minerals, which has enabled the government to finance social welfare programmes.

The ANC inherited a flawed, complex society it barely understood; its tinkerings with it are turning it into an explosive cocktail. The ANC leaders are like a group of children playing with a hand grenade. One day one of them will figure out how to pull out the pin and everyone will be killed.

A famous African liberation movement, the National Liberation Front of Algeria, after tinkering for 30 years, pulled the grenade pin by cancelling an election in 1991 that was won by the opposition Islamic Salvation Front. In the civil war that ensued, 200000 people were killed.

The former British prime minister, Margaret Thatcher, once commented that whoever thought that the ANC could rule SA was living in Cloud Cuckoo Land. Why was Thatcher right? In the 16 years of ANC rule, all the symptoms of a government out of its depth have grown worse.

  • Life expectancy has declined from 65 years to 53 years since the ANC came to power;
  • In 2007, SA became a net food importer for the first time in its history;
  • The elimination of agricultural subsidies by the government led to the loss of 600000 farm workers’ jobs and the eviction from the commercial farming sector of about 2,4-million people between 1997 and 2007; and
  • The ANC stopped controlling the borders, leading to a flood of poor people into SA, which has led to conflicts between SA’s poor and foreign African migrants.

What should the ANC have done, or be doing?

The answer is quite straightforward. When they took control of the government in 1994, ANC leaders should have: identified what SA’s strengths were; identified what SA’s weaknesses were; and decided how to use the strengths to minimise and/or rectify the weaknesses.

A wise government would have persuaded the skilled white and Indian population to devote some of their time — even an hour a week — to train the black and coloured population to raise their skill levels.

What the ANC did instead when it came to power was to identify what its leaders and supporters wanted. It then used SA’s strengths to satisfy the short-term consumption demands of its supporters. In essence, this is what is called black economic empowerment (BEE).

BEE promotes a number of extremely negative socioeconomic trends in our country. It promotes a class of politicians dependent on big business and therefore promotes big business’s interests in the upper echelons of government. Second, BEE promotes an anti-entrepreneurial culture among the black middle class by legitimising an environment of entitlement. Third, affirmative action, a subset of BEE, promotes incompetence and corruption in the public sector by using ruling party allegiance and connections as the criteria for entry and promotion in the public service, instead of having tough public service entry examinations.

Let’s see where BEE, as we know it today, actually comes from. I first came across the concept of BEE from a company, which no longer exists, called Sankor. Sankor was the industrial division of Sanlam and it invented the concept of BEE.

The first purpose of BEE was to create a buffer group among the black political class that would become an ally of big business in SA. This buffer group would use its newfound power as controllers of the government to protect the assets of big business.

The buffer group would also protect the modus operandi of big business and thereby maintain the status quo in which South African business operates. That was the design of the big conglomerates.

Sanlam was soon followed by Anglo American. Sanlam established BEE vehicle Nail; Anglo established Real Africa, Johnnic and so forth. The conglomerates took their marginal assets, and gave them to politically influential black people, with the purpose, in my view, not to transform the economy but to create a black political class that is in alliance with the conglomerates and therefore wants to maintain the status quo of our economy and the way in which it operates.

But what is wrong with protecting SA’s conglomerates?

Well, there are many things wrong with how conglomerates operate and how they have structured our economy.

  • The economy has a strong built-in dependence on cheap labour;
  • It has a strong built-in dependence on the exploitation of primary resources;
  • It is strongly unfavourable to the development of skills in our general population;
  • It has a strong bias towards importing technology and economic solutions; and
  • It promotes inequality between citizens by creating a large, marginalised underclass.

Conglomerates are a vehicle, not for creating development in SA but for exploiting natural resources without creating in-depth, inclusive social and economic development, which is what SA needs. That is what is wrong with protecting conglomerates.

The second problem with the formula of BEE is that it does not create entrepreneurs. You are taking political leaders and politically connected people and giving them assets which, in the first instance, they don’t know how to manage. So you are not adding value. You are faced with the threat of undermining value by taking assets from people who were managing them and giving them to people who cannot manage them. BEE thus creates a class of idle rich ANC politicos.

My quarrel with BEE is that what the conglomerates are doing is developing a new culture in SA — not a culture of entrepreneurship, but an entitlement culture, whereby black people who want to go into business think that they should acquire assets free, and that somebody is there to make them rich, rather than that they should build enterprises from the ground.

But we cannot build black companies if what black entrepreneurs look forward to is the distribution of already existing assets from the conglomerates in return for becoming lobbyists for the conglomerates.

The third worrying trend is that the ANC-controlled state has now internalised the BEE model. We are now seeing the state trying to implement the same model that the conglomerates developed.

What is the state distributing? It is distributing jobs to party faithful and social welfare to the poor. This is a recipe for incompetence and corruption, both of which are endemic in SA. This is what explains the service delivery upheavals that are becoming a normal part of our environment.

So what is the correct road SA should be travelling?

We all accept that a socialist model, along the lines of the Soviet Union, is not workable for SA today. The creation of a state-owned economy is not a formula that is an option for SA or for many parts of the world. Therefore, if we want to develop SA instead of shuffling pre-existing wealth, we have to create new entrepreneurs, and we need to support existing entrepreneurs to diversify into new economic sectors.

Mbeki is the author of Architects of Poverty: Why African Capitalism Needs Changing. This article forms part of a series on transformation supplied by the Centre for Development and Enterprise.

Useful resources:

BusinessDay
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