DA Policy on Economic Inclusion
December 2013
The 1994 democratic transition was a foundational step in creating an open political society. It was a time when the freedoms denied to the nation's majority under apartheid were first brought to life and then confirmed in a globally admired Constitution.
Yet the goal of finding economic inclusion remains as elusive today as it was in 1994. The legacy of past discrimination and the reality of lost opportunities over the last 20 years continue to leave many South Africans excluded from economic opportunities.
The legislated denial of opportunities to the nation's majority is reflected in high levels of poverty, persistent inequality and an economy unable to reach its potential because it excludes a large part of our population.
Along with most, the DA believes that measures to redress the injustices of the past are necessary. This is reflected in the core values underlying DA policy and our approach to government, in which we focus on Reconciliation, Redress, Diversity and Delivery.
We must consider how, in the light of our country's history of discrimination and entrenched inequality, we can best achieve maximum economic inclusion within a reasonable time frame.
Some redress measures have universal support. Most people agree that sustained economic growth is essential to create job opportunities and that excellent education is needed to enable people to improve their lives. This is why, in government, our top empowerment priority must be to fix public education and create jobs through economic growth.
The questions is whether the government has a role to play in economic inclusionbeyond creating conditions for growth and improved education.
The controversy around this question often focuses on the tool that was chosen to encourage businesses to support economic inclusion, and specifically the process of Black Economic Empowerment (BEE), the preferential procurement framework that supports it and the way in which it has been implemented.
There is growing agreement that empowerment which focuses primarily on the transfer of ownership in businesses has done little to change the economic circumstances of the majority of people disadvantaged by apartheid. South Africans are becoming increasingly frustrated with empowerment efforts that have facilitated the transfer of lucrative shares to a small number of politically connected individuals who have become very rich without starting new enterprises, adding new value, or creating new jobs. The current approach to empowerment has not yet helped to overcome the real obstacles to black advancement in South Africa.
The groundswell of discontent at the enrichment of a small elite to the exclusion of others necessitated significant changes in the manner in which BEE is approached. The government sought to re-brand the programme as Broad-Based Black Economic Empowerment (B-BBEE), and introduced a scorecard to stimulate investment by the business community in a broad range of empowerment measures, including skills development, enterprise development and social investment.
The DA believes that the B-BBEE scorecard provides a framework of incentives that would facilitate economic inclusion and help to redress apartheid's legacy.
Our approach hinges on one simple question: Does an empowerment initiative broaden opportunity for disadvantaged people? Or does it seek to manipulate outcomes for the politically connected? We support empowerment that broadens opportunity. We reject schemes for crony enrichment.
Our policy on economic inclusion is based on these principles:
Without the expansion of opportunities, inclusion is relegated to a zero-sum game in which the empowerment of some individuals or groups come at a cost to others. The DA believes that to have an inclusive society, government must focus its policy interventions on expanding economic opportunities and creating jobs through growth.
Economic growth requires policy certainty, clean government, excellent education, appropriate skills-training, effective health care, and the reliable and efficient delivery of other basic services. This means government has a central role to play in creating conditions to achieve rapid, sustained economic growth and laying the groundwork for redress.
To achieve meaningful redress, economic outsiders must be empowered to take up available economic opportunities. In addition to providing excellent education and access to basic services, this means that the government must work to ensure that entrepreneurs have access to the information they need to make informed economic decisions, that they are able to build up a capital base to leverage in economic activity and that they operate in a regulatory framework that protects and promotes their interests.
We recognise the need to promote economic inclusion with a specific focus on previously disadvantaged individuals who faced legislated and institutionally organized exclusion.
As outlined in the DA's Plan for Growth and Jobs, targeted interventions can be used to overcome economic inequality, including direct support for job creation, broadening ownership by distributing shares in state-owned enterprises to ordinary South Africans, promoting charitable giving by reforming the tax system and promoting transparency in executive pay.
The business community can play a pivotal role in promoting economic inclusion and broad- based economic empowerment. We support the use of an appropriate empowerment scorecard linked to the procurement system as a tool to promote business practice that supports economic inclusion and broad-based economic empowerment.
We support an empowerment framework that rewards economically inclusive and true broad- based empowerment. To achieve this, we believe the scorecard must be amended to ensure that empowerment passes the test of broadening opportunity. The scorecard must bring about empowerment that: (i) is genuinely broad-based; (ii) promotes economic inclusion; (iii) recognises business contributions to education and skills-training; (iv) encourages the growth of new businesses; (v) supports job creation; and (vi) introduces what is known as ‘equity equivalents' to encourage a range of positive contributions to economic growth and opportunities for all.
Our approach to empowerment will help to overcome the legacy of race-based exclusion without entrenching ‘race' as the determining factor of our future, so that we can build an open opportunity society for all. In this, we retain our vision of a non-racial society whilst recognising the need for a transitional phase in which race-based redress is used to overcome the racial legacy of apartheid.
The success or failure of our redress programme will be measured by the opportunities that have been created for black advancement, such as equality of education, improved literacy and numeracy, decreased inequality, poverty reduction, youth employment, participation in the jobs market, and the expansion of ownership in the economy.
In this document, we:
- Give background on the nature and extent of socio-economic exclusion in South Africa;
- Articulate our view on the concepts of empowerment and redress;
- Outline the ways in which we believe that the government can contribute to economic inclusion; and
- Make proposals to reform existing empowerment policy to ensure that the tools through which we incentivise South African businesses to contribute to empowerment facilitates economic growth and job creation, and passes the test of ‘broadening opportunities'.
2. The problem: the nature and extent of economic exclusion in South Africa
A number of apartheid laws forced African, Coloured and Indian South Africans to the side-lines of the economy and limited their access to opportunities for development. This exclusion was often premised on racial classification.
Apartheid legislation had an impact on how South Africans of different ‘races' were educated, where they could work, to what levels in an organisation they could be promoted, where they could own property, whether or not they could own and run businesses and where they were allowed to engage in productive economic activities.
It does our long and complex history no justice, but here in broad summary are the some of the headline historical factors that intensified the racially stratified distribution of economic assets.
Education
In 1945, government spent just over 3 pounds per year for every African school-child, just over 10 pounds per year for every Coloured and Indian child and more than 38 pounds per year on white school children1.
Speaking in the National Assembly in 1953, Dr HF Verwoerd said that "Education must train and teach people in accordance with their opportunities in life" and that in terms of the government's plan for South Africa there was "not place of the Bantu in the European community above the level of certain forms of labour"2.
The loose system of segregated schooling was further stratified under apartheid. Mission schools for blacks were shut down, separate ministries of education were established for different ‘races' in ‘white' South Africa and later, one each for the Bantustans. Curricula and teacher training for different ‘races' were redefined and differential pay and resource allocation became to order of the day.
The 1959 Extension of University Education Act prevented black students from attending "white universities" and set up "tribal colleges" for black university students. Blacks could only attend ‘white' universities in exceptional circumstances if they were eligible for degrees not offered by ‘black' universities, e.g. medicine, engineering, architecture.
The job colour bar and job reservation
The 1911 Mines and Works Act prevented "coloured persons" (at the time understood to include all persons classified as black, coloured and Indian) in the Transvaal and the Free State from obtaining the necessary certificates of competence to qualify for skilled occupations.
In the 1920s Prime Minister Barry Hertzog introduced the ‘civilised labour' policy. This policy, known as the job colour bar, was an attempt to address the so-called ‘poor white' problem through affirmative action for South Africans defined as ‘white'. The policy was primarily applied in mining, agriculture, manufacturing and state services. It was intensified and extended under apartheid, especially in the manufacturing industry and state services such as railways and harbours.
The 1951 Bantu Building Workers Act, which provided for the employment of Africans as building workers in townships at lower rates of pay stipulated for skilled workers of other ‘races'. It prevented the employment of Africans for skilled building work and in urban areas outside of townships3.
Discriminatory practices regarding artisan training meant that many black workers were excluded from apprenticeship opportunities as outlined in the Apprenticeship Act of 19224. This prevented black South Africans from entering skilled work.
Bantustans
The 1913 Land Act made it law that 9% of South Africa's land was ‘reserved' for ownership by 67% of its people. The 1936 Native Land and Trust Act increased it to 13%. So-called ‘native reserves' were established with the aim to remove the African population from South Africa. In the 1960s the government decided to take away the South African citizenship of black Africans by declaring that the 'native reserves' should become ‘independent states'.
Group Areas
South Africa has a long history of residential segregation, regulated loosely but driven historically by class, language and social convention. Under apartheid, there was a systematic effort to segregate people by law.
The Asiatic Trading and Occupation of Land (Natal and Transvaal) Act of 1943 (the Pegging Act) prevented people classified as Indians from acquiring fixed property from a white person in Transvaal or Natal, except under a permit or in exempted areas. It also prevented white South Africans from acquiring property from Indians.
In 1948, the Asiatic Land Tenure and Indian Representation Act (The Ghetto Act) replaced the Pegging Act and introduced further measures depriving Indian South Africans from communal representation.
The 1950 Group Areas Act created strict boundaries in terms of where people of different ‘races' could live and own property.
These laws were used as justification for mass removals, hindered asset accumulation, limited business and home ownership and destroyed social capital in many communities.
Suppression of Enterprise
In 1959, the Minister of Native Affairs stressed that African traders were but temporary residents in the so-called ‘locations'. Once they had acquired the necessary capital and expertise they were expected to move their businesses to the homelands.
In 1963 the government imposed further restrictions on African entrepreneurs. Africans in the ‘white' areas were not allowed to run more than one business. They were denied the right to form companies or partnerships, barred from dealing in anything but day-to-day necessities, and prohibited from establishing African-controlled financial institutions and wholesale concerns.
Municipal authorities were encouraged to persuade owners of existing dry-cleaning enterprises and garages to transfer their businesses to the homelands. A policy directive made it clear that only in the case of dire necessity would new trading licenses be granted to Africans.
In 1968 further restrictions were introduced. No African businessperson was to be allowed to operate at more than one site and to sell goods to non-African persons who lived outside the urban African residential area. The Government also introduced restrictions on the ownership of consulting rooms and offices by doctors and other professional men in the townships.
These and other laws were profoundly disempowering and meant that serious inequalities arose in the socio-economic realities faced by different racial groups in South Africa.
Unfortunately, this legacy has not been effectively addressed in the 20 years since our democratic transition.
Poverty and inequality
Approximately 41% of South Africans live below the poverty line of R3864 per capita per annum at 2000 prices5.
In 2010 the proportion of black Africans living below the poverty line was 47.4%, compared to 0.7% for whites, 11.1% for Indians/Asians, and 28.4% for coloureds6. The new Census figures released in October 2012 showed that the average Black African household earns 16% of average white household income 7 . The average income of coloured households was 30% of their white counterparts. Indian/ Asian households earned 68% of the average annual income of white households.
Inequality in income distribution remains one of the highest in the world, with slight increases in overall inequality between 1993 and 2008 (the national gini coefficient has increased from 0.67 to 0.7)8. This rise in inequality has largely been driven by increases in inequality within rather than between racial groups. To some extent this reflects how effective the government's empowerment approach has been in creating new elites without achieving significant change in the incomes of ordinary South Africans.
Unemployment
In terms of the narrow definition of unemployment (which excludes discouraged work-seekers), around 25% of the working age population is unemployed. There are large racial disparities in unemployment. For the Black African population the unemployment rate was 28.5%, versus 23.5% for Coloureds, 13% for Indian/Asians, and 5.6% for White South Africans9. This implies that the average black South African is 5 times more likely to be unemployed than the average white South African.
Education
South Africa's deficient education system continues to entrench high levels of unemployment and poverty10. International assessments highlight the problems in our education system. The 2012 ‘Trends in International Mathematics and Science Study' (TIMSS) report ranks South Africa third last of the 63 countries and 14 participating benchmark countries for mathematics. The 2012 ‘Progress in International Reading Literacy Study' (PIRLS) placed South Africa fourth last of the 49 countries and 9 benchmark countries for literacy.
The following statistics from the South African Institute of Race Relations11 show that racial inequalities in education remain high:
By 2010, 1.9 million (8.6% of) Africans had no schooling, versus less than 10 000 whites.
By 2010, 95.2% of white South Africans age 20 years or older had completed Grade 9, versus 62.1% of Africans, 64.5% of Coloureds and 83.6% of Indians.
By 2010, 74.6% of white South Africans age 20 years or older had completed Grade 12, versus 29.6% of Africans, 33.5% of Coloureds and 56% of Indians.
By 2010, 22.5% of white South Africans older than 20 had completed a post-school education, versus 2.7% of Africans, 2.6% of Coloureds and 9.1% of Indians.
Employment diversity
There have been notable advances in the diversity of top and senior managers in South Africa.
In 2000, only 12.7% of top managers and 18.5% of senior managers were black (including African, Coloureds, and Indians)12. By 2012, this has increased to 24.2% for top managers (nearly doubled) and 35% for senior managers13.
The majority of top management (72.6%) and senior management positions (62.4%) are still held by white South Africans who make up less than 12% of the economically active population14.
Ownership
A study by the ‘Johannesburg Stock Exchange' (JSE) showed that 21% of the shares on the JSE Top 100 (which represents 88% of the total market capitalisation of the exchange) were owned by black South Africans15. This figure includes 9% of shares held directly by black South Africans and a further 12% held through mandated investments.
These statistics show that, for many South Africans, democracy has not delivered a tangible, socio- economic dividend. This demands a public policy response that can create an enabling environment for the economic growth that we need to create jobs and free people from poverty. It means we must work harder to equip South Africans with the education and skills that they need to succeed. It means we must find innovative ways of reducing the gap between the rich and the poor, and that we must do what we can to involve economic stakeholders, particularly the South African business community, in our pursuit of meaningful redress.
3. The DA's approach to economic inclusion and empowerment
Empowerment can be defined as "a multi-dimensional social process that helps people gain control over their own lives"16. There is generally a focus on equipping individuals or groups for participation in their own development or in shaping their own realities.
The DA believes that the process of empowerment must involve preparing individuals for effective participation in all aspects of life, including the economy, and fostering an environment in which choices are not externally dictated or limited, but made by the individual in terms of his or her own aspirations.
Economic empowerment is consistent with the core values of the DA's Open Opportunity Society for All, including (i) its emphasis on individual freedom and choice, (ii) the conceptualisation of the role of the state in creating an enabling environment for individual action and (iii) its recognition of the need for policies of redress focussed on expanding economic opportunity.
Empowerment and redress
Discriminatory apartheid laws and practices, as well as the exclusionary racial culture established in that context, has created a country in which the family, community and economic circumstances into which a person is born can still significantly influence their life chances.
The equality clause in the Constitution therefore makes provision for "legislative and other measures" to "protect or advance persons, or categories of persons, disadvantaged by unfair discrimination".
Everyone is equal before the law and has the right to equal protection and benefit of the law. Equality includes the full and equal enjoyment of all rights and freedoms. To promote the achievement of equality, legislative and other measures designed to protect or advance persons, or categories of persons, disadvantaged by unfair discrimination may be taken.South African Constitution, Chapter 2(9)
The reference to those "disadvantaged by unfair discrimination" is understood to reflect (i) a recognition that discriminatory apartheid policies have distorted opportunity in South Africa, (ii) that certain groups suffered disproportionately under these policies, and (iii) that its effects continue to be felt.
When we assert our identity as a party that brings together South Africans who "share a commitment to the constitution"17, we are asserting a commitment to social justice and the relevance of legislative and other measures designed to promote substantive equality for those disadvantaged by discrimination.
In the substantive approach to equality there is recognition for the reality that:
Formal equality (equality before the law) does not in itself ensure justice in a society where individuals and groups are not identically situated.
By treating individuals as equals despite severe inequalities in access to power and resources, formal equality is likely to perpetuate existing patterns of socio-economic inclusion and exclusion.
There may be a need to remove unique barriers to the inclusion of certain groups, and many of these barriers (including cultural barriers) are not necessarily entrenched in law and can therefore not be addressed through formal legal equality.
Equality is concerned with "ensuring the ability of persons to compete on an equal basis, having regard to various obstacles (including discrimination) that may impede this equality of opportunity"18.
But freedom is not enough. You do not wipe away the scars of centuries by saying: Now you are free to go where you want, and do as you desire, and choose the leaders you please. You do not take a person who, for years, has been hobbled by chains and liberate him, bring him up to the starting line of a race and then say, "you are free to compete with all the others," and still justly believe that you have been completely fair.
Thus it is not enough just to open the gates of opportunity. All our citizens must have the ability to walk through those gates. (President Lyndon Johnson, 1965)
The DA believes that, on its own, removing the discriminatory laws of the apartheid government is not enough to build an inclusive society.
The state must...not shrink away from such measures of intervention as may be necessary to ensure the creation of a non-racial economy with fair distribution and opportunity for all. (South African Liberal Party Policy Handbook, 1960's)
We strongly support comprehensive and complementary measures to expand opportunity and to empower economic outsiders, specifically previously disadvantaged citizens, to use those opportunities.
3.1. Expanding economic opportunity
Without the expansion of opportunities, inclusion is relegated to a zero-sum game in which the empowerment of some individuals or groups comes at a cost to others.
The long-term solution to skewed ownership and control is to grow the economy rapidly and focus on spreading opportunities for black people as it grows. Improving standards of education; better support for entrepreneurs; and a focus on career mobility, workplace training and financial inclusion are ways to deal with these structural weaknesses. (NationalDevelopment Plan, 2012)
The DA believes that for South Africa to be an inclusive society government must focus its policy interventions on expanding economic opportunities and creating jobs through growth.
To this end (consistent with the proposals of the DA's Plan for Growth and Jobs), the decisions and actions of government must focus on the following:
- Fostering a growing economy that can support a significant expansion in job opportunities;
- Promoting economic inclusion by incentivising job creation, especially for young job-seekers;
- Establishing an enabling environment for small businesses;
- Making it easier for entrepreneurs to start businesses by reducing red-tape and easing regulatory burdens;
- Promoting local production through business incentives for using local content; and
- Boosting the economic multiplier effect put in motion through the involvement of more people in the mainstream economy.
3.2. Promoting inclusion by empowering South Africans to utilise opportunities
In addition to the basic policy priorities outlined above, the government can and must endeavour to equip South Africans for participation in economic opportunities.
Education
At the heart of the DA's position on redress, lies the recognition that exclusion from economic opportunities must primarily be addressed by broadening access to quality education, improving educational outcomes and the alignment of education and skills development initiatives with the needs of the economy19.
In improving educational outcomes our focus will be on:
- establishing an enabling regulatory environment for educational excellence;
- improving school management and teacher quality;
- promoting accountability through continuous assessment of (i) academic performance and, (ii) adherence to the principles of good governances;
- rewarding good management, teacher and learner performance;
- regularly reviewing educational curriculums to ensure that it equips learners for participation in a competitive, global knowledge economy; and
- providing a school environment that is conducive to learning - based on clear norms and standards for schools.
Skills
The foundation for a successful economy and for the empowerment of individuals is basic education, but following that appropriate training is vital. This is reliant on both an effective higher education system and workplace skills programmes that equip individuals with the practical and technical skills needed in the world of work20.
Skills needs can be addressed through:
- Vocational training programmes/ apprenticeships;
- The use of apprenticeship wages - allowing businesses to hire young, first time employees for a portion of the minimum wage;
- Focussed training by employers, for which they can be reimbursed by the state;
- Further Education and Training (FET) programmes that are fully integrated with the needs of the economy; and
- Public Service Graduate Recruitment Programmes and Community Work Programmes that give young people basic training and work experience.
Access to basic services
Economic participation cannot happen on an equal footing if some South Africans have to focus their efforts on survival rather than productive activities. A caring government must ensure that all South Africans gain access to basic services such as water, electricity, sanitation, health services and housing opportunities.
Access to information and information resources
Fair access to opportunities (e.g. for business, employment, education and support services) is distorted when the flow of information is distorted. South Africa needs innovative solutions to democratise access to information and platforms for communication. To achieve this, the government must prioritise the roll-out of broadband infrastructure and use online communication platforms to improve access to information.
Access to capital
Economic exclusion will be perpetuated in a system that excludes the poor from owning assets and accessing credit21. A DA government would prioritise programmes to put assets in the hands of the poor. This would include, for example:
Establishing a dedicated fund to support farm equity schemes.
Using the National Empowerment Fund to provide financial support for broad-based employee share ownership schemes.
Making property cheaper for first time buyers by abolishing all transfer duties on land transfers for first time, owner-occupied residential properties valued under R2 million and by boosting funding for subsidy programmes in support of access to credit for the so-called "gap housing" market.
Ensuring that all beneficiaries of state-subsidised housing receive the title deeds to their properties.
Amending Section 10 of the Housing Act (Act 107 of 1997) which concerns restrictions on the voluntary sale of state-subsidised housing. The current probationary period of eight years will be reduced to two, and an additional restriction will be added to prevent recipients of state- subsidised housing who have successfully sold their property from reapplying.
Ensuring that citizens in the former homelands enjoy their full rights as democratic citizens by giving them security of tenure on the land on which they live and farm.
Encouraging responsible lending to low income earners and closely monitoring the administration of loan repayments ordered by the courts.
Appropriate support for informal economic activity
Existing regulatory and legal frameworks do not effectively support informal economic activity that has significant potential to provide livelihoods to the poor. The high costs of establishing formal businesses and sustaining formal business activity discourages the formalisation of entrepreneurial business activity.
This leaves many informal enterprises outside of the protection of the legal and regulatory system, limits their markets and inhibits their potential to create jobs22. These business operators need appropriate laws, including property rights and enforceable contracts. Our policy proposals with regard to informal and micro-enterprises are outlined in our Economic Policy.
The formalisation of property rights unleashes economic potential as properties can be transferred, borrowed against and used in formal agreements. Appropriate frameworks for the legislation of contracts can decrease the vulnerability of enterprises in the informal economy and make them a real engine for growth and job creation.
3.3. Redress in the DA's Plan for Growth and Jobs
In the DA's economic policy platform, the Plan for Growth and Jobs, we also emphasise the need for economic growth, job creation and the improvement of educational outcomes in support of an inclusive economy.
Job creation
Alongside our proposals in support of job-creating growth, key proposals from the Plan for Growth and Jobs directly in support of job creation, include:
Support for a Youth Wage Subsidy, which would make it easier for employers to appoint young South Africans. We believe that this can put these young people the first rung of the ladder of the economy. On the basis of this foothold, they would gain skills and become productive participants in the economy.
A commitment to roll out the Premier's Advancement of Youth Internship programme to all provinces where we govern. The Western Cape Government offers a range of internship programmes across its provincial departments. This apprenticeship programme has so far given 750 young people ‘on the job' training through working in a government department for a year. Graduates develop professional skills, experience and knowledge that equip them for successful careers in both the public and private sectors. Many interns are offered full-time employment in permanent positions once they have completed their internship.
Support for an opportunity voucher scheme, which would provide funding to young adults who would like to start their own businesses or further their education and skills development.
Targeted reform of labour laws to ensure that it does not protect economic insiders at the expense of the unemployed.
Share ownership in State-Owned Enterprises
We believe that ownership in the economy can be significantly broadened by distributing shares in the country's State Owned Enterprises (SOEs). This can activate ‘dead capital' and put financial assets in the hands of poor South Africans. We propose a cap on individual participation in these schemes to prevent continuous re-empowerment of the rich. We will also support a system loyalty bonuses for individuals and groups who retain their shares for longer periods to discourage early sale of share that excludes beneficiaries from the benefits of long term value growth.
Tax deductibility of charitable giving
To encourage charitable activities and investment in civil society organisations we will reform the tax code to make it easier to set up charitable foundations, increase the percentage of donations that may be tax deductible and remove restrictions on the build-up of capital by charitable foundations over time. We will review the 10% tax deduction ceiling on charitable giving by wealthy individuals to encourage those who can invest in our country's people to do so.
Aligning executive pay with company performance
The DA believes that the provisions in the Companies Act pertaining to executive pay must be strengthened to improve transparency around executive pay and boost shareholder activism in this regard. For example, the critical performance criteria used to determine levels of fixed and variable pay must be circulated to shareholders and citizens alike, and executive pay hikes must be subject to shareholder oversight. This kind of transparency can serve to moderate executive remuneration and help to bridge the income divide.
3.4. Incentivising business contributions to redress
Much of what is outlined above in terms of expanding choice and promoting inclusion is largely dependent on government commitment to the goals of inclusion and dedicated programmes to enhance it.
Building an inclusive society and an economy and business environment that provides opportunities for all is, however, a national goal which will not be achieved without a business community that shares a commitment to redress and the expansion of opportunities.
The DA therefore supports public policy initiatives that incentivise the business community to:
i) Recognise that they are embedded in communities facing severe socio-economic challenges and become partners in socio-economic development efforts;
ii) Expand job opportunities - with a focus on opportunities for young job-seekers;
iii) Support small business ventures through investment, human resource and administrative support, mentorships, favourable lending agreements and other assistance aimed at supporting the sustainability of these ventures;
iv) Invest in the skills of employees to boost their capacity to seize opportunities for economic participation;
v) Invest in skills development for non-employees to address critical skills shortages in their respective industries;
vi) Use a balanced, qualitative process to promote diversity in their staff structures; and
vii) Broaden the economic base and capitalise the poor by involving new entrants to the economy as shareholders.
In the current economic empowerment model used in South Africa, these behaviours are encouraged through a scorecard that sets targets and awards points to businesses based on their progress towards these targets.
The scores achieved on the Empowerment Scorecard are relevant for:
- Self-regulation in the business environment - with businesses increasingly preferring to purchase goods and services from enterprises with a good empowerment score (note that the empowerment scores of an entity's suppliers has an impact on its own scorecard);
- The preferential procurement processes of public entities23;
- Certain license applications in regulated industries; and
- Consumers who are increasingly aware of the need for ethical, socially sustainable business practices.
In the implementation of empowerment policies both government and the business community have over-emphasised ownership transfer as a tool for empowerment. By 2009, the total value of ownership transactions concluded with a view to enhancing black ownership (so-called BEE transactions) is estimated to have surpassed R530 billion24. This is more than half of the value South Africa's annual national budget. The benefits of these deals are perceived to have gone to a very small group of people and the names of the same BEE-tycoons are repeated as beneficiaries across several empowerment transactions.
We support the efforts to strengthen the governance around the B-BBEE process and to prevent "fronting" practices in which businesses misrepresent their B-BBEE status to win contracts - as outlined in the Broad-Based Black Economic Empowerment Bill.
The Codes of Good Practice on B-BBEE (issued in terms of the B-BBEE Act) should provide clear and practical guidelines for the implementation of broad-based empowerment initiatives.
In the Revised Codes of Good Practice issued in October 2013, the ANC government showed its hand with regard to broad-based empowerment. By (i) putting an ever-greater focus on ownership, (ii) under-emphasising participation by broad-based schemes and new entrants, (iii) changing the definition of new entrants to include anyone who has not previously owned more than R50 million in shares, and (iv) missing an opportunity to include recognition for job-creation in the scorecard, they have shown that they will continue to use the B-BBEE process for narrow-based enrichment rather than true empowerment.
We believe that the scorecard and Codes of Good Practice must be deliberately re-shaped to broaden the scope of empowerment (to go beyond mere ownership transfer) and must start moving away from an exclusive focus on racial targets and race-based redress to become a tool to incentivise economic practices that broaden the economic base and enhance economic inclusion on a non-racial basis.
We propose a number of amendments to the Empowerment Scorecard and the Codes of Good Practice to reflect this broadening of the scope of empowerment.
We propose the following important amendments to the Empowerment Scorecard:
1. Recognising job creation as the key to empowerment and enhancing recognition for investment in socio-economic development
In the socio-economic development element of the Empowerment Scorecard, businesses get recognition for initiatives that contribute to social development and facilitate access to the economy. At present the socio-economic development element accounts for only 5 of the 100 points on the scorecard for generic enterprises. We propose an increased weighting for this element.
We also propose that points must be awarded in recognition of employment creation. Employment is the most sustainable way to lift people from poverty, and it acts as an economic multiplier by increasing people's purchasing power. The recognition could be based on proportional annual increases in job opportunities offered by an entity.
In this element, recognition for programmes enhancing social development and economic participation will be given on a non-racial basis, with the understanding that the majority of such programmes will benefit black South Africans.
2. Recognising small business development as key to building an inclusive economy
The enterprise development element rewards direct contributions and investment, as well as the transfer of skills and human capital contributions (including mentorship programmes), in support of emerging enterprises. It is a powerful tool to promote small business development.
Given the impact of small business on growth, job creation and thus on economic inclusion, the DA proposes the recognition of initiatives in support of all small businesses - regardless of the racial profile of the small business owner.
This broadened focus will stand alongside measures to encourage investment in black-owned or black women-owned enterprises, possibly by recognising such contributions at a particular multiple (e.g. 1.25).
Research by SBP has shown that small firms spend as much as R1 in every R20 on regulatory red tape. Efforts to achieve empowerment cannot be allowed to discourage entrepreneurial activity that could contribute to job creation and economic growth. A regulatory impact study must be completed to determine the cost of Broad-Based BEE compliance for small businesses.
Based on this analysis, the thresholds for B-BBEE compliance and the structure of the scorecard for smaller enterprises should be reconsidered. At the very least, the flexibility in the scorecard for small enterprises (within a specified turnover band) should be retained by continuing to allow them to choose a limited number of B-BBEE elements on which to focus their empowerment efforts and calculate their empowerment scores.
As an interim measure, the cost of compliance to B-BBEE regulations for all enterprises can be reduced by requiring entities to audit their scorecards only once every two years. Audited scorecards will then be valid for 24 months. This would also allow businesses to implement empowerment programmes with longer timeframes.
3. Incentivising skills development
The original B-BBEE scorecard only recognised contributions to skills development for an entity's own black employees in the skills development component. This excluded South Africa's large unemployed population from capacity-building initiatives by the business community.
In the interest of a skills development process that does not exclude the most disempowered members of our society, namely the unemployed, we propose that skills development contributions to both employees and non-employees must be recognised in the scorecard.
In addition to investment in skills development for black South Africans, the DA proposes that contributions to skills development opportunities for any South African earning less than a specified minimum income (around R15 000 per month) must be recognised in the skills development element.
The recognition for the number of employees involved in learnerships, apprenticeships and internships is crucial for the broadening of South Africa's skills base. The DA proposes that points should be awarded for the total number of employees involved in such programmes regardless of their ‘race'.
We also believe that the scorecard for skills development should include recognition for appointments made through the Youth Wage Subsidy Programme as an investment in the workplace experience and skills of young work-seekers.
4. Promoting workplace diversity
The DA's position on workplace diversity can be summarised as follows:
The DA believes that diversity is desirable and that individuals from diverse backgrounds should lead, participate in and form part of businesses and other organisations in South Africa.
We support balanced, qualitative processes to promote diversity, which can include racial preference, but excludes racial quotas.
We support dedicated efforts to invest in the long term potential of staff and to promote diversity through training, mentoring and career pathing.
In order to advance diversity, persons from previously disadvantaged groups should enjoy favourable consideration when they are as well qualified for appointment as the next man or woman, or when they show comparable promise25.
We have a very strong preference for an incentive-based system of encouraging appropriate corrective measures, rather than punitive measures to impose racial representivity.
The substantive equality enshrined in the Constitution recognises that identical treatment can sustain inequality in circumstances where people start off from a position of disadvantage.
The repeal of formal legislated barriers preventing the enjoyment of equal rights and opportunities does not in itself give people the qualifications or experience to compete equally and to overcome prejudice.
The Constitution and the objectives of the Employment Equity Act of 1998 do not require racial quotas or demographic representivity, and expressly prevents employers from establishing absolute barriers to the employment and advancement of non-designated groups. Where demographic representivity is enforced, or quotas are imposed, it is a contravention of both the Employment Equity Act and the principles of the Constitution.
In government, the DA would align legislation in support of workplace diversity with the incentive structure of the Codes of Good Practice. This will entail the following:
Developing a Workplace Inclusion Act that outlines procedural compliance measures (for example: having a corrective action plan in place, establishing a consultative forum on workplace diversity, appointing a manager to take responsibility for corrective action and submitting reports to a commission responsible for monitoring workplace diversity);
Making points in a "Workplace Inclusion" element of the B-BBEE Scorecard conditional on procedural compliance to the Workplace Inclusion Act (similar to the manner in which points in the "Skills Development" element of the B-BBEE Scorecard is currently conditional on compliance with the Skills Development Act);
Awarding points in the "Workplace Inclusion" element of the B-BBEE Scorecard both for compliance to the procedural aspects of the Workplace Inclusion Act and for progress towards building a workforce that is broadly representative of the South African population (aspirational targets for black participation on different levels of an organisation can be set in the scorecard, with businesses getting recognition for their progress towards these targets).
We strongly reject the proposal in the October 2013 version of the Codes of Good Practice to break down employment equity targets into racial sub-categories, as this would require an interventionist degree of racial classification.
In our approach, individuals would be allowed to self-identify as being black (as is the practice in the current B-BBEE Codes and Employment Equity processes). If a dispute arises, the affected individuals will have to make a case that he or she has been disadvantaged as a result of apartheid legislation. Government has no business defining race and our approach does not require it.
5. Empowerment measures to support people with disabilities
The DA fully supports the United Nations Convention on the Rights of Persons with Disabilities, including Article 5, on the need for equality and non-discrimination, and Article 27, dealing with the need to protect and promote the right of persons with disabilities to work.
In recognition of the economic exclusion often faced by people with disabilities, the DA fully supports the provisions in the B-BBEE Codes of Good Practice to encourage employment opportunities and skills development for persons with disabilities.
We would, however, recommend that the relevant provisions in the codes be amended to include all persons with disabilities regardless of their ‘race' (current provisions limit recognition to black employees with disabilities).
6. Ownership initiatives that create opportunities
In support of ownership transfers that truly broadens economic opportunities we will provide a tax incentive for employee share ownership schemes. This could involve declaring 50% of the value of shares awarded to qualifying employees (preferably employees earning less than an agreed threshold level) to be tax deductible to the employer. We also propose that any eventual gain from shareholding in an employee share scheme should be exempt from income tax.
In addition, we believe that there should be a stronger emphasis on facilitating access to the economy by new entrants (of all ‘races') who have not previously held more than a specified threshold in equity instruments.
Proposed amendments to the current scorecard for ownership would therefore include:
Greater recognition for ownership by new entrants to the economy (regardless of their ‘race')
Amending the definition of "new entrants" to include people of all ‘races' who have not previously held more than a specified threshold in equity instruments
Reducing the points awarded for black ownership that is not tied to continued economic exclusion.
Greater recognition for economic interests held by black South Africans through employee share ownership schemes or broad-based schemes
The DA is also proposing amendments to the Codes to allow local companies to make use of equity equivalent programmes as an alternative to ownership reform.
The present Codes allow foreign-owned companies to adhere to specified development programmes as an alternative to equity transfers. Contributions are measured against 25% of the value of the entity's operations in South Africa. Programmes are expected to contribute towards the achievement of the following objectives:
Human development with a focus on education and skills development;
Enterprise creation and development;
Foreign direct investment;
Accelerated empowerment of black rural women and youth (we believe this should be expanded to include all women and youth);
Sustainable growth and development; and
Infrastructure investment with an emphasis on developing the country's research and development (R&D) infrastructure.
We believe that "job creation" could be added to this list of objectives.
These programmes have the potential to benefit many more people. They provide an alternative to ownership schemes that often tie up scarce capital without promoting productive participation in the economy.
This can also act as a mechanism to encourage South African businesses to invest their cash reserves in the economy.
The DA is committed to an open opportunity society for all in which your path in life is not determined by the circumstances of your birth, including your ‘race' and material circumstances, but rather by your talents and by your efforts.
This commitment reflects both an absolute rejection of discrimination on any grounds and an acknowledgement that positive action is required to assist those who continue to carry the legacy of social and economic exclusion.
It is clear that the approach to empowerment and redress that has been followed in the last 20 years has served to enrich a small elite whilst the majority of South Africans continue to be excluded from the economy.
When considering whether an empowerment policy, or an initiative in support of redress, is in the best interest of all South Africans we will always submit it to the test of whether it serves to broaden opportunity or whether it is simply a tool for elite enrichment.
We believe that by growing the economy, creating jobs, equipping South Africans to use the opportunities provided and effectively incentivising individual and business activity in support of economic inclusion, we can create a society where there are opportunities for all and in which the economic legacy of apartheid can be eradicated.
Footnotes:
1 Blumfield, B. 2008. A timeline of South African events in Education in the Twentieth Century: 1900-1999. Available. [Online] (April 2013).
2 Horrell, M. 1978. Laws affecting race relations in South Africa. Johannesburg: South African Institute of Race Relations.
3 Horrell, 1978.
4 Horrel, 1978.
5 Institute for Justice and Reconciliation, 2012.Transformation Audit. Cape Town: Institute for Justice and Reconciliation.
6 Institute for Justice and Reconciliation, 2012.
7 Statistics South Africa, 2012. Census 2011 Statistical Release. Available. [Online]
8 Institute for Justice and Reconciliation, 2012.
9 Statistics South Africa. 2012.
10 Institute for Justice and Reconciliation, 2012.
11 South African Institute of Race Relations 2011.South Africa Survey 2010/11. Johannesburg: South African Institute of Race Relations.
12 South African Institute of Race Relations, 2011.
13 Commission for Employment Equity. 2013. Commission for Employment Equity Annual Report 2012-2013. Available. [Online] (April 2013).
14 Commission for Employment Equity. 2013.
15 Newton-King, N. 2012. JSE releases Third Study on Black Ownership on the Exchange.Online. [Available] (March 2013).
16 Page, N. & Czuba, C.E. 1999. "Empowerment: What is it?", Journal of Extension. 37(5).
17 Zille. 2012.
18 EU Charter of Fundamental Rights. 2004. ‘Justice Commentary'. Available *Online+ (March 2013).
19 Our detailed policy proposals to improve the quality of educational outcomes are outlined in our Basic Education Policy.
20 Our proposals with regard to Higher Education and its alignment with the national system of innovation are outlined in our Innovation Policy.
21 De Soto, H. 2012. Building a Nation of Owners.McKinsey & Company Interview. Online. [Available] (March 2013).
22 Hirschowitz, R. 1989. ‘Review: The other path - the invisible revolution in the Third World'. South African Journal of Economics.
57(4):402-411.
23 Note that Preferential Procurement regulations make provision for bids for contracts with public entities to be considered on a preference point system, with an 80/20 preference point system applicable to bids with a Rand value equal between R30 000 and R1 million and a 90/10 preference point system applicable to bids with a Rand value above R1 million. Bids are firstly considered in terms of functionality (with weighted point allocations testing the capacity of a bidder to deliver the required goods or services). In the next round of the bid process, price is a key determinant, with scores out of 80 or 90 points awarded to each bidder (depending on the size of the contract). The last 20 or 10 points are calculated based on a converted score based on the Broad-Based Black Economic Empowerment Scorecard. It is important to note that bidders who do not submit scorecards are not disqualified, but simply scored out of 90 or 80.
24 South African Institute of Race Relations, 2012.South Africa Survey 2012. Johannesburg: South African Institute of Race Relations.
25 Reference from the position paper on Equity and Corrective Action prepared by Dene Smuts MP and adopted by the DA Federal Council in 2005.
Issued by the DA, January 10 2014
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