By John Sutcliffe
Published: May 2 2006 20:00 | Last updated: May 2 2006 20:00

South Africa’s drive to bring the long excluded majority of its people into 
the mainstream of its economic life is paying healthy dividends. It is 
pushing the growth rate – nearly 5 per cent in 2005 – on to a higher 
trajectory. It has helped the 12-year-old democracy move ahead of India as a 
destination for foreign direct investment. It was a factor in the 47 per 
cent total return on equities traded on the Johannesburg Stock Exchange last 
year.

Broadly defined, the black economic empowerment (BEE) strategy hammered out 
between government and business is helping fuel an economic and social 
revolution as millions start to enjoy dispos­able income and upward mobility 
for the first time. This is making South Africa an exciting place to do 
business and one that holds the promise of long-term stability.

How real is the transformation? Consider this. Just over 20 years ago, South 
Africa’s most famous newspaper, the Rand Daily Mail, closed because its 
readership was increasingly black and of no interest to advertisers. Today, 
its most successful newspaper is the Daily Sun, a three-year-old start-up 
targeted at the black working class. Its circulation is 450,000 and rising 
and advertisers are clamouring for space. Nearly half a million black adults 
moved into the middle income bracket last year, according to the South 
African Advertising and Research Foundation. The number of black people in 
the upper brackets grew by 30 per cent and the proportion of blacks in the 
top income bracket is now 20 per cent, up from close to zero a decade ago. 
The rise of black consumers can be seen in surging sales of consumer goods, 
financial services, property, cars and tourism. This is strongly tied to 
empowerment. Factors driving it include the rapid increase of black people 
in white-collar public and private sector jobs and the growth of black-owned 
business.

There has been understandable criticism that BEE in its narrowest form – the 
incentivisation of business to put a more representative share of ownership 
and control in black hands – has in some instances simply served to enrich a 
small elite. This was perhaps inevitable as businesses scrambled to find 
what they considered to be bankable and “connected” partners as a new era 
dawned. Naturally, some of the brightest black brains, who would have had 
few other choices other than to embrace the political movement for change 
during the apartheid era, later might be attracted into business once the 
opportunities arose. The threat of so-called crony capitalism is being 
replaced with the promise of building an entrepreneurial culture. 
Government’s recently published BEE codes are a step forward. The corporate 
sector is also climbing the learning curve.

The private sector likewise has a responsibility to ensure that BEE really 
does undo the horrifying distortions left by apartheid so that a just and 
prosperous future can rise from its ashes. Empowerment deals such as the 
ones announced by De Beers, Merrill Lynch and my own company over the past 
year are increasingly the norm. Beneficiaries will own a growing stake in 
these companies’ South African subsidiaries. They include employees, 
customers, emerging businesses as well as strategic black business partners 
who bring real bottom-line value to the table and are rewarded accordingly.

The authorities deserve credit for deliberately avoiding a prescriptive 
approach to empowerment. Having set broad objectives, they left it to 
industry sectors to work out how to achieve them. Consultations continue on 
the details of the scorecard system government proposes to use in awarding 
contracts, licences and mineral rights.

Under the system, companies will earn points for meeting equity ownership 
targets, appointing black people and women to management positions, 
developing skills and talent and procuring from small business. The 
government is sensitive to reservations some foreign companies have about 
selling equity in their South African subsidiaries and is willing to 
consider awarding points for “equity equivalents” that advance the common 
objective.

BEE is a shared endeavour. What we are trying to achieve is difficult. There 
are no perfect models to follow. But even with the mistakes we have made the 
rewards of getting it right are already manifest in our dynamic economy. And 
we will get it right. South Africans are pragmatic problem-solvers who 
listen and strive to build consensus as the foundation for lasting 
solutions. That is one very good reason anyone wanting to do business in 
South Africa would want to find local partners – they add real value.


The writer is chief executive of Old Mutual

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