Business Unity South Africa (Busa) released its vision on Tuesday for accelerating the deracialisation of the South African economy, acknowledging that the pace and depth of transformation had been insufficient, to date, and that business needed to be more proactive in driving a “culture” of transformation across industries.
The framework has been endorsed by all Busa members and is outlined in an 18-page document titled ‘Business Approach to Black Economic Transformation for Inclusive Growth’. The term ‘black economic transformation’ had been selected following vigorous internal debate, but was adopted to underline the imperative of addressing the economy’s skewed racial demographics, as well as a belief within Busa that 80% of the country’s transformation objectives could be met through a focus on deracialisation.
The document, whose genesis predated President Jacob Zuma’s controversial March 31 Cabinet reshuffle, had also been endorsed by the Busa board as the basis for further discussions with government and labour in the forging of a collaborate response to broadening economic participation and accelerating inclusive growth.
Busa president Jabu Mabuza said that, despite the erosion of trust as a result of the reshuffle, business had nevertheless decided to recommit to collaborating with government in seeking solutions to the country’s socioeconomic problems. “There is no Plan B, or Plan C for us as business,” Mabuza averred, while confirming that the trust relationship had been “damaged” by recent political developments.
The business approach, he said, had emerged as a result of a soul-searching exercise that began in December, and was written with the full acknowledgment that business had failed, over the past two decades, to demonstrate a whole-hearted commitment to transformation. Instead, in most instances, companies had been reactive, or had treated the issued as an additional compliance burden.
“The question of economic transformation is one we as business have finally recognised that, to continue to have the majority of our people excluded from the mainstream economy, is politically dangerous, commercially very naive and socially unsustainable.”
It had, therefore, become apparent to many business leaders that “the pain of staying the same, now far outweighs the pain it will take to change”. Busa CEO Tanya Cohen echoed this sentiment saying: “If we don’t transform, we will be transformed, either by government or through social pressure, because, actually, we are running out of time.”
However, Busa stressed the need for a collaborative approach, describing unilateral policy interventions, such as the recently published Mining Charter 3, as setting the scene for “paralysis, gridlock and contestation” rather than any meaningful transformation. It would also be monitoring closely the outcome of the African National Congress’s upcoming policy conference for signals that the governing party remained willing to partner with business, or that it would be pursuing a more unilateral policy course.
Cohen reported that recent surveys of its members had also highlighted the need for urgency, with business leaders identifying transformation not only as a priority for their own companies, but also for the country’s future growth performance.
Busa deputy president Martin Kingston described as “unprecedented” the fact that the business community, as represented by Busa, was now “singing off the same hymn sheet” when it came to transformation, which included an acceptance that previous efforts had fallen short.
However, he also stressed that securing credible empirical information on the state of transformation in South Africa had proved challenging, which had made it difficult to pin down the size of the problem, as well as to design and scale the remedies. For this reason, the paper is short on offering solutions, which Busa says should, instead, emerge as a result of collaboration with the other social partners.
However, the organisation was ready immediately to lend its support to any initiative that would produce credible research, statistics and monitoring of the state of business transformation.
SHIFT IN EMPHASIS
The business approach adopted comprises four pillars for accelerating transformation, including:
• Enabling a transformative culture in business.
• Supporting demand-led skills development.
• Removing barriers to and supporting enterprise development.
• And promoting employment, particularly of young people.
Controversially, it de-emphasises ownership as the main instrument for transformation, arguing that the current “overemphasis on ownership” had failed to deliver “meaningful control and value to black people, given that shareholdings are generally insufficient to exert direct influence on the strategic direction of the investee companies”.
“The efficacy of the 25% or 26% black ownership interest is questionable. The original intention of this was to ensure negative control for broad-based black economic empowerment parties, but this has, in practice, rarely been achieved.”
The paper, therefore, argues for greater emphasis to be placed on asset-sale transactions as part of establishing new black-controlled businesses and endorses government’s Black Industrialist Programme as one vehicle for achieving such transactions.
Kingston also highlighted practical limitations with meeting such targets, owing to the size of the business stock in South Africa, which Busa estimates to be valued at R20-trillion. Of this stock, JSE-listed firms make up about R6- to R7-trillion, with the balance comprising everything from the South African unit of a multinational to township-economy microenterprise.
“Nobody has applied their mind, frankly, as to how we are going to achieve the ownership targets when such a quantum of money is factored in. If we are talking about the need to influence, direct and control enterprises, it is not done by owning 2% to 3% of a company’s stock,” Kingston argued.
Therefore, Busa felt greater emphasis should be given to other areas, including ensuring a transformation at the executive-management level, where much decision-making resided. “So I think that we need to redefine some of the metrics that are important in this particular conversation,” Kingston added.
As part of this shift in emphasis, Busa is proposing a strong focus on small business development and education and training.
It notes, for instance, that small businesses contribute only 65% to employment in South Africa, relative to a worldwide average of 95%. “The potential to add many small and growing businesses owned and controlled by black people is, therefore, an obvious avenue through which to activate inclusive growth.”
In addition, Busa is proposing a demand-led approach to skills development, whereby business activity assists in helping to realign the education and training systems to market demands.
Cohen said Busa was proposing the formulation, with government and other social partner, of an action plan to achieve economic transformation objectives. “This will include consideration of the current status, developing an agreed end-state, together with concrete actions on how best to achieve this, cognisant of the challenges that already exist.”