December 20, 2012

At the conclusion of my journey in Africa, it’s difficult to try and sum up my experience. I've been humbled and moved by the magnitude of poverty, the hardships and most of all the determination to prevail that I've seen a midst the many individuals I've met. There is so much potential in the country that it just needs to be harnessed and redirected towards productivity. The labor force is plentiful, labor cheap and race relations slowly improving. For every Afrikaner still bent on the apartheid ways there are two embracing the rainbow nation and the promise an integrated South Africa can bring.

Corruption however has been as great a malady as the AIDS epidemic and poverty in slowing the improvement of the country. The existing ANC has misdirected the BEE efforts and fattened their pockets at the expense of the populace. As much as BEE needs a makeover, so do does the government. Jacob Zuma has been the in the spotlight for all the wrong reasons over the past few years, and still the ANC has been the favorite every year. It seems that hollow attempts and promises are enough to secure the majority black vote and keep them in power.

Unemployment has remained over 20% with no promise to decline. As stated before, creating skilled workers to fill the demand I think is the most promising option for the ANC and South Africa instead of a change in macroeconomic policy. Likewise, as stated in UNDP’s Employment Targeted Program for South Africa, tax incentives and subsidies to industries with high employment multipliers can act as a catalyst for the decreasing unemployment.

As of now, the BBBEE is benefiting a privileged few while leaving the rest behind. As China’s textile industry continues to improve and relaxes their mineral dependence, South Africa will have no choice but to completely revamp their export industries and efficiency. This will come with the creation of human capital and investment in research and development. This is the initiative and path that BEE needs to pursue before it dies out for good. 

December 10, 2012

Today I visited the Apartheid Museum in Johannesburg which has been one of my favorite and most rewarding experiences so far in Africa. My visit happened to coincide with a mini exhibit dedicated to Nelson Mandela and through pictures, stories and media described his life and the effect he’s had on South Africa. As mentioned in an earlier blog, upon being elected the first black president of South Africa, Mandela implemented the Truth and Reconciliation Commission for the purpose of reconciling years of racial injustice and violence among a torn country. This was followed by the Reconstruction and Development program issued to help alleviate poverty, unemployed and increase the overall standard of living for the disenfranchised of South Africa. After his five year term racial tensions still soared, the poverty line stagnant and unemployment increased roughly 3%. Even the most altruistic and capable of leader struggled to bring South Africa out of its economic slump and away from its racially torn past.

I bring this up because I think it is important that BBBEE not be thrown out or forgotten. There is a general consensus that the program has generally failed to achieve its stated goals, and as previously mentioned, it has become synonymous with laziness and nepotism. This new definition of BBBEE is at the hands of the ANC and should not be discredited because of their ineptitude to administer the program properly. The recent aim to cut down on corruption and fronting is certainly a step in the right direction and in my opinion a final test to see if the ANC can truly make good on their promises. They first need to remove the perverse incentive to front. If the government will only do business with high scoring BEE recipients, there is therefore a necessity to achieve these scores by any means. The decision is to front which is has been the widely chose method, or to invest in training mainly unskilled workers for promotion and upper management. This requires money, time and a strong risk of ineptitude by putting workers with little to no experience in positions of authority. Its clear to see why fronting has been so widespread.

A reevaluation of the BEE system instead of small additions and amendments needs to be in place in order to refocus it away from macroeconomic policy and towards economic inclusion. It is a difficult balancing act between empowering blacks and not scaring away the existing white population which maintains most of the human capital in the country. These relationships between races need to fostered and encouraged, and what better way than through market forces?

There is a strong need for skilled workers in South Africa, and it is up to the government to help create that supply. Instead of forcing blacks into positions of management, they should prepare them for such and let the demand for human capital soak them up. By no means is this an easy accomplishment but the direction that BEE needs to head.

November 23, 2012

Today I left to begin my journey around southern Africa and see what the country and continent hold beyond the affluent veil that is Cape Town. While Cape Town is saturated with international students and businessmen, travelers and entrepreneurs, a drive outside the city limits reflects a much more impoverished, rural and accurate depiction of the majority of the country.

The Knysna Heads

Informal jobs vastly outnumber formal businesses and poverty is rampant. Knysna is considered one of the nicest townships in the country and still the majority of those living there have yet to acquire a proper cement house. I found it striking the lengths people will go to receive free electricity. Wires are cut down from electric poles and connected to wooden house with the result often being fires and mortalities.  While visiting the township, I spoke with the owner of a bar and motel called The Shebeen as well as a mechanic’s office. Neither the owners nor employees had any idea what the concept of Broad Based Black Economic Empowerment was. The more I travel and the more I talk to those BBBEE should be helping the most, the more I see it as a failed remedy and more of a symbol than a solution used to secure votes by the ANC.

Among the 295 companies listed on the Johannesburg Stock Exchange (JSE), blacks account for just 4% of chief executive officers, 2% of chief financial officers and 15% of other senior posts. In non-executive ones, they do a bit better, accounting for just over a quarter of board chairmen and 36% of directors, but still nowhere near their share of the workforce. The point is that BEE has effectively done next to nothing for the black population, left whites in command of almost all business while discouraging both blacks and white from entering the business world.

What is even worse is that even if Mkobi from The Shebeen has known anything about the legalities and aim of BEE, he would've found it no help to him as he is a small business owner with under 50 employees living off entrepreneurial spirit and a bit of good luck. Currently South Africa ranks 41 on the Doing Business rankings. While not terrible, especially considering its sub-Saharan neighbors, there is still room to grow in order to encourage small businesses and thus job creation and formal economy growth.  The question is whether effective reform can be made before hope is completely lost for the program which is sure to occur soon if it hasn’t already.

November 6, 2012

BBBEE is supposed to be a force for integrating the black community into the economy and helping South Africa realize its full economic potential, but its scorecard is reserved for larger businesses. Alain Ndedi led a Black Forum Conference in Pretoria on the importance of entrepreneurship and drew some striking resemblances between post 1960s United States and the current state of affairs in South Africa. He points out how MIT researcher David Birch surprised all politicians, researchers and business world that the new and growing smaller firms created 81.5 percent of the net new jobs in America from 1969 till 1976. In order to fully realize its potential, South Africa must incorporate its black populace into the economy, and giving black owned corporations billions of Rand loans doesn't seem to be the answer.

I think the biggest problem stems from the transition away from the Reconstruction and Development Program towards the Growth, Employment and Redistribution strategy. The first focused more on development goals such as reducing poverty, decreasing the unemployment rate and increasing human resources through repairing a divided society. GEAR on the other hand was more of a macroeconomic policy focused on market flexibility, economic stability and increasing foreign direct investment. By trying to change the economy instead of who participated in it, unemployment has since risen and jobs been lost.

This has been addressed in the current BEE through the design of Human Resources Development; a sub sector of the BEE strategy. Its main purpose is to cultivate human skills and expertise in order to increase productivity. However, most training is done by corporations on the job. The obstacle is incorporating the population in the informal market into these training programs. A focus on entrepreneurship would not only lead to more job creation but also help lift the malady of poverty. This focus can be administered through easier access to financing for small companies as well as tax incentives.

Breakdown of BBBEE scorecard

Ultimately the informal market must shrink in order for South Africa to reach its full potential. Skills must be developed and the only way that will happen if the job market is more accommodating to the multitude of underprivileged blacks with no access to cities, education or skill development. 

October 30, 2012

As apartheid came to an end, it was Archbishop Desmond Tutu that said “We chose to walk the path of reconciliation rather than revenge and retribution”. With this President Nelson Mandela appointed Tutu as chair of South Africa’s Truth and Reconciliation Commission with the purpose of achieving peace and closure for a ravished country. I want to transition from this idea to that of the Equitable Employment part of the BBBEE scorecard. This states that a certain percentage of black employees in junior, middle and senior management in company should be achieved in the upcoming years. Likewise, by achieving high ratings on this scorecard, there are benefits. For one, in the public sector the government has internal policies to only deal with entities with a particular BBBEE score. Likewise, private companies receive higher scores for dealing with other entities with high BBBEE scores.

Archbishop Desmond Tutu

There is a clear incentive to push for more black management in companies with over 50 employees, but the question is what the cost is. In a perfect world, businesses would become more diversified with skilled black workers gaining opportunities never before seen during the apartheid era. I don’t think that it needs to be said that this is not a perfect world. With such strong incentives to adhere to Employment Equity, the situation looks much like that of affirmative action in the United States. Is this really empowerment or a just a free pass into business?

The main problem that comes up is what is now called fronting, which is a fault in the system. Black individuals are promoted to “management” positions with no experience or skills just so the BBBEE scorecard can be bolstered. It is nepotism in a sense, and has in effect stained the reputation and attempts of BBBEE to create a business world equal to all people. Granted, legislation has just passed for more strict enforcement against fronting as stated in a previous blog, but I do feel that it is too little too late.

I feel as though this is not as Tutu put it, “reconciliation”.  Simply by stating that upwards of 45% of senior management should be black by 2016 does not do much, but instead creates a perverse incentive that benefits a small, elite black minority. It may sound nice, and as I’ve found interviewing many in my suburb Rondebosch, they mimic that thought. 

Former President Nelson Mandela

To many who are not as knowledgeable about the system as necessary, BBBEE is considered an attempt to make business more fair and attainable. Abraham Lincoln also freed the slaves in a way that kept them chained up. Creating a quota to reach does not somehow create a skilled black labor force.  It does not help blacks reach their jobs and provide dependable and affordable transportation. Those who try and defend Employee Equity against nepotism state it wouldn't be in the business’s best interests to hire unskilled workers. Nepotism shouldn't prevail because it would harm the company by putting low level workers in management position. This again in theory is true, but it is just as easy, cheaper and more beneficial to give false labels and positions to black friends and family in order to receive the very same benefits.

The ANC has certainly profited from the BBBEE program if not from the simple fact that many people view it as an authentic program meant to alleviate poverty and elevate blacks into the business world. I however don’t think this is what Nelson Mandela had in mind. Instead of reconciliation, there has been extreme human capital flight by whites out of the country as they see their opportunities for employment diminish. A company vying for top marks on the Employee Equity position of the BBBEE scorecard  must have 60% of senior management and 75% of middle management be occupied by blacks by 2016. That number can seem frightening to a white businessman with hopes of reaching top management. To me, it boils down to the idea that reconciliation is not synonymous with reparations, especially of this magnitude. This is why BBBEE has been stigmatized with words like lethargy, corruption, entitlement and nepotism. This is why capital flight has been increasing and this is why BBBEE will not help unemployment nor help successfully introduce blacks into the business world.

October 27, 2012

The front page of the newspaper today showed bloodshed and spears, a scene scarily reminiscent of apartheid South Africa. Miners have been going on strike at Lonmin’s Marikana platinum mine and today the violent protest was met with automatic weapons. 45 were deemed dead this morning. The strikes and protests have ensued as miners have demanded a 300% raise in wages.

There seems to be two sides this argument; those in favor of corporate capitalism and those who sympathize with the miners and their working conditions. The capitalists continue to argue against unions as a reason for poor FDI in the country, citing the already high wages in comparison to neighboring countries. Likewise, the continuing strike has almost surely destroyed the chances of Lonmin reaching its full year goal of salable platinum which will surely have global repercussions.

There is also the idea that these miners are in life threatening situations for 12 hours a day and are compensated for the equivalent of $500 per month. This, unlike many gold miners, is compensation without housing as well. At what point can big business continue to profit off the backs of the hard working populace. While unemployment skyrockets and poverty lines remain stagnant, the few and select elite continue to grow richer.

When I first read this story I immediately took the side against the strikers. These miners were armed with spears, rocks and machetes vocally ready to shed blood. While reading UNDP’s an Employment Targeted Economic System for Africa, I learned that many companies cite unions as the reason as a constant struggle to work with as well as a motivating factor for capital intensive methods of production.  Unions are also very abundant in Africa as they were a means of protection during the apartheid era. Initially, it was these factors that led me to believe that the strikers and unions were not only destroying the economic growth of South Africa but also discouraging any sort of FDI that could help the country.

However, the more I look at the situation, the more I see a call to reform and the start of what is an overdue revolution. First, these strikers are not a part of the Nation Union of Mineworkers. They have separated to form a much more radical union called the Association of Mineworkers and Construction Union. They too are fed up with the inconsistencies and lack of true representation. The simple fact that I make almost as much in a week as a line chef as these workers do in a month risking their lives with full day shifts has made me reevaluate my position and see justice in the strikes.

The excessive violence however runs a thin line. These strikers were quoted saying they would kill anyone who attempted to go back to work, but this strike could be the start of a revolution. Almost every monumental revolution has its grounds in violence as a means of upsetting the status quo. Perhaps this demonstration was a necessary means of relaying the message that labor will no longer be treated as slavery. I am not advocating a socialist revolution, but a capitalist system in which 1% dominate the population as something similar to indentured servants must end eventually.  

September 16, 2012

Manenburg is a township, or rural and underdeveloped area in Cape Town previously designated for blacks and coloreds during the apartheid era. Every Tuesday I travel there to help teach English and literacy to the students at the local elementary school. With this opportunity I was able to speak with some of the students parent as well as the student helpers that work in the school. What I found was an enormous lack of information concerning BBBEE.  The only knowledge on the subject came from “Uncle” Cyril, the school’s principal. Unfortunately, his experience with the program revealed that it had no benefits for the school despite the fact that his entire staff is black.

Cebile Mfundisi

Uncle Cyril

Cebile Mfundisi, mother to one of my students Loli, commented that BBBEE was supposed to help single mothers but had no idea how or why. Likewise, she knew that the ANC was the political force behind it. As BBBEE is always changing and an intricate system of checks, verifications and scorecards, its understanding has proved elusive for businesses and therefore near impossible for the average worker. Furthermore it doesn’t apply to the major concerns of the everyday worker. When interviewed, most of the parents listed healthcare and transportation as their primary concerns, and proceeded to ask me how BBBEE could help them with that.

It’s also notable that the majority of those in townships work in the informal sector and are probably self employed. BBBEE only applies to formal enterprises. BBBEE states that it works to encourage and incorporate blacks into the economic  realm of business, yet the vast majority of blacks are engaged in the informal sector leading to the current state of a small minority prospering from BBBEE.

Manenberg Township

Broad Based Black Economic Empowerment has shown to be everything but broad. They want to encourage black ownership and participation but lack the skilled workforce. They want to incorporate blacks into the business world but lack the infrastructure and means of conveying the proper information. After speaking to some in Manenburg, it is no surprise that the system has been met with increasing disapproval, cynicism and disappointment.