The Black Economic Empowerment Debate

0
30

It is anticipated that Namibia will have its own legislative framework that guides broad-based economic empowerment (BBEE) by April next year. The Bank of Namibia’s ninth annual symposium held yesterday looked at what BBEE can, or should, entail.

By Catherine Sasman

WINDHOEK

Under the precept of Black Economic Empowerment (BEE) Mr X receives a fishing quota to ‘bring him into the mainstream of economic activity’ and to, in broad terms, ‘correct historical disparities’ brought about by extreme institutional iniquities of the old apartheid rule and colonial dispensation.

Possibly due to insufficient investment or infrastructural capacity, or a lack of appropriate skills and intentions, Mr X sells off his fishing rights to – in all likelihood – a foreign investor for, say, N$2 million. He promptly buys a luxury car, and two months later dies in a car crash. The luxury vehicle goes to the scrap yard and so comes the abrupt end of the exercise to empower Mr X.

This scenario, say pundits, in some way illuminates how empowerment efforts have gone astray in independent Namibia. And to some extent it illustrates the urgency with which the country must consider its own legislative and regulatory framework to ensure sustainable and broad-based economic empowerment.

So far, though, Namibia has plodded along an unchartered and murky road of ’empowerment’ deals and arrangements, and, according to the recently released Institute for Public Policy Research (IPPR) publication, 2 BEE or Not 2 BEE, the country was content to ‘frame’ its dialogue and endeavours along the BEE path adopted by South Africa that has passed its BEE Act in 2004.

According to Nangula Shejavali in his contribution in the IPPR publication, what has happened so far is that the name of the Black Economic Empowerment Policy changed to the ‘Transformational Economic and Social Empowerment Framework’ (TESEF), which is in its first draft form.

This effort, said Shejavali, was criticised for its heavy reliance on the South African experience, and for not fully taking into account the Namibian reality and economic structure, which is vastly different from its southern neighbour.
What has also happened so far is that some sectors of the economy have created their own BEE policies that have been launched and approved by their line ministries.

Most notable of these, was the adoption of the first draft of the Namibia Financial Services Charter that describes BEE as “an integrated and coherent socio-economic process that directly contributes to the economic transformation of Namibia and brings about significant increases in the numbers of black people that manage, own and control the country’s economy, as well as significant decreases in income inequalities”.

The What and the be Alls of BEE

The concept of black economic empowerment was first mooted by private enterprises in both South Africa and Namibia.

So, for example, said Harvard University lecturer and faculty associate of the Weatherhead Centre for International Affairs, Professor James Robinson, BEE in South Africa was started by “white capital” in an attempt to protect their property rights.

“Hence early deals involved white firms and politically connected blacks,” said Robinson.

He said the private sector does not have the “correct incentives” to undertake the “right amount” of BEE or to “implement the right form of BEE”, and underscored the importance of government involvement to act in the public good, which is not (always) a priority of the private sector.

From his studies on BEE in South Africa, Robinson said BEE appear to be an attempt to reverse the inherit inequalities or inequities of the apartheid institutions that dominated much of southern Africa.

The objective thereof, he said, is to change existing patterns of ownership and control of the economy, to develop black business and entrepreneurship, create employment equity, increase social mobility and economic opportunities for blacks.

From a normative point of view, said Robinson, “it is the right thing to do”.

From a positive point of view, the assumption is that BEE will directly raise the efficiency and productivity of the economy, and help avoid populist economic policies and threats to property rights that would undermine prosperity.

“A priori a strong case can be made that BEE can be made that BEE can be a good thing on the grounds of justice, productivity and stability. But BEE will not necessarily promote any of these goals. Changing the structure of ownership in the economy will not in itself promote justice or equality; think of President Mabuto Sese Seko’s Zaireanisation programme of the 1970’s. It all depends on how the policy is designed,” said Robinson.

But, asked Robinson, why should deeply divided countries go for BEE?
“There are many potential policy responses to the legacy of apartheid,” Robinson suggested.

“The Government could invest in education and redistribute income through the tax system and wait for market induced social mobility.”

He, however, warned that a too slow transformation could lead to political instability and may not work if racial stereotypes remain important impediments to mobility.

As for the ‘how’, Robinson said there is little evidence from South Africa and other international situations to suggest that equity distribution promote productivity.

Moreover, he said, “forcing firms to hire black executives and promote and train black workers may increase productivity if there are racial stereotypes and imperfect capital markets.”

BEE, if not implemented with care and vision, he said, could have the effect that firms may be faced with liquidity constraints, or undergo a dilution of ownership that can undermine company governance, or experience reduced productivity if forced to hire or promote under-qualified workers.

To N-BBEE or to B-BBEE?

BEE may help avoid populism, suggested Robinson, but this would depend on its form.

What has so far been the order of the day in South Africa, he said, is a narrow-based implementation of BEE, which avoids populism by giving the existing political elite a vested interest in stable property rights.

“N-BBEE may avoid populism – which is unlikely – depending on the extent of entry into politics, but it will entrench inequalities,” said Robinson.

Broad-based BEE on the other hand tries to focus not on elites but citizens, and hence reaching deeper into society to change people’s demands for populism.

The Malaysian experience serves as an example of a broad-based economic empowerment plan as set out in the country’s adopted New Economic Policy (NEP) in 1970 as a response to economic disparities along ethnic lines.

The NEP envisaged that by 1990 the ownership of capital would be 30 percent owned by the Bumiputera (a collective name given to indigenous Malay peoples) as opposed to the 1970 figure of a mere two percent, and 40 percent of the non-Bumiputera nationals as against 35 percent in 1970 by foreign investors as against 60 percent in 1970.

The NEP was not, stressed Just Faaland of the Christian Michelsen Institute, to discriminate against non-Bumiputera ethnic communities, and neither was it to withdraw from them the levels of income and wealth they have already gained.

Instead, said Faaland, it sought to “ensure that increments in the nation’s wealth and income rebound more fully to the Bumiputera and not disproportionately to the minority”.

“To achieve this,” said Faaland, “the Bumiputera must eventually participate on an equal footing in the modern high productivity sectors. The NEP therefore places emphasis on advancing economic productivity of the Bumiputra, on education and training, on the adoption and spread of modern technology, on market efficiency and competition in a largely private sector regime, and on a business friendly government.”

The NEP, he said, is firmly a policy for sustained growth with emphasis on a gradual change in distribution as between ethnic groups, and at the same time a transformation of social institutions and attitudinal change.

“In other words, economic development is indeed important. Yet, growth alone, no matter how rapid it may be, is not enough. Distribution must be a parallel or twin objective of equal importance,” said Faarland.

The (Current) Namibian Empowerment Situation

Very little is known about the status of BEE or BBEE, suggests a study done by the Bank of Namibia (BoN), Overview of Broad-Based Economic Empowerment in Namibia.

This, said Dr John Steytler, co-author of the study, is partly because it is viewed as a “sensitive topic with some political overtones”, and “partly because of the legal vacuum” in which BEE or BBEE deals have so far been concluded.

This is above and beyond the legal frameworks that have since independence been put in place that are aimed at socio-economic transformation with a specific view to bring the previously disadvantaged communities into the economic mainstream and uplifting their living standards.

The Affirmative Action (Employment) Act, said Steytler, might be considered as a broad-based empowerment tool. Some, however, he said, are of the view that it is not because it only focuses on the issue of representation and not ownership and control.

Further, the Transformation Charter of the tourism industry is aimed at broad-based empowerment based on qualifications and competencies and does not just include the previously disadvantaged. A criticism is that this charter does not enforce businesses to meet certain goals within a set timeframe.

The fishing sector, which contributes about 20 percent to the country’s total exports of goods and services, has experienced a substantive Namibianisation of ownership, but said Steytler, Namibian active participation in the sector as many local quota holders have sold off their rights.

“The empowerment of women in particular [in the fishing sector] is not clear as well as skills development, more especially training on how to use these fishing rights to run a profitable business and adding value to the economy,” said Steytler.

The mining sector is bogged with similar problems. Reports are that many Namibians have sold off their mining licenses, hence also losing out on the opportunity to partake actively in the industry.

More, suggested the study, shareholding in existing mining companies will be opened to a fairly small group of black business people in the name of BEE.

“Therefore, the question that remains is how workers, labourers or communities benefit from BBEE,” as the mining charter – based on seven pillars such as ownership, literacy/numeracy standards, education and training, employment practices, community development, procurement and beneficiation – does not provide a guideline stating how employees can move into ownership structures of new and existing companies.

Considerable Namibianisation has also taken place in financial institutions since independence. So, for example, local ownership in the First National Bank Namibia has increased from 22 percent to 45 percent. Bank Windhoek’s local ownership has increased from 65.6 percent to 100 percent.

As far as the land redistribution exercise goes, until 2005 the majority of Namibia’s arable land was still owned by a white minority (owning 86.3 percent of commercial land). No indication, added the BoN researchers, the resettlement programme falls short of measuring progress, with no benchmarking or training guidelines to assist the government and resettlement farmers for successful farming.

As a conclusion, the researchers suggest that socio-economic disparities along ethnic lines, gender and regional lines remain a challenge in Namibia.

‘It’s About Class’

To address Namibia’s shortcomings on the empowerment question, the Transformational Economic and Social Empowerment Framework (TESEF) was suggested, and it is anticipated to be completed by April next year after further consultations with private sector players.

“The Namibian empowerment framework has no colour,” said Prime Minister Nahas Angula, and suggested that empowerment should be addressed along the redress of class, gender and rural-urban disparities.

TESEF, he said, will be an outcome-based tool to ensure ownership and entrepreneurship development, equity participation, employment equity, human and skills development, to mention a few.

“BBEE should not be about entering into partnerships and holding shares, but to be able to create new businesses, to enter into different sectors and to create opportunities, such as employment,” said Angula.

More, said Angula, empowerment should not be about entitlement, but should be based on hard work, efforts and commitment.

“Empowerment should not be about window-dressing, but it should be a partnership based on risk-sharing, trust, common interest and the desire to succeed.”

Added Tom Alweendo, Governor of the BoN: “We should be mindful not to create negative incentives that have the potential to stifle creativity and wealth-creation in the process. In the long run, black economic empowerment can only be successful in an environment where the economy continues to grow. Should we concentrate too much on redistributing the existing wealth and fail to be more resolute in creating more wealth, the success of such an empowerment policy will undeniably be short-lived.”

LEAVE A REPLY

Please enter your comment!
Please enter your name here