One billionaire should not be the beneficiary of B-BBEE deals. Instead, systems should be in place that favour thousands of black South Africans, writes John Steenhuisen.
Two weeks ago, Sanlam announced that it would sell a 25% stake in its third-party asset management business to Patrice Motsepe's African Rainbow Capital (ARC). According to media reports, the deal means that Sanlam Investment Holdings "will qualify as a black-owned asset manager as defined in the country's financial sector charter that promotes transformation in the industry".
The deal will reportedly "put the firm in a strong position to attract funds from investors seeking to allocate flows to empowerment firms".
Sanlam's deal with Motsepe – who also happens to be President Cyril Ramaphosa's brother-in-law – is the poster child for everything that is wrong with race-based empowerment like B-BBEE.
On the one hand, this latest elite pact between Sanlam and ARC serves to further enrich and benefit Motsepe, who already owns an empire worth nearly R35 billion.
On the other hand, our broken empowerment system rewards Sanlam's decision to make a billionaire even richer by granting the corporate giant preferential access to funding flows that are legally subjected by the government to racial criteria.
In the words of Sanlam CEO Robert Roux, the arrangement with the president's brother-in-law will "definitely increase our competitiveness in the institutional market and there will be more doors opened than would have been previously, to attract more money from".
Nothing for South Africans
But while Patrice Motsepe gets a R815 million stake in Sanlam Investment Holdings – and while Sanlam gets access to a whole new market segment that is legally only reserved for companies that "empower" those who are normally close to the ANC – what do the 30 million South Africans who survive on less than R991 per month get out of this deal? The answer is the same as it has always been: absolutely nothing.
The fact that, 26 years into democracy, South Africa's empowerment model makes billionaires and corporates richer while perpetuating the economic exclusion of 30 million citizens is a disgrace. But it is no accident.
Instead, deals like the one between Sanlam and ARC are the entirely predictable outcome of a system deliberately designed to benefit members of the political elite by abusing the race-based exclusion perpetrated against black South Africans under the evil apartheid system.
By selecting beneficiaries on the basis of race, the ANC's elite enrichment scheme, often referred to as B-BBEE, makes it possible for someone like Motsepe to keep qualifying for "empowerment" deals despite already being the fifth richest person in the country. This is because race-based policies entirely ignore Motsepe's burgeoning bank balance and instead obsessively focus on skin colour.
The current ANC system of empowerment is thus inherently corruptible, because it systematically ignores financial means in order to select beneficiaries on the basis of an immutable variable – race – which does not change as a beneficiary becomes wealthier.
Rigged game
It is for this singular reason that a small group of connected elites, like Motsepe, continue to benefit from B-BBEE at the expense of 30 million impoverished South Africans – 99.8% of whom are from groups who were racially discriminated against under apartheid.
Despite their complicity in the system, it is also not entirely fair to blame Motsepe and Sanlam. From their point of view, they likely believe they are merely advancing their respective financial interests by following the rules of the game that the ANC created. But the game itself is rigged.
The root of the problem is that South Africans have in the first place allowed the ANC to build a system that predictably incentivises a company like Sanlam to make a billionaire like Motsepe even richer, while entirely ignoring the plight of the 30 million citizens who are in desperate need of economic empowerment.
We can only eliminate such grotesque elite capture and ensure true empowerment for those who need it by selecting beneficiaries on the basis of financial need rather than race. Even though we already use financial means rather than skin colour to select beneficiaries for Sassa grants, NSFAS funding, public housing and old age pensions, the ANC has insisted on using race when it comes to empowerment precisely because it enables elite cronies to hijack billions of rands meant for the poor.
Under a means-tested system, Sanlam would have been incentivised to instead leverage that same 25% stake in its business to support poor South Africans, who are actually in need of empowerment. Instead of making one billionaire even richer because he happens to be black, means-tested empowerment would have incentivised Sanlam to help lift thousands of citizens out of poverty – 99.8% of whom would have been black.
In the wake of the economic devastation wrought by the ANC lockdown crisis, it is more urgent than ever that our country replace race-based empowerment with means-tested empowerment. We can simply no longer afford a system that keeps making political cronies richer while locking out millions of suffering people.
Selecting beneficiaries on the basis of their financial means will disqualify the small group of wealthy elites, who continually enrich themselves at the expense of 30 million impoverished citizens. Means-tested empowerment would truly benefit South Africa's 30 million poor people – 99.8% of whom are black – while preventing further capture by a predatory political elite.
Most importantly, each and every one of the beneficiaries of means-tested empowerment would, in fact, be poor and living below the poverty line of R991 per person per month.
For corporate South Africa, means-tested empowerment will also diminish the risk of corruption, reduce the cost of doing business and lessen the cumbersome bureaucracy of complying with a complex B-BBEE scorecard.
Swop systems
By swopping a race-based scam for an empowerment system that rewards interventions that really work, we can also broaden the scope beyond ownership by recognising businesses' contributions towards social empowerment projects, like building schools for communities in need.
Measuring financial means rather than skin colour to select empowerment beneficiaries will prevent elite capture, lower the cost of doing business, minimise the risk of corruption, and ensure that the system actually benefits the millions of impoverished citizens in the greatest need of economic empowerment.
As the economic devastation caused by the lockdown ripples across our country, the time has come for South Africans to make a choice.
Do we want to persist with a race-based system that has been demonstrated to only deepen exclusion while making billionaires even richer, or do we want means-tested empowerment that eliminates elite capture and works for the 30 million impoverished citizens in desperate need of economic inclusion?
- John Steenhuisen is a candidate for the position of Democratic Alliance leader at the congress in October 2020.
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