South Africa is slowly drifting towards a system of crony capitalism. The latest cause for concern is the government's plan to use state funds to create 100 black “industrialists”. Will these be South Africa’s new oligarchs?
The country's increasing corruption isn't something all that new – it began in earnest in 2009 with the election of Jacob Zuma (pictured left), who as the country’s former deputy president had over 200 corruption charges against him dropped over allegations that the charges were promoted by a political witch-hunt against him - this despite a businessman having been sentenced over a corrupt and fraudulent relationship he'd had with Zuma.
Real, honest black entrepreneurs will be tainted by the government’s new drive which in all likelihood will channel state contracts and money to politically-connected pals.
In this I was reminded of one black business owner, a seemingly humble man who had fallen on hard times. His story captivated Zuma during a breakfast he held sponsored by The New Age newspaper, whose bosses' friendship with the president is the subject of one of the statesman's many recent scandals.
Back in 2012 the business owner’s dream – to create the first black-owned trailer manufacturing businesses in the country, and with it 180 jobs – seemed to be all but over. He had been struggling for three years to obtain finance to open a factory in Mogwase, near Sun City in the country's North West province.
Previously he had run a small trailer-manufacturing business in Witbank in nearby Mpumalanga province for five years up until 2009. The time he believed had come to expand to serve larger clients. For this he would need a bigger factory. It's then that he moved to Mogwase.
Over the next three years he approached several entities to help fund his idea for a factory, including the Industrial Development Corporation (IDC) where he applied for a R74-million loan - a considerable sum given his limited experience in running any large operation which such a loan would demand.
In the meantime he had been able to strike a deal with the North West Development Corporation (NWDC) which in 2008 agreed to a one-year moratorium on rental payments. But by February 2012 he had still failed to secure finance and the NWDC, having lost patience with his failure to regularly pay his rent, won a court order to evict him from the unit he was occupying.
Having been evicted from a provincial agency’s premises, it was then that he appeared at the breakfast. It was clear that he was there to make an appeal in person to Zuma. With members of the public and media present Zuma could hardly side-step the request, when the business man stood up to make his passionate plea to the country's highest office.
Zuma later told him that the NWDC, the North West government and the IDC would meet with him.
After Zuma’s intervention doors seemed to open for the businessman. He was able to meet with IDC chief executive Geoffrey Qhena himself. The IDC then informed him it would help him - by assisting him to carry out market research to assess whether the manufacture of trailers was viable or not.
But things seemed to drag on. When I spoke to the IDC at the time, its spokesman, Mandla Mpangase, told me that the business owner had failed to provide sufficient information in his initial business plan around his target market, for the IDC to assess the sustainability of his business.
Mpangase told me that the IDC had provided additional support to assist him to develop a more comprehensive business plan and added that he was welcome to approach the IDC for funding should market conditions improve. That was the last I heard of the story.
Grabbing the state
Depending on which side of the debate you sit on, the story of this businessman is a worrying sign of the times in South Africa.
On the one hand the president himself had intervened in a matter he should not be involved in - particularly if it influences the decision of state agencies to award loans.
In all probability the businessman simply had an unbankable business proposition, which was why things were going the way they did - not because the anyone didn't want to help him. So there was no need for the president to intervene. Thankfully (or so it seems), the IDC is still running things like a business, even if it is a state-owned funding organisation.
But for many black business owners this man's story is yet another case in point for the need for stronger intervention from government. Isn't this after all why black businesses stay small in the first place, some may ask.
Many might still allude to racism as to the real reason funding is denied to many black entrepreneurs. The businessman himself pointed out that the IDC had previously funded three big white competitors and that no market study was carried out for these recipients. But could it possibly be for the simple reason that they had a better business proposition and not because they were white?
Turn for the worst?
South Africa’s affirmative action policy – Black Economic Empowerment (BEE) - has taken a worrying turn. Since the 1990s when the first BEE deals were made to sell company stakes to black shareholders there has been much criticism of the policy. Many say it has benefited only a rent-seeking class, who sell their black credentials to white firms, but don’t actively participate in these respective companies.
The new fear is that rather than encourage more black entrepreneurs to start up and expand, the state is bowing to pressure from a recently formed black lobby group – the Black Business Council (with its secretary Sandile Zungu pictured above) - to hand finance and contracts to a select few. After all the group is behind the latest push to create "black industrialists" - a strange term in itself (what does it really mean?).
The business lobby group claims that it is all for creating black entrepreneurs who can stand on their own feet, but at the same time its members continue to insist that big companies be forced to give more shareholding to black managers (new BEE rules which come into effect in May next year will mean firms will have to have at least 10% black ownership if they are to be assured of not losing business from big business and the government).
This fuels the very rent-seeking that the government has been keen to root out in the first place. Will "black industrialists" just amount to more rent-seeking suite-case businessman without any real entrepreneurial street cred?
In this South Africa is not alone, Malaysia's the $9.5 billion Bumiputera Economic Empowerment Plan (BEEP) launched by Prime Minister Najib Razak in September last year has been slammed by Malays and non-Malays as racist, unconstitutional and economically unsustainable.
Any plan by the state to "create entrepreneurs" which involves dishing out loans and contracts, instead of a plan which focuses principally on improving the business environment (better education, infrastructure and less red tape) should be viewed as deeply suspect by any citizens.
Stephen Timm writes on small business and entrepreneurship. Click here to read part II of this blog article which looks at how the black business lobby has captured the state and why Malaysians should also worry.
Stephen Timm is a