The announcement this week by South Africa's Minister of Economic Development Ebrahim Patel (pictured) that the state would set aside R23 billion ($1.9bn) over the next five years to fund black industrialists will fuel more debate on race-based finance.
The funding will make up almost a quarter of the R100 billion that the government's Industrial Development Corporation (IDC) plans to lend out over the next five years.
The government says funding black industrialists - black entrepreneurs in the manufacturing sector - will help to transform the economy and to redistribute wealth. It includes a programme launched in March by the Department of Trade and Industry to create 100 new industrialists in three years.
While some many say the state's drive to support black industrialists is racist, others (including black businessman Herman Mashaba) believe it will lead to a dependency by black industrialists on the state and drive crony capitalism and corruption.
South Africa's President Jacob Zuma in a speech in March singled out Malaysia's decades-long Bumiputera (which has helped ethnic Malays) programme which he says has served as a model for South Africa's affirmative action. But how successful has it been in transforming the economy, and at what cost?
While Malaysia's affirmative action policies like the New Economic Policy have reaped a number of benefits (such as the creation of a Malay middle-class, reduced poverty among Malays and increased Malay ownership on the stock market) the policies have also created new problems and left others unresolved (read this earlier post and this one).
Malay entrepreneurs are still predominate among owners of micro-entrepreneurs in the commerce and services sectors, while Chinese Malays overwhelmingly dominate manufacturing (see this post on how Malays entrepreneurs struggle in a similar way that black entrepreneurs in Brazil, US and SA do).
The Malaysian state's drive - a $9.5 billion Bumiputera Economic Empowerment Plan (BEEP) launched by Prime Minister Najib Razak (pictured below) in 2013 - has been slammed by Malays and non-Malays as racist, unconstitutional and economically unsustainable.
The idea is similar to South Africa's black industrialist programme - to create Malay entrepreneurs able to play a bigger part in the economy, through more financing programmes aimed specifically at Malays and quotas on getting state-owned enterprises to set aside work for Malay companies.
But Azeem Fazwan Ahmad Farouk of Sains Malaysia University argues in a 2012 paper that rather than boosting ethnic Malays, the alliance between the state and the chosen bumiputera entrepreneurs, has acted as a restraint on genuine bumiputera entrepreneurs' development.
One effect, he says, is that it has pushed many Malays into the construction sector, where the state has set-aside small contracts for bumiputeras. Like this their participation in manufacturing remains low.
Aside from the previously mentioned risks, the state's drive to finance black industrialists will likely also lead to less competitive goods and services for black firms and wastages for tax payers.
Patel said this week that the IDC will provide a 1.5% discount on the interest rate usually charged to borrowers, when it lends to black industrialists who own and control their operations. Additional discounted pricing will be given for meeting jobs, localisation and regional development targets. Such targets may look good on a businessman's business plan - whether they come about will be another thing.
In addition the Department of Trade and Industry is preparing a separate R1 billion in financing for black industrialists and plans to lend this out at between 1% and 3% - below the current rate that the Reserve Bank lends money to banks at, which is at 5.75% at present.
Discounted financing in itself may be problematic (see this earlier post on the wasted billions at Brazil's development bank) as what it comes down to effectively is free money - which will only encourage moral hazard from borrowers, as well as poor investment decisions by those handing out the money.
In addition, rather than see their money go to fund things that will benefit the public at large (such as better internet, roads, schools and hospitals), taxpayers will be forced to give large amounts of free money away to a few select entrepreneurs.
Then there is the issue of protectionism. Patel said the state is looking at various set-asides in infrastructure and other products to support black industrialists. But how will these firms be able to compete when state support is finally withdrawn? The country itself may sacrifice its competitiveness.
For the best?
The counter argument is that the South African economy remains highly concentrated. Helping to assist more black entrepreneurs could boost the economy by placing wealth into the hands of more South Africans, which could promote social progress and reduce dependence on social grants.
However more likely - as history has shown - is that support for black industrialists will concentrate wealth into the hands of ever fewer South Africans at the expense of billions of wasted taxpayers money.
Timm is a South African who writes on small business and is currently in São Paulo. Follow him on Twitter at @Smallbinsight and on Facebook.
Stephen Timm is a