Time to scrap black empowerment

• This column was first published in Maverick magazine last month. If you haven’t come across it, it’s fun to write for and fun to read, and most importantly, those who read it pay for my writing, so go ahead and get yourself a subscription.

Time to scrap BEE

As contrary as it runs to a fair and free economy, black empowerment was fully justified in the New South Africa. But the justification is withering, and the arguments against it are mounting.

The Sunday Times revelation a few weeks ago about the millions siphoned to the ANC as part of the BEE deal involving Saki Macozoma, Stanlib, Standard Bank and Liberty Life, is most instructive. It seems to be a case of accidental corruption. When political bribery can happen unintentionally, and there appears to be nothing illegal about it, something is deeply wrong with our country.

What happened was that the large empowerment consortium fell victim to a minor participant who dropped out and was replaced by an outfit headed by Nicholas Wolpe. You may recognise the name if you hung out at the “palace of patronage”, as Mail & Guardian editor Ferial Haffajee aptly described the “network lounge” at last year’s ANC conference in Polokwane.

Wolpe’s participation was small enough — R9 million — to attract no attention from Macozoma and his board-level colleagues, who had vetted other participants in the deal. Macozoma said the deal was not material. I’m quite willing to take his word for it that he didn’t know, at the time, about Wolpe’s connection with Chancellor House, which the ANC has admitted is a funding vehicle for the party.

Corruption House, as I prefer to call it, has been involved in two humungous Eskom contracts, from which it stands to gain several billion rand, at least some of which will end up in the ANC’s strongbox. Not bad, for political fundraising.

Macozoma rightly says that R9 million is immaterial in the context of a R1.5 billion deal, but it isn’t much less than the R11 million that was involved in the “Oilgate” scandal, during which PetroSA paid upfront money to Imvume Management, which the latter promptly sent to the ANC to fund its 2004 election campaign. PetroSA ended up having to pay again for what it was supposedly buying from Imvume, and the ANC was silent (but grateful) about its windfall.

Though these cases are all slightly different, each of them is troubling. The first looks like a case of buying political patronage. If the ANC benefits from an empowerment deal (or indeed, any other deal), it is likely to favour future tender offers from that company. The second is a case in which the ANC abused a necessary public-sector contract to create an automatic kickback to the party by awarding part of contract fee to itself, via Corruption House. The third is a more blatant case of fraud aimed at topping up empty party coffers.

In considering these cases, a couple of points need making.

First, black economic empowerment was fully justified, even if it runs counter to the principles of a free market involving a free people. It was necessary to rapidly correct at least some of the disparity in economic participation between black and white. The alternatives would be far more unpalatable, both morally and in practice.

However, several factors make this justification less convincing as the years go by. It can for obvious reasons not be fair in perpetuity. Few past injustices can be elegantly and fully undone by applying such corrective policy. A restitution policy should lay the foundation for long-term justice.

As time passes, more and more young people and young companies are caught up in paying for the supposed crimes of their fathers. Few would dispute that it is just to force Sanlam or SA Breweries into an empowerment deal, but is it equally just to demand the same from a white kid who matriculated in 1996, graduated in 1999, and founded a company in 2004 in competition with his black classmate?

Another reason empowerment’s justification is decreasing is that substantial progress has been made. Many major companies sport BEE credentials, these days. A significant black middle class is emerging. A black South African finds himself on the Forbes dollar billionaire’s list. The list of black movers and shakers is ever-growing. Nowadays, BEE seems to make the rich richer far more often than it actually empowers anyone. Macozoma himself is one of about half a dozen empowerment magnates, and about two dozen empowerment vehicles seem to be involved all major deals.

Since blacks are no longer excluded, perhaps it’s time to leave the economy to its own devices, without imposing growth-sapping contraints upon it to eke out those last few drops of restitution.

The second point is that political donations should be protected as a form of free speech. It is everyone’s individual right to fund political causes, and this right extends to company shareholders too. More importantly, a political party cannot campaign without money, so restricting its ability to accept donations curbs its ability to promote its message, which is a de facto limit on free speech.

That said, the combination of BEE and political donations makes for a dangerous environment. That there appears to be nothing illegal about Saki Macozoma’s deal must shock many observers. In many countries, such an arrangement would sink a political candidate, or lay a company open to public vilification, legal proceedings and possibly criminal prosecution.

An audit of Corruption House is said to be underway, and criminal action may be taken should it find evidence of crime. But it probably won’t, and that’s a problem.

The ANC has said in the past — over the Oilgate scandal, for example — that it is not obliged to reveal its donors. That is a problem too.

The huge size of our government gives it inordinate power in how it awards contracts. Because it uses this power to enforce BEE, this creates grave potential for conflicts of interest. If Macozoma can be caught in such a conflict without even knowing it, that’s clearly a problem.

The problems are clear. So what’s the solution? First, pass a law that requires political parties to disclose the sources of their funding. If patronage is going to be bought and sold, citizens deserve to know who is buying favours from whom.

Second, no political party, whether in government or otherwise, should be able to influence private business transactions, nor benefit from them.

Third, the same goes for public sector contracts. I’m no expert on the mechanics of the State Tender Board and related legislation, but if a party-political funding vehicle such as Corruption House can participate, repeatedly, in multi-billion rand public sector contracts, something is broken.

To be free and prosperous, this country needs a great deal more independence, a great deal more transparency, and a great deal more culpability for conflicts of interest in approving business deals or issuing government contracts.

A good start would be to abolish black economic empowerment as a mandated procedure. Remove it from the criteria that must be met for public sector contracts. This may need to be done gradually, and safeguards against losing BEE’s substantial gains might be necessary, but 14 years into our new democracy, the benefits of a contract process that doesn’t encourage political patronage and outright bribery trumps the benefits of continued black empowerment.

Most of all, we need a country in which private business transactions don’t lead to accidental R9 million donations to a political party, ruling or otherwise.