Top table: Patrice Motsepe, Maite Nkoana-Mashabane, Vivian Reddy, Apostle Modise and Jacob Zuma at an ANC dinner in 2012. Picture: SUPPLIED
Top table: Patrice Motsepe, Maite Nkoana-Mashabane, Vivian Reddy, Apostle Modise and Jacob Zuma at an ANC dinner in 2012. Picture: SUPPLIED

The ANC took office committed to increasing the ownership and control of business by black people.

Considerable effort went into the formulation and implementation of the black economic empowerment (BEE) legislation and regulations that compelled business to co-operate in the transfer of large shares of ownership and control to a new, black corporate elite.

The close, informal links between black political and economic elites contrast with the mostly strained formal and informal links between ANC leadership and government ministers and the established white economic elite.

The ANC-led government was initially slow to respond to the demands of black business people that it intervene to make it easier for them to amass wealth, only appointing a Black Economic Empowerment Commission in 1997.

It was headed by former ANC chief negotiator and secretary-general Cyril Ramaphosa, who had left politics for business after losing the struggle to succeed Nelson Mandela.

Even before the commission reported in 2001, the Mbeki government legislated a "preferential procurement framework" that required that the state discriminate in favour of black-owned companies in awarding tenders. The term "tenderpreneur" emerged to describe business people, usually black and with very good political connections, who got rich through successful tendering for government contracts.

Given the scale of state procurement, this provided a huge impetus to BEE.

The second arm of BEE followed in 2003. Legislation required that companies participate in the formulation of sectoral "charters" specifying targets in terms of the transfer of ownership and control.

Mining Regulation

In 2004, the mining industry was subject to dedicated legislation, requiring that mining companies achieve 15% black ownership by 2009 and 26% by 2014 in order to retain their mining rights. Ramaphosa benefited directly from this legislation through his partnership with platinum producer Lonmin.

It later transpired that Ramaphosa’s company, Incwala Resources, had received large cash inflows at the time that Lonmin resisted its workers’ demands for wage hikes and improved housing, because Lonmin’s compliance with the mining charter required Incwala’s survival despite the global economic crisis.

In February 2007, the government gazetted new "codes of good practice", establishing the third mechanism for BEE (by then renamed broad-based black economic empowerment, or BBBEE). The codes set out rules for assessing BEE compliance including through scorecards that recorded BEE points.

BEE points earned by a company determined its eligibility for, among others, public sector preferential procurement contracts. However, BEE points became increasingly important for private sector contracts because the BEE status of supplier firms affected the BEE status of contracting firms.

The state thus combined its power as a consumer with its power as a regulator to make private companies complicit in the implementation of its BEE strategy. BEE compliance was thus transmitted through supply chains.

The basic model for a BEE deal was that a consortium of (mostly) black investors bought a discounted stake in a company (sometimes through holding companies or trusts), financed through a combination of bank loans, dividend flows and capital appreciation in the shares of the company involved. In return, the company retained or gained favourable access to government business.

Established businesses sought BEE partners "with inside knowledge of the government and easy access to ministers and top officials", who could "schmooze" with top people in the government, as ANC MP Ben Turok noted. In the political context of post-apartheid SA, the informal contacts via (black) BEE partners and the appearance of compliance with transformation represented forms of insurance against political risk.

By the end of 2012, BEE deals had transferred ownership of at least 9% of the top 100 companies listed on the JSE. In 2007, 153 BEE deals were identified, worth almost R100bn.

The pace of BEE deals slowed down after the credit crunch of 2008, which threatened many deals (such as between Incwala

and Lonmin). By 2012, black South Africans owned indirectly, via pension and provident funds, another 12% of the top 100 JSE firms.

 Overall, black ownership amounted to somewhere between one-fifth and one-quarter of the JSE, or about one-third of the total share of the JSE owned by South Africans. This was an extraordinary shift in ownership over a short period.

Patrice Motsepe. Picture: MARTIN RHODES
Patrice Motsepe. Picture: MARTIN RHODES

During this period, some black business people amassed extraordinary wealth very rapidly: the extreme case was Patrice Motsepe, the dollar billionaire whose wealth was primarily in platinum and gold mining, banks and insurance. Some trade unions also amassed massive wealth through either pension funds or investment companies.

Just as the old white corporate sector had maintained power and control over vast swathes of the apartheid economy through interlocking directorships and shareholdings, a tightly connected black elite now serves on each other’s boards and is closely connected to the government.

Many members of the new black corporate elite were well connected politically, moving in the same social circles as ministers, other ANC leaders and senior government officials. One of Motsepe’s sisters was married to cabinet minister Jeff Radebe, for example, and another to Ramaphosa.

Turok worried that the ANC’s "goal of social revolution" would be compromised if "the state allows BEE deals to slide into political cronyism by favouring a small elite with contracts and opportunities that open the road to nepotism and easy-money practices".

The South African Communist Party (SACP) accused emerging black capital of being "excessively compradorist and parasitic", dependent on state power to compel "established capital to cut this emerging faction a slice of the action in order to remain in favour" with the new political elite.

Deepening Corruption

Mathews Phosa. Picture: THE SOWETAN
Mathews Phosa. Picture: THE SOWETAN

In a rare moment of reflection, millionaire Mathews Phosa (just before he became the ANC’s treasurer) admitted that "the reality is that a few of us were empowered at the expense of the majority".

The underside of the close relationship between political and economic elites was indeed deepening corruption and increasing nepotism.

Examples of cases in which tender processes were abused and contracts awarded to favoured individuals include telecommunications contracts, oil sales, contracts to the South African prisons service and, most notoriously, the arms deal.

Originally thought to be worth R30bn, but of which the cost subsequently rose, the arms deal was the most glaring case of massive corruption. In 2005, a court found that former deputy president Jacob Zuma had a "mutually beneficial" symbios with his adviser, Schabir Shaik, who was convicted on two counts of fraud and corruption.

When the ANC celebrated its 101st birthday in January 2013 with a gala dinner in Durban, Motsepe reportedly paid R500,000 to sit at the president’s table. Zuma told guests that if a businessman joined the governing party, "everything you touch will multiply".

Zuma’s family and girlfriends had certainly prospered while he held senior office in the ANC and country. Many of his inner circle — including Robert Gumede, Vivian Reddy, the Gupta brothers (from India), Sandile Zungu, Don Mkhwanazi — had similarly prospered.

The relationship between state and business in SA has developed into a curious form of "embedded autonomy".

Many politicians and bureaucrats have become individually embedded in business through BEE, while retaining considerable collective autonomy from established business in terms of policy making.

As its critics pointed out, BEE entailed primarily tapping into the profitability of established business rather than engaging in substantive entrepreneurship. This might render the state respectful of corporate profitability (as long as profits are shared with the black economic elite), but it does not embed the state in circuits of production.

• Seekings is professor of political studies and sociology at the University of Cape Town and Nattrass is professor of economics at UCT. 

Please sign in or register to comment.