A solution to racial inequality in South Africa

South Africa’s biggest companies believe they have the solution to the racial inequality that has riven the country since the end of apartheid a quarter-century ago: Grow the economy.

The debate about integrating more black South Africans into one of the world’s most-unequal societies is being thrust into the open amid anti-racism protests sparked by the Black Lives Matter movement.

It also comes as the coronavirus pandemic exposes the divide between rich and poor in a country where White households earn five times more than their Black counterparts, government data show.

Lobby group Business for South Africa last week urged president Cyril Ramaphosa’s government to prioritize a limited number of key projects in industries such as in renewable energy, transportation, technology, agriculture, manufacturing and financial services that will revive growth, create jobs and boost tax revenue.

Talks included the need to address ailing state-owned companies and short-comings in the state’s capacity to deliver on its plans, according to Martin Kingston, the executive chairman of Rothschild & Co.’s Johannesburg-based unit who heads the business grouping.

“Inclusive growth requires an acknowledgment of what contributes to continued and sustainable growth. We believe that business is a primary driver of economic activity,” he said.

“We have to work in partnership with government, acknowledging that its role is to oversee the economy and regulate as well as creating the right policy environment and ensuring that all social partners act together to achieve our economic potential.”

Black economic empowerment has been the fulcrum of ANC policy since it came to power in 1994.

That included the transfer of company stakes to people from previously disadvantaged backgrounds and awarding contracts to businesses that meet Black employment and ownership targets.

Re-imagine Transformation

But having scorecard-led policies led to a tick-box approach, said Lerato Ratsoma, the managing director of Empowerdex, an adviser on transformation.

“The impact has not been entrenched nor sustainable,” she said. “The need to re-imagine what transformational success would look like into the future is now.”

The Association for Savings and Investment South Africa, which represents an industry overseeing 6.6 trillion rand ($387 billion) of assets, is building a pipeline of future money managers by training more analysts who can develop into portfolio managers, according to a June report.

The number of Black portfolio managers – which by Asisa’s definition includes colored people, or those of a mixed race, and those of Indian descent – has increased to 29% from 26%, while 63% of investment analysts are now Black from 51% in 2015.

The association is also helping small Black-owned businesses through a supply-chain development program, said Leon Campher, its chief executive officer.

Power shortages, an education system ranked among the worst in the world, unreliable water supplies, crime and corruption, and a track record of poor service delivery hinders the progress that businesses can make, said Gwen Ngwenya, the head of policy for the opposition Democratic Alliance.

The economy, which has contracted for three quarters, hasn’t expanded more than 2% a year since 2013.

Unemployment among Black South Africans was 33.8% in the first quarter of this year, compared with 8.1% for White people and an overall jobless rate of 30.1%.

Inequality worsened since 2000 even as South Africa’s emerging-market peers improved their income gap, according to the International Monetary Fund.

Drained by regular bailout for state-owned companies, finance minister Tito Mboweni has had to redirect spending to cope with the Covid-19 outbreak.

While the minister has often mooted the need for structural reforms to reboot the economy, he is faced with opposition from rival factions within the ruling party and labor organizations that oppose job cuts, the restructuring of state-owned firms and privatization.

“It requires political courage and conviction,” said Business for South Africa’s Kingston. “Business does need to go further, but can only do that if we have a thriving economy. If all we’re doing is redistributing a diminishing economic pie, that will get us nowhere. We now need to kick-start and sustain high levels of inclusive growth.”

Read: South Africa risks becoming like Argentina: SARB

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A solution to racial inequality in South Africa