Drop the BEE mentality and build small business

2012-04-14 14:17

Accusations and counter-accusations of fronting have been in the news recently, more specifically the main headline of the City Press’ Business (April 8 2012 “BEE partner accuses Y&R SA of fronting”.

If it is not a cleaner or some domestic labourer named as BEE partner unbeknown to them, it is well-known black business people crying foul after BEE deals have gone wrong.

In the Young & Rubicam v/s Memeza QRX fronting case reported in the City Press article, ludicrous claims are made of Mthunzi Mdwaba being “permitted by the Y&R SA Board of directors to refer to himself as chairman of Y&R in order to facilitate Memeza’s involvement and inclusion in the business”.

Artificial arrangements like these make a mockery of true economic transformation. While I agree with Sandile Zungu’s comments in the same article that “fronting belittles black people to third-class citizens and strips them of their human dignity”, it takes two to tango.

Blacks will continue to cry foul of fronting for as long as they continue to participate in the current BEE model where ownership of white companies is “leased to blacks” with a view to conferring inferior ownership after periods ranging from 5 to 25 years.

A lot of these agreements are covered in small print and in no way offer any guarantees that such ownership will ever be conferred. Even if it was, taking an average of 15 years as the transfer period, it means that 30 years after democracy, blacks would be fortunate to control 20% of the economy.

For as long as economic and physical well being continue to be defined by race, South African society will remain tumultuous. It is therefore in the interests of all South Africans to ensure the economy is transformed substantively and not in token ways of trying to appease blacks.

The main lesson from the Y&R case as reported in City Press and many other similar cases is that in order to build a sustainable future, South Africa, and blacks in particular, need to cultivate a culture of hard-work, instead of the “BEE mentality” where people live with the hope of launching themselves into business by clinching a lucrative BEE deal with an established white business.

Therefore, the government should develop policies to aggressively support black owned businesses; especially those in the SMME sector, by creating friendly conditions for them to operate in.

One simple incentive for this is that the SMME sector is far too small and represents the biggest gap for employment creation. In fact, the rate of unemployment, estimated at around 25% will not improve unless there is a thriving and viable SMME sector that can grow annually at a faster rate than economic growth.

The SMME sector must have a wider footprint than big business, which means that it needs to be drawn largely from the majority black population, who could not enter and succeed in business previously mostly because of barriers and the exclusivity of white capital.

Current SMME interventions, primarily driven by the Department of Trade and Industry through various organisations such as the IDC, NEF, Khula, SEDA, Ntsika and provincial development corporations are not far reaching and the success stories thereof are negligible.

This is because the processes used to provide technical and financial aid are not sharp enough to identify and nurture true potential.

The timing and the terms of the assistance often do not fall in line with the practicalities of running small businesses.

Further, these organisations are largely administered by people who do not fully appreciate the dynamics of being an entrepreneur. When it comes to nurturing SMMEs, the analogy that “you can be how good a gynecologist, but if you are not female, you will never know how it feels to give birth”, applies.

Another impediment for SMMEs is the country’s rigid labour policies and efficient tax regime.

While the South African Revenue Service (Sars) is renowned as one of the most successful revenue services in the world, its efficiency and modus operandi stifles the efforts of SMMEs.

Apart from unreasonably high tax rates, Sars processes are not sensitive to the circumstances of SMMEs, including lack of administrative capacity which often result in genuine errors with regard to returns.

Instead of being supportive, Sars often victimises and harasses SMMEs through penal measures such as fines and interest which put additional financial burdens on SMMEs and ultimately drive them out of business.

On the contrary, supporting SMMEs could grow Sars’ tax base in the long run. Either that, or Sars will have to raise the tax rate or face the prospects of diminishing tax revenues in the future.

It is in the interests of all South Africans, including big business to support the SMME sector. This sector is important because, by its very nature, it invariably involves the majority of the people at the grassroots level and directs much of its attention to productive engagement.

It is also a viable means by which economic growth can be accelerated, wealth created, and more importantly, genuine black ownership of the economy given impetus.

This, in turn, can result in lasting peace and harmony.

» Mabunda is the founder and CEO of Tirhani Group; South Africa’s largest black-owned and black-managed asset management and disposal company incorporating Tirhani Auctioneers

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