The sources used here give us a high-level view of transformation but do not conclusively reflect the complete status of transformation. The Top Empowered Companies of 2017 (Intellidex)18 This report ranks the 100 most-empowered companies listed on the JSE, as determined by their black economic empowerment (BEE) score.
Looking at the report, we find that 34 companies achieved 100% compliance (level 4), or above, on the new BEE codes and 43 companies achieved this on the old codes.
The 2018 report will see more companies on the new codes, and some of their scores may be lower because of the stricter requirements for compliance under the new codes.
How the levels matter
The BEE score reflects a company’s contribution to economic transformation and redistribution, and determines its BEE level. The higher the level, the more the company is recognised as a preferential supplier because of its BEE status (level 1 is the highest).
One of the factors contributing to a company’s BEE score is the score of companies it procures from. For example, level 2 BEE providers allow a company to claim 125% of every rand spent with them when the company completes its own BEE verification audit. This multiplier claim reduces in line with the supplier’s rating, with level 5 giving a company only an 80% claim benefit.
Companies therefore prefer procuring from suppliers that enhance their own BEE scorecard. They are also challenging their service providers to show their contributions to transformation as part of their own procurement requirements. On 1 October 2013, new BEE codes were introduced, with stricter requirements. Sector codes, for companies that have requirements unique to their sector, and which override the ‘generic’ codes, were updated to incorporate these changes. For example, the Financial Sector Code, gazetted on 1 December 2017, has two additional, sector-specific pillars: empowerment financing and access to financial services.
Intellidex submission to the Standing Committee of Finance and Parliament of the Republic of South Africa19
According to this report, the financial sector contributed 28% to GDP in 2015. The report addressed ownership levels, BEE empowerment deals and market concentration.
- Ownership was reported as being complicated by other financial industry legislation, which creates corporate risk when considering ownership partnerships. An increase in risk for BEE ownership transactions was found to be compensated for by reducing risk in other areas. This has reduced the appetite for new deals and constrains the impact of the financial sector on transformation.
- At the end of 2014 the top 100 companies had created R317 billion in wealth through BEE deals.
- On the issue of market concentration, the report highlighted capital monopoly held by the few main banks as well as barriers to entry. While the large sums of money mentioned in the report speak favourably to the issue of wealth creation, decision-making representation was pinpointed as an area that needed focus. A 2018 Department of Labour report shows this to be the case in most industries (67.7% of top management positions are held by white people).20
The overall picture is clear: economic opportunities and incomes are high for an educated minority of people at the upper end of the economy but they are diminishing at the lower end.
Western policymakers tend to argue that this is a good thing. But as this analysis suggests, they may not be right. And if their view dominates public policy and opinion, it will be difficult to address the issues related to transformation in a systematic way.
Redefining transformation: towards inclusive growth
How is it that some people believe we are still at the beginning of the country’s transformation journey while others claim to have reached multiple milestones that have incrementally added to the well-being of our society? We are reminded in the NDP that ‘no political democracy can survive and flourish if the mass of our people remain in poverty, without land, without tangible prospects for a better life [...] attacking poverty and deprivation must therefore be the first priority of a democratic government’.21
The simple fact of an unprecedented and potentially catastrophic social and economic crisis compels us to rethink our approach to transformation. But what does inclusive growth mean? Obviously, the idea that the ‘pie’ can grow indefinitely is alluring. As Fioramonti has argued:
It means everybody can have a share without limiting anybody’s greed which is the underlying driving force of modern societies. A rising tide lifts all boats: while the rich get richer, the poor are also expected to benefit from what trickles down. […] Rampant inequality becomes socially acceptable because we hope the growth of the economy will eventually make everybody better off. We are thus coaxed into the false dream that growth is a win-win.22
But is it?
‘The reality is that very little trickles down from the wealthy to the poor. In fact, it mostly works the other way around: wealth trickles up from the poor to the rich, because economic growth turns common resources that everybody can use, from land to water, into private goods that must be sold in markets,’ says Fioramonti.23 The reason, he adds, ‘is that the poor, who struggle to operate in the new “growth economy” where everything has a price and money dominates social relations are kicked out of the system’.