By Anthea Jeffery
If SA is to reverse the credit rating downgrades to junk status and start restoring business and consumer confidence, it needs urgent structural reforms. In particular, it needs to find effective ways to increase growth and empower the disadvantaged. Black economic empowerment (BEE) was supposed to achieve these goals by unleashing "the full potential of all South Africans to contribute to wealth creation", as the ANC glowingly described it in 1994.
Since then, business has put huge sums and enormous efforts into BEE compliance. But BEE has undermined black entrepreneurship, while encouraging corruption and inflated pricing. The relevant rules have become ever more onerous, while the ownership requirement is gradually being nudged up from 25% to 51%. This is putting property rights and business autonomy increasingly at risk.
BEE is thus deterring direct investment and promoting capital flight. It is a key part of the reason economic growth has been negative in per capita terms for the past three years. In addition, far from empowering the disadvantaged, BEE helps only a small elite. This has once again been confirmed by a comprehensive opinion poll commissioned by the Institute of Race Relations (IRR) and carried out in September 2016 (as a follow-up to a similar study the year before).
The IRR’s 2016 field survey shows that only 13% of black South Africans have benefited from employment equity, while 14% have gained from BEE ownership deals and 9% from BEE tenders. In addition, 15% of blacks have benefited from land reform (many of whom have opted for cash payments rather than land). Overall, about 14% of black South Africans have benefited from BEE, whereas 86% have not.
This outcome is in keeping with affirmative action programmes elsewhere in the world, which have also helped the most advantaged within the disadvantaged group. Moreover, as ANC stalwart Ben Turok writes, BEE "partners" are typically "those with inside knowledge of the government and easy access to ministers and top officials, who can ‘schmooze’ with top people in the state".
What then is to be done? The ANC’s allies have long been using the inevitable failures of BEE to push for ever more state ownership. The South African Communist Party, Cosatu and the ANC Youth League have all said BEE’s failure to generate "more egalitarian outcomes" meant the government must start nationalising land and "strategic" sectors. President Jacob Zuma is now speaking of expropriating land without compensation. But is this what ordinary South Africans want?
The IRR’s 2016 field survey provides important insights here. Only 0.5% of blacks regard slow progress with land reform as an important unresolved problem. A mere 0.1% identify skewed land ownership as a key cause of inequality. And only 1% think "more land reform" would best help them get ahead.
Respondents were also asked whether they would "prefer a political party which focuses on faster growth and more jobs or one which focuses on land expropriation to redress past wrongs". In reply, 84% of blacks opted for the former and a mere 7% for the latter.
Most black South Africans (73%) identify "more jobs and better education" as the best way to get ahead. But the millions of jobs required cannot be generated without an upsurge in business confidence and much faster economic growth. In addition, schooling will not improve so long as its provision remains in the hands of an incompetent state. Poor people also need much better housing and healthcare to help them get ahead.
The government already spends enormous sums — R680bn in this fiscal year — on education, healthcare and housing (plus community development). However, outcomes are dismal. About 80% of public schools are dysfunctional, at least 84% of public hospitals and clinics do not comply with basic standards and the state’s "RDP" houses remain small, badly located and often poorly built, despite a massive increase in the housing subsidy from R12,500 to R160,500.
People have long been urging the government to transfer its housing subsidies directly to households, saying they could build better houses for themselves with this money. This demand could be met by giving people tax-funded housing vouchers, redeemable solely for housing-related expenditure. But why stop at housing when the state’s provision of schooling and healthcare is also so flawed? And when education vouchers, in particular, are already being used in many countries to give parents a real choice, promote competition and drive up the quality of schooling?
The 2016 field survey asked respondents if they would like to have tax-funded education, healthcare and housing vouchers to help them meet their needs in these key spheres. About 85% of black people supported the idea of education vouchers. Support for housing and healthcare vouchers was similar at 83% on each. In addition, 74% of blacks said these vouchers would be more effective in helping them to get ahead than existing BEE policies.
Education vouchers could be funded out of the current budget (by redirecting much of it) and would be worth about R20,000 per annum per child. Schools would then have to compete for the custom of voucher-bearing parents. This would force all of them, including failing state schools, to up their game. Many more independent schools would be established by companies, nonprofit organisations and religious organisations to help meet demand.
At present, only middle-class parents can choose what schools their children will attend, while most families have no option but to send their children to dysfunctional state schools. The government has repeatedly promised to implement major reforms, but little has been achieved. However, SA does not have to stick to its centralised, top-down model of state provision. Instead, it could shift to the voucher system, which would generate competition, hold down costs and push up quality. Few other reforms could have so immediate or comprehensive an effect.
Housing vouchers could also be funded out of the current budget. These vouchers would go to about 10-million South Africans between the ages of 25 and 35 who fall below a specific earnings ceiling of, say, R15,000 a month. Each beneficiary would receive roughly R100,000 over 10 years. A couple could pool their money and so receive R200,000 over a decade. This could be topped up with their own earnings, which means a couple earning R5,000 a month could devote R1,000 of that to housing. Over 10 years, this additional amount would boost their housing budget to close to R320,000. Such sums would help substantially in empowering people to build or improve their own homes or obtain and pay down mortgage bonds.
With this voucher system in place, households would be able to start meeting their own housing needs, instead of having to wait on the state to provide them with a small and probably defective RDP home. Construction would accelerate, while dependency would diminish and self-reliance expand.
Healthcare vouchers could also be funded out of the current budget and should form part of a package of reforms. Inefficiencies in the management of public healthcare facilities should be overcome through public-private partnerships. The supply of health professionals and health services must be increased in innovative ways.
Instead of prohibiting these, the government should allow low-cost medical schemes and health insurance policies at risk-rated premiums. This change in itself would extend health cover to millions more households. Tax-funded health vouchers worth about R10,000 a year should also be made available to some 10-million households, so empowering them to take out low-cost medical aid membership and health insurance too.
Tax-funded vouchers in these three key spheres would greatly help liberate the poor, while bringing a new dynamism into the economy. They would thus form a vital part of a new system of "economic empowerment for the disadvantaged" or EED, which should take the place of BEE. EED would put its emphasis on growth and jobs and would be accompanied by a new EED scorecard.
Businesses would earn voluntary EED points primarily for such economic contributions as sustaining and expanding jobs, adding to capital expenditure, contributing to tax revenues and export earnings, and funding research and development. To empower the disadvantaged yet further, businesses would earn EED points for topping up the vouchers of the poorest or helping to improve the quality of education, housing and healthcare.
A shift to EED would free the country from the leg iron of ever more damaging BEE requirements. It would also empower the majority in a way that BEE can never do. With the economy in the doldrums and BEE’s deep flaws increasingly apparent, it is time to revive business confidence, kick-start growth and reignite hopes of upward mobility by shifting to EED instead.
*Jeffery is head of policy research at the Institute of Race Relations and author of the paper EED Is For Real Empowerment, Whereas BEE Has Failed.
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