Wednesday, June 17, 2009

South Africa: The oligarchs are still in place

Moeletsi Mbeki, brother of Thabo, is an entrepreneur and director of several companies

BEE (or Black Economic Empowerment) created a small class of extremely wealthy black crony capitalists made up of ANC politicians. What is worse, argues Moeletsi Mbeki, that BEE is the brainchild of white capital.
My humble solution for South Africa lies in education. The problem is of course that education is a long term project. People are impatient; they want action from the ANC. And they want it now! It is upto Zuma to urgently deliver on promises made during recent election but at the same time temper the expectations of the black population to realistic levels.

The oligarchs are still in place

Black Economic Empowerment (BEE) has not proved to be the fatal blow to South Africa's oligarchs that Nelson Mandela and black nationalists of his era once envisioned. In fact, it strikes a fatal blow against the emergence of black entrepreneurship by creating a small class of unproductive but wealthy black crony capitalists made up of ANC politicians, some retired and others not, who have become strong allies of the economic oligarchy that is, ironically, the caretaker of South Africa's de-industrialisation. BEE in South Africa is, in reality, another attempt to siphon savings from private-sector operators in an environment where there are no peasants and where most of the private sector is locally owned.

The fact that BEE is an uphill battle for South Africa's political elite is the result of the ability of the private sector to resist dispossession. But these are early days. Time will tell who will emerge best from what could be a titanic struggle by the political elite - recently joined by organised labour - to confiscate the wealth of South Africa's current private-sector owners. An even bigger question, however, is what impact these struggles will have on the growth potential of the South African economy.

Most people in South Africa, in Africa, and the rest of the world naively believe that BEE was an invention of South Africa's black nationalists, especially the ANC, which won the first democratic election in April 1994, leading to Nelson Mandela becoming the country's first black president. This could not be further from the truth. BEE was, in fact, invented by South Africa's economic oligarchs, that handful of white businessmen and their families who control the commanding heights of the country's economy, that is, mining and its associated chemical and engineering industries and finance.

The flagship BEE company, New Africa Investments Limited (NAIL), started operating in 1992, two years before the ANC came to power. It was created by the second-largest South African insurance company, SANLAM, with the support of the National Party government-controlled Industrial Development Corporation (IDC), a state-owned industrial investment bank created in 1940. The formation of NAIL was soon followed by the creation of Real African Investment Limited (Rail), sponsored by mining giant Anglo American Corporation through its financial services subsidiary Southern Life. The object of BEE was to co-opt leaders of the black resistance movement by literally buying them off with what looked like a transfer to them of massive assets at no cost.

To the oligarchs, of course, these assets were small change. SANLAM created NAIL by transferring control of one of its small subsidiaries, Metropolitan Life, 85 percent of whose policy-holders were black, to several ANC and PAC affiliated leaders. The device used was to split shares of MetLife into a small package, dubbed high-voting shares which gave the politicians (funded by a loan from the IDC) control of the company. Overnight the politicians were transformed into multi-millionaires without having had to lift a finger because all the financial wizardry was performed by Sanlam's senior executives. All the politicians had to do was show up at the party to launch NAIL and thank their benefactor. Even the debt the politicians incurred was largely fictitious because it was MetLife that had to pay it back to the IDC.

This financial razzmatazz was designed to achieve a number of objectives. It was intended to:

  1. Wean the ANC from radical economic ambitions, such as nationalising the major elements of the South African economy, by putting cash in the politicians' private pockets, packaged to look like atonement for the sins of apartheid, that is, reparations to black people;
  2. Provide the oligarchs with prominent and influential seats at the high table of the ANC government's economic policy formulation system;
  3. Allow those oligarchs who wanted to shift their company's primary listings and headquarters from Joburg to London to do so;
  4. Give the oligarchs and their companies the first bite at government contracts that interested them; and
  5. Protect the oligarchs from foreign competition while opening up the rest of the economy, especially the consumer goods and manufacturing sector, to the chill winds of international competition.

All these machinations were eventually incorporated into South Africa's democratic constitution by the creation of a category of citizens, apparently 91 percent of the population, to be known as previously disadvantaged individuals (PDIs). The ingenious legal notion of previously disadvantaged individuals created the impression that all black South Africans could or would benefit from BEE. This legitimised the co-option payment to the black political elite by dangling before the black masses the possibility that one day they, too, would receive reparations for the wrongs done to them during the apartheid era.

BEE and its subsidiaries - affirmative action and affirmative procurement - which started off as defensive instruments created by the economic oligarchs to protect their assets, have metamorphosed. They have become both the core ideology of the black political elite and, simultaneously, the driving material and enrichment agenda which is to be achieved by maximising the proceeds of reparations that accrue to the political elite. This has proved to be disastrous for the country. The black elite, which describes itself as made up of PDIs, sees its primary mission as extracting reparations from those who put it in a disadvantaged position. To achieve this requires the transfer of resources from the wrongdoer - perceived to be white-owned businesses and the state - to the victim, the PDIs. By this logic the state owes the PDIs high-paying jobs. This transfer of wealth from the strong to the weak is what has come to be known as BEE.

Enormous consequences follow from this apparently simple formulation:

  • In order for the wrongdoer to be able to pay reparations, the wrongdoer has to maintain a privileged position. This is the principle of fattening the goose that lays the golden egg.

    What this means is that the corporations that were allegedly responsible for victimising the PDIs must not be transformed beyond putting a few black individuals in their upper echelons. The protection of these corporations has gone so far as to allow them to move their head offices and primary listings from Joburg to London to shield them from possible economic and political upheaval in South Africa.

    At a broader level, the battery of Washington Consensus policies - which include trade liberalisation, balanced budgets, privatisation, inflation targeting, as well as the small state - all serve to protect the interests of South Africa's big business, one of the two main payers of reparations.
  • For the victim to continue to draw reparations it is critical that he or she remains perceived as a victim and as weak. This means that the former freedom fighter must be transformed from a hero who liberated South Africa into an underling.

    The payment of reparations to the black elite thus achieves the opposite of what it is claimed it was designed to do, that is, make its members leading players in the economy. In reality, it makes members of the black elite perpetual junior support players to white-controlled corporations.
    # One of the most destructive consequences of the reparations ideology is the black elite's relationship with, and attitude to, the South African state. As the state is said to have been party to the disadvantaging of the PDIs it is therefore also perceived to owe them something. By way of reparations the state must therefore provide PDIs with high-paying jobs. By extension, the assets of the state are seen as fair game. The approach of the black elite to the state is, therefore, not that of using the state to serve the needs of the people but rather of using it, in the first instance, to advance the material interest of PDIs.

    Not surprisingly, corruption under the ANC government has grown by leaps and bounds, leading Transparency International - the worldwide watchdog on corruption - to downgrade South Africa in the world's corruption tables. According to the Transparency International Corruption Perceptions Index, South Africa dropped from No 34 in 2000 to No 54 in 2008. In 2008 the least corrupt countries were Denmark, New Zealand and Sweden and the most corrupt country was Somalia, ranked at 180.

    Ironically, one of the most important restraining influences on the abuse of the state for the self-enrichment of the black elite is the white-controlled corporations - the abovementioned layers of golden eggs - because these corporations need the state to function efficiently in order to provide a stable business environment as well as functioning transport and communication infrastructure. The judiciary and the independent mass media also play an important role in this regard.
  • The ideology of reparations traps members of the black elite into seeing themselves as the beneficiaries of the production of other social groups and therefore primarily as consumers. To facilitate their role as consumers the black elite sees the state essentially as distributive rather than developmental. Most importantly, the black elite don't see themselves as producers and therefore do not envisage themselves as entrepreneurs who can initiate and manage new enterprises.

    At best, they see themselves as joining existing enterprises, the process of which is to be facilitated by the distributive state through reparations-inspired legislation. This is the most striking difference between the black elite of South Africa and the elites of Asia, where the driving ideology is entrepreneurship.

  • Moeletsi Mbeki is a private business entrepreneur and is a director of several companies. He is also deputy chairman of the South African Institute for International Affairs, an independent think tank based at the University of the Witwatersrand, and is a political analyst for Nedcor Bank. After returning to South Africa from exile in 1990, he was appointed head of communications for the Cosatu and media consultant to the ANC.
This is an extract from his book, Architects of Poverty: Why Africa's Capitalism
needs Changing,
published under the imprint Picador Africa.


  1. This is an excellent analysis, though it must be pointed out that the ANC has never really been enthusiastic about the so-called Washington Consensus. It has approached privatisation very gingerly, though it remains a policy option. See my blog on the issues at

  2. This is a thought provoking analysis. It is good for Aficans to critique themselves.

    The onlyissue i have , and i have to add that i have onl read the excepts , is that although pointing out the issues that is holding Africa back the authors provides no recommenadtion to arrest or reverse the ills.

    From: Albert Molaudzi

  3. I would like to say that I heard Mr. Moeletsi speak in the US and was very impressed with him. I think that his therories on development are true for the black population in the US and the Carribbean. The black man doesn't see himself as an entrepreneur like Asians but, a consumer of goods. This is why when an Asian come to the US, the first thing he does is to open a business, on the other hand the black man wants to get a government job. The answer to the problem of the absent of black entrepreneurship is the lack of this in the black culture. Take the case of Nigeria, this country became indenpendent forty plus years ago and look at the Asians countries that became indenpendent the same time and they all have outperformed this country. I think the answer lies in setting up organizations to promote entrepreneurship and not retarding it by the government.

  4. No Matter how bad it gets and how much the " comrades" steal from the country to enrich themselves , the blacks will always vote for the ANC because it was this party who gave this country freedom ( and PW Botha ofcourse ) .
    When the time comes to vote , all that the elite do is fill up a soccer stadium with supporters and invite Madiba to be present at the stadium and say a speech , and the emotions take over and the majority forget about how the ANC is taking advantage of the majority of people for their own benefit , and how bad it is for us now and vote again for the ANC .
    The blacks mentality is no matter how right or wrong the leader is , it is unthinkable to vote for anyone else no matter how bad it gets and whatever the leader says goes . Combine this with not having an education or knowledge and the result is eternal ANC rule .
    The majority of South African who were barefoot and hungry in the locations and designated black areas , ARE STILL BAREFOOT AND HUNGRY !!!!

    The average student in school is not capable of even reading a book back to front without battling to make sense of what he is reading but yet they pass their grade ot " standard " to the next year without even achieving a minimum of a 50 % pass rate .

    The inadequate education system cannot be be blamed on the whites because any child leaving school today 2011 came into the education system under the ANC regime during his or her school career .

    Empty promises , corruption , nepotism , greed , crime , bribery is the norm in Africa and it will always be at our expense .

    God bless Africa and help to instill knowledge and compassion into the hearts and minds of our politicians so as to improve every one of our lives as they have promised us .

    We do not need the West , Europe or Asia . We can be self sufficient with all the minerals and so much labourers available to work , Africa and its citizens should be the wealthiest in the world .