South Africa’s premier industrial family responds to criticisms of its black economic empowerment initiative.
When President Thabo Mbeki welcomed the launch of the Brenthurst Initiative on 5 August, he noted that one of the biggest issues facing South Africa was to ensure that the economic fruits of political transformation would be shared by all.
The response from all quarters has been both overwhelming and constructive. While opinions differ on the remedies the initiative proposes, few disagree with the fundamental proposition that transformation and faster economic growth are two of the most pressing issues with which SA has to contend.
Instead of viewing transformation as a burden, however, the initiative proposes that it offers unique growth opportunities. Taken separately, growth and transformation appear daunting; when twinned, each problem contains within it the answer to the other. The frequent debate over which should come first, growth or transformation, offers a false choice. It might be true that vigorous and sustained growth could, over time, work its transforming magic on society. But time is a luxury SA cannot afford.
The risk of failure
Without faster economic growth, black economic empowerment will not extend beyond the boardroom to transform the lives of the millions of South Africans who today live in poverty, without jobs and (almost) without hope. Indeed, without sustained economic growth, the cake to be shared will shrink rather than expand and the majority could even be worse off than they are today. To make inroads into the unacceptably high levels of poverty and unemployment, SA needs to more than double its economic growth rate to 6%.
The Brenthurst Initiative proposes establishing a transformation scorecard against which companies are measured. Only those that meet the scorecard’s requirements will benefit from lower tax rates. It is not, as some have argued, a way to pay recalcitrant businesses to transform their boardrooms and employment profiles, but of penalising through the tax system those who do not, while using tax incentives to stimulate investment and power a rate of economic growth that could halve SA’s unemployment in 10 years.
Fundamental to the Initiative is an acceptance that transformation should incorporate more than just a change in corporate ownership. Those who argue that issues such as employment equity and skills development should be weighted strongly in any transformation scorecard will find that the Initiative supports their views.
In striving for growth, there is also a need to improve the competitiveness of SA businesses and to integrate all economic sectors. A clear set of transformational goals, incorporated in a national scorecard, can drive this process. Investor confidence, however, also needs to be addressed. Investment decisions are based globally on perceptions of risk and reward; whether these perceptions are valid or not, it is better to provide a more competitive environment and greater certainty.
Using the tax system
The purpose of the differential tax rate, therefore, is to expedite empowerment and offer competitive advantage to those companies that have transformed. By driving transformation in a way that enhances investor confidence, it could generate greater investment, faster growth and skills development and the increased absorption of labour.
Corporate tax breaks applied against the scorecard (and thus simple to administer) are the best way to achieve this. The government has indicated that it is contemplating corporate tax reduction to improve SA’s global competitive position; the Initiative simply suggests that government links any moves in this direction to its transformation objectives.
We also recognise that this link requires a precise definition of transformation, which is why the design of the scorecard and its elements remain the most important aspect of a plan that depends on universality, transparency and certainty for its success. And this is where everybody who takes part in this debate has a vital role to play.
Nicky Oppenheimer is chairman and Jonathan Oppenheimer is a director of E. Oppenheimer & Son. The Oppenheimer family owns 45% of diamond group De Beers and is involved with mining company Anglo American
