SA still one of the most unequal countries

JOHANNESBURG - Twenty-four years into our democracy and 15 years after the enactment of B-BBEE legislation, South Africa is still one of the most unequal societies in the world. The National Development Plan lists noble objectives such as the reduction of the Gini coefficient measure of income inequality from 0.7 (2010) to 0.6 by 2030.

It also targets the elimination of poverty-induced hunger and instances of people living below the poverty line. According to Stats SA, between 2009 and 2015, the proportion of our population affected by both measures increased from 21.4percent and 39.0percent to 25.2percent and 40.0percent respectively.

At the same time, the Gini coefficient moved marginally in the right direction, from 0.70 to 0.68. Predictably, the inequality manifests along racial and gender lines. For Africans, the Gini coefficient measured 0.65 in 2015, while it was 0.51 for whites. Similarly, 41.7percent of women live below the poverty line, versus 38.2percent for men.

In the face of all this, fiscal consolidation in the recent Budget speech makes it painfully clear that we have limited policy instruments to take us out of this quagmire. The fundamental policy choices remain either an unequal and failing society, or inclusive prosperity. To achieve the latter, we need a major adjustment to our national psyche and behaviour.

Contentious as B-BBEE has been, it has become universally accepted as a good tool for much-needed inclusive economic growth. SMEs have also been accepted as central to any economic growth solution. Despite this acceptance, B-BBEE is still, by and large, treated as a compliance requirement by corporate South Africa. This is demonstrated largely by the fact that most move only to meet the exact targets set by the Codes of Good Practice, and not an inch further. More subtly, it also shows in the tick-box compliance initiatives that celebrate B-BBEE levels achieved more impact than realised.

Perhaps we could all take a leaf from former business titan Mike Rosholt, who died recently. As the chief executive and chairperson of Barlow Rand (now Barloworld) in the 1970s and 1980s, he introduced transformation policies that included the recognition of black trade unions, removal of racial salary disparities, and the introduction of skills development for black staff.


These policies flew in the face of the apartheid government policies and signified a pragmatic attempt to create for Barlow, a “contented, trained people in the future”; still sorely needed in the country.

We need fresh thinking around B-BBEE, and this could possibly include considering incentives for compliance, such as tax incentives for corporates who invest in and give large long-term contracts to black-owned SMEs. The mechanisms would no doubt be complex and difficult considering the projected R180.5bn Budget deficit for 2018/19 and the gross national debt at 53.3% of GDP. It means we cannot afford to risk further reduction in tax revenue.

However, the earnings from the additional tax allowance for manufacturers, automotive investment scheme, employment tax incentive, simplified tax regime for SMEs and section 12J of the Income Tax Act, etc, can be used to achieve high impact and minimise revenue shortfall.

SMEs employ 60percent of our labour and contribute 34percent to GDP. It is a significant contribution, but pales to international comparisons. In China, SMEs employ 90percent of the labour and contribute 60percent to GDP.

Most corporate companies are loath to procuring from SMEs for big ticket items, not surprising because of the risk they pose to their operations. It is, however, doable if corporates invest in building the capacity of SMEs. Unfortunately, the B-BBEE compliance mandated investment of 3percent of net profit after tax (NPAT) is generally not enough to capacitate SMEs meaningfully.

Few corporates are willing to invest more than that, and because it is merely a compliance expenditure, it is largely spent on tick-box programmes that are heavy on unnecessary training courses but result in no growth for the SMEs.

Training should be left to academic institutions, and SME development programmes should focus on providing market access for entrepreneurs.

Karabo Mashugane is the CEO of 20/20 Insight – Specialists in B-BBEE Advisory, Supplier Development and SME financing.

The views expressed here are not necessarily those of Independent Media.