There are growing indications that the South Africa government is seeking to change gears in the area of black economic empowerment (BEE), with the departments of Trade and Industry (DTI) and the Economic Development planning to leverage public procurement, incentive schemes and development finance to support emerging and existing black industrialists.

The aborted change to the BEE codes, which sought to downgrade recognition for broad-based empowerment schemes in favour of “active” owners, offered something of a glimpse into government’s new thinking, even though Trade and Industry Minister Dr Rob Davies has now acknowledged that the changes were “inappropriate” and would be reviewed.

This new thinking, backed by the R1-billion Black Industrialists Development Programme, as well as a range of other initiatives, is about encouraging a more hands-on approach by black business, while simultaneously reviving the flagging manufacturing sector, which is seen as critical to job creation and long-term growth.

The incentive, which Cabinet will review in June, will seek to unlock financial and non- financial support exclusively for black industrialists, catapulting black-owned, -managed and -operated businesses into the mainstream economy and paving the way for their productive participation, explains Trade and Industry Deputy Minister Mzwandile Masina.

Community Investment Holdings founder and executive chairperson Dr Anna Mokgokong assures that BEE is an “enabling bridge”, with the Black Industrialists Development Programme expected to bolster transformation efforts and become a catalyst for a multiplier effect in the growth of the economy.

While many strides have been made since 1994, black entrepreneurs and industrialists remain on the sidelines of the mainstream economy, with many facing “much greater barriers and obstacles” than their white counterparts, owing to the country’s political and economic history.

This emerged at the DTI-hosted Black Industrialists Indaba, which highlighted that only surface benefits have been achieved from government’s BEE programme.

The inaugural indaba gathered government and business to formulate the basis for the policy to move the BEE framework strategically away from “shallow economic participation”, through share ownership and board titles, to enable a deeper, more productive and inclusive society.

Economic Transformation

The indaba shapes the narrative for the next few years, Gauteng Economic Development MEC Lebogang Maile says, pointing out that it is a rude awakening that radical economic transformation has not progressed as needed – control remains largely in the hands of white monopoly conglomerates.

Business Unity South Africa (Busa) supports the effort of government to develop black industrialists as it is critical to radical economic transformation – the core of broad-based BEE.

“Busa believes that transformation is essential in order to harness full economic potential in South Africa, our economy is still severely structurally fractured as a result of the past exclusion of black people from economic activity.

“Therefore, Busa remains committed to playing its part in meeting the transformation challenges so that South Africa can build a strong vibrant economy that generates employment as envisaged in the National Development Plan (NDP),” the organisation tells Engineering News, noting that it looked forward to working with government in achieving the Black Industrialists Development Programme objectives.

Aligned with the Industrial Policy Action Plan (Ipap) and the NDP, the programme will initially provide 100 black industrialists a shot in the arm over the next three years to lead South Africa’s industrialisation efforts.

While the draft programme outlines a selection of initial priority sectors, which are informed by industrial policy and the presence of black players in specific value chains and include agriculture, construction, financial services and mining and mineral beneficiation, besides others, the reversal of the decline in the manufacturing sector, in particular, emerges as a strong focus point.

Maile says the pressure faced by manufacturing challenges plans to industrialise amid rapid contraction and massive job losses, and government needs to narrow its aims in the creation of black industrialists to revive the manufacturing sector, which has contracted about 19% since 1993.

Despite its importance to the economy – accounting for around 15.2% of South Africa’s gross domestic product in 2013 – manufacturing is one of the least transformed economic sectors, says President Jacob Zuma.

“We believe that the black industrialist policy framework is the right formula to transform the industrial landscape,” he told delegates at the indaba, adding that there is room for the participation of many black entrepreneurs in the manufacturing sector as industrialists.
“The policy will enable the necessary support mechanisms and financial products that could be taken advantage of by black business in stimulating rapid industrialisation.”

Leveraging Procurement
As part of the State support promised in the programme, exclusive attention is being given to black industrialists’ access to market as the State systematically ringfences procurement opportunities within the public sector through the preferential public procurement act and set-asides.

The Black Industrialists Development Programme aimed to “build broad consensus among key State entities”, including power utility Eskom, freight group Transnet and national carrier South African Airways (SAA), for a coordinated approach to supporting black industrialists through procurement.

The first emergence of this collaboration is the signing of a memorandum of understanding by Masina and SAA chairperson Dudu Myeni to open up opportunities for black industrialists at SAA. The State-owned airline unveiled a three-year supplier development programme that will see half of its consumable supplies – valued at R10-billion – being sourced from black-owned companies by the end of 2018.

While the initial focus will be on the supply of cleaning services, jet fuel, uniforms, as well as movies and music produced by black film-makers and artists, the airliner will eventually procure technical parts and engineering services from black industrial enterprises.

The initiative was lauded by Black Business Council secretary-general Xolani Qubeka as a “bold and decisive move” that is “music to the ears of black businesspeople”.

“The most important thing now is for our black [-owned] companies to be ready and make sure that they are competent and are able to respond appropriately to these opportunities,” he says, adding that it is important that companies need to fully understand the type of market that they will be accessing as a result of this agreement.

Meanwhile, black industrialists can also expect export market support, including export readiness measures and export marketing, and support to access domestic supermarket shelves, in partnership with participating supermarket chains, from the Black Industrialists Development Programme.

Financial & Nonfinancial Aid
The support programmes outlined in the initia- tive include access to finance to mitigate the number-one constraint for existing and emerging black industrialists, owing to a limited pool of financiers, the high cost of borrowing and borrowing conditions that cannot be met by start-ups, besides others.

The DTI has set aside a dedicated R1-billion incentive scheme for black industrialists, as well as a separate grant scheme for participating private-sector companies.

In addition, a syndicated low-interest-rate facility through development financial institutions (DFIs), including the National Empowerment Fund, Development Bank of Southern Africa, Land Bank, the Industrial Development Corporation (IDC) and the Public Investment Corporation, besides others, will allow access for qualifying black business to a dedicated “pool of capital”.

Masina says the syndicated financing will see the DFIs agree on, and implement, common standards and protocols when assessing financing requests, as well as share the costs, risks and rewards – a reversal on the various institutions’ tendency to employ the measures of commercial banks to determine eligibility for credit access.

Further, the IDC will set aside R23-billion of its R100-billion industrial development fund to support black industrialists over the coming five years.

In an effort to bolster technical skills and know-how, which have historically been difficult for black entrepreneurs to acquire or access, the DTI proposes to implement specialised technical training in selected areas guided by priority sectors, value chains and products.

Mentorship support will also be available from experienced industrialists, who will provide targeted guidance based on the development needs of participating individual entrepreneurs.

“The intention is to provide customised guidance in all the key areas such as financial management, operations and production planning, human resource development, administration, marketing and business continuity,” the draft programme document notes.

Further, the DTI hopes to provide incubated support in protected conditions until the industrialists and entrepreneurs are able to venture out on their own and remain sustainable and profitable.

The programme also aims to target the perception that local products are of poor quality, compared with foreign products through quality standards and productivity support.

Black entrepreneurs face uphill battles in terms of cost to acquire quality standards and approvals, such as ISO 1400, therefore the DTI, in partnership with organisations such as the South African Bureau of Standards and Productivity South Africa, will develop measures to encourage the acquisition of quality standards and continuous improvement and competitiveness of black industrialists and enterprises.

In support of developing successful black industrialists, greater industrial linkages among black industrialists and established enterprises will be created, while the capacity and competitiveness of black manufacturers will be enhanced through the use of modern technology and innovation.

The DTI also aims to incorporate the support of State-owned enterprises, DFIs, business organisations and chambers and research and education institutions, to develop several delivery mechanisms through government-led platforms to ensure the responsiveness, relevance, efficiency and effectiveness of the programme.

The DTI says its next steps will include the finalisation of a comprehensive black industrialists programme within the 2014/15 financial year, as well as the establishment of a black industrialists programme management committee and an operations centre and the appointment of a programme manager in the 2015/16 financial year.

Further, the DTI will consolidate and cement, through legally-binding agreements, the institutional arrangements between primary programme management committee member organisations.