Transformation Fund could offer businesses an escape route from BEE

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JEREMY MAGGS: Government’s proposed R100 billion Transformation Fund is intended, as I understand it, to channel more funding towards black-owned businesses.

But economist Dawie Roodt sees something very different in the plan. He believes it could ultimately provide a route away from South Africa’s existing BEE (black economic empowerment) framework.

Dawie Roodt is chief economist at Efficient Group. Dawie, a very warm welcome. Why do you think then this fund could mark, if I understand your thinking, the beginning of the end of black economic empowerment.

DAWIE ROODT: Jeremy, I think this is a strategic opportunity. But before I answer that, can I make a comment about BEE, and that is that I am very much in favour of BEE, but in my book, BEE means that you give people access to world-class skills development, a safe environment, a growing economy, a clean environment, working municipalities and that sort of stuff.

That is, in my book, what actual empowerment means. Since black people are the majority in South Africa, if we do that, we will empower black people. But we don’t do that, and therefore black people are not empowered.

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In fact, black people, because they’re the majority, are unemployed, they are poor, they go to bed hungry. That is not black economic empowerment, I’m very much in favour of that.

But now we’ve got Minister Parks Tau with a new suggestion that we create a new fund, and this fund will be funded primarily by white business because it’s basically a white tax.

The idea behind this is that you can kind of buy your BEE, and I think this is where the strategic opportunity is.

We know that we don’t have real BEE in South Africa, we’ve got black billionaire empowerment. Yes, that’s what we have.

We call it BEE but that’s not what it is, in fact, if you look at the actual numbers in the economy.

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But this is an opportunity where you can buy your BEE, and provided all other so-called BEE requirements are scrapped, I’m very much in favour of this fund, and eventually most companies and businesses will migrate to this fund, and they will simply buy their BEE.

Then the opportunity will be to expose it for what it is, basically a white tax and basically a tax to the benefit of some well-connected black people in South Africa.

Then we can attack this fund, and we can get rid of so-called BEE and start with real BEE in South Africa. So I see this as an opportunity to get rid of the so-called BEE that we have in South Africa.

JEREMY MAGGS: That’s, of course, provided Dawie that businesses don’t end up funding the scheme alongside the existing BEE requirements.

DAWIE ROODT: Exactly.

JEREMY MAGGS: And that switch in rail is going to be difficult, surely.

DAWIE ROODT: I’m not so sure about that, because there’s already talk about some businesses [where] you can buy your employment equity, for example, by just paying money into this fund.

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So the pressure from business must be, yes, we are in favour of this fund, provided all other BEE requirements are scrapped, and all other procurement requirements, and requirements in employment and management, and all other requirements.

Scrap all of that and simply pay money to buy your BEE points. It will, by the way, be cheaper because there will be less red tape involved in this whole thing.

Then eventually, once we’ve migrated to this fund, we can take the next step and have to get rid of this fund altogether.

JEREMY MAGGS: The challenge, of course, is making sure that a different empowerment model doesn’t benefit another relatively small group.

DAWIE ROODT: It will benefit a relatively small group. Don’t you think for one single moment that well-connected individuals will walk past a big pot of gold like this. And that’s exactly the point.

Since there will be corruption, since there will be maladministration, since the whole pot will be misused, as always, we can point this out and say, listen, this is what’s happening to the so-called BEE fund, we have to scrap that altogether as well.

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So see this is an opportunity to move away from BEE.

JEREMY MAGGS: What safeguards would then need to be in place, Dawie, to avoid either political influence or poor investment decisions, which are also likely to be made.

DAWIE ROODT: There will be poor investment decisions. There will be all sorts of shenanigans going on there. That’s the benefit, that’s the opportunity of getting rid of this specific fund.

But some of the safeguards are you, Jeremy, the press. The press is supposed to do what they’ve been doing very well for the last couple of years, and just to point out that these these funds are being mismanaged as well.

JEREMY MAGGS: So how do you measure ultimately, if this works, Dawie, as to whether this fund is genuinely creating sustainable business rather than just another redistribution of capital?

DAWIE ROODT: It is not going to create sustainable businesses. It is simply going to be a redistribution. But I think the benefits are it’s supposed to be cheaper because there’s less red tape involved. I think it will be easier to expose it for what it is, and that is for a few individuals, well-connected individuals, to benefit from this fund.

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So it will simply be exposed for what it is, and that’s a fund that is there for the benefit of a small number of individuals.

It will be misused, Jeremy, and that is exactly the point.

The ANC (African National Congress), well-connected individuals, are simply not going to walk away from a big pot of gold if they can’t get their hands on this pot of gold. Here’s a big pot of gold, give it to them, lure them into this trap, and then eventually expose it for what it is and close down the so-called BEE fund.

JEREMY MAGGS: Is that not high risk with the potential of a lot of money just disappearing?

DAWIE ROODT: We’re waiting for economic growth data this week, Jeremy. Economic growth is going to be close to about zero. It’s possible that the South African economy is in a so-called technical recession. We haven’t grown for 15 years on a per capita basis. That’s high risk.

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Part of the reason why we haven’t grown has to do with the wrong macroeconomic policies. And BEE certainly is one of those major wrong economic decisions and policies that we’ve had in place for many, many years.

So we are paying a horrible price for the wrong macroeconomic policies in South Africa. And here, like I’ve said, it’s a strategic opportunity to get rid of this.

JEREMY MAGGS: How do you think business is going to react to this? Will they welcome it? Will they share the same views that you have, or do you think that they are going to raise lots of obstacles and hurdles?

DAWIE ROODT: I’ve spoken to business and of course initially most people are against this, and my first thoughts were I’m also against this specific fund for obvious reasons.

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But just look at it objectively as a business, like for example, what we have at Efficient Group or many other businesses, because this is a tax as it is, so I can either pay my tax and get my BEE points, or I pay my tax in any event, and I have to jump through all sorts of red tape requirements and additional costs.

Then I would rather go for the fund because it will simply be less of a schlep. It will be easier, it will be less red tape, less admin and I get my BEE points.

Because as it is, BEE is not for the majority of black people in South Africa. Just pay your money into the fund, get your points and go on with life, and then eventually get the opportunity to get rid of this fund altogether.

JEREMY MAGGS: And where do you think that R100 billion rand comes from? It rolls nicely off the tongue, but have you tested that number?

DAWIE ROODT: No, I haven’t tested that specific number. I don’t think it’s that far off. I think it’s quite possible to actually get that amount of money. In fact, I’ve got a suspicion that many businesses will actually pay more than what they’re currently paying for BEE, just to get rid of all this red tape.

JEREMY MAGGS: Dawie Roodt, chief economist at Efficient Group, thank you very much indeed.

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