Dumisa Ntuli tackles the automobile sector on BEE
Numsa has been tracking the progress of the Motor Industry Development Programme (MIDP) in relation to black economic empowerment (BEE). The automobile industry is targeted as the key strategic sectors for development in the economy.
Last year in the Growth and Development Summit, all the stakeholders committed themselves to implement the broad-based BEE in all strategic sectors of the economy. The automobile sector needs to be targeted for broad-based BEE for transformation. The nature of poverty in South Africa is changing, the income gap is rapidly increasing within all racial groups, especially among Africans. The rising inequality is the natural result of high unemployment and low wages on the one hand, and the rapid de-racialisation of the market and integration into management positions on the other. Therefore BEE must resolve these inequalities and change the status quo ownership and domination by a single racial group.
Firstly, the drive towards BEE in the motor sector must go at full steam ahead because of the industry’s reluctance to transform in terms of equity, management, employment equity and skills development. Mostly the industry ownership is predominately white and male. It is highly dominated by multinational companies. In management positions, there are only a few blacks in strategic and executive level positions. The implementation of the Employment Equity Act is not rigorous and skills development is not used effectively. Most annoying is the low level of training amongst workers.
In some companies BEE proposals turn out not to be about empowerment of people, but rather about how government can support black enterprise. Some of the Department of Trade and Industry’s BEE strategy still fits into the same pattern. There exists the problem of fronting for government tenders.
Secondly, the proposed strategy of motor sector companies is neither broad, nor about empowerment. It encourages opportunities and access rather than ownership of companies. There is insufficient encouragement and development of black owned cooperatives and SMMEs in the industry. This should be coupled with the development of female entrepreneurship.
Therefore greater emphasis must be placed on developing workers as the most disempowered group. We have to break from the focus of BEE being overwhelmingly on the boardroom. Workers must have a stake in ownership patterns. We need employee share cooperatives schemes in order to return the value of broad-based empowerment. Such schemes depending on transactions could reach thousands of workers in the industry.
Many workers feel that never in the history of human enrichment must the benefit flow from so few to so few. They believe that there is a better way in dealing with broad based empowerment through workers owning a certain percentage of shares in OEMs.
The Chinese government chose to take advantage of a wave of opportunity, in spite of huge risks perceived to be associated with state intervention. The Chinese government supports fast economic growth but they have a real foothold in the economic direction of the country. Access is conditional and mostly depends on long-term productive activities. The state drives investment and industrialisation. They maintain control over the movement of foreign companies to ensure that profits are reinvested in the economy. The automobile companies have a partnership with the government in China. The state owns an undisclosed percentage of shares in key automobile companies. Why cannot this partnership apply in South Africa in a different form? Therefore the idea of employee cooperative ownership with foreign companies cannot be disingenuous. The tide must turn against the current dominant form of black economic empowerment deal-making in South Africa. Workers must have a stake in the ownership patterns in the form of cooperatives.
Thirdly, the notion that some original equipment manufacturers (OEMs) will be exempted from BEE because they are not South African based is wrong. This will undermine the same BEE policy. The fact is that most of the OEMs have invested in South Africa, therefore they cannot be exempted from the South African policies. As it stands currently, the government forfeits about R40bn as a form of subsidy to the OEMs through the MIDP, so they cannot be the first ones to queue for subsidies on the one hand and be exempted from adhering to BEE policies on the other.
We need to streamline the manufacturing structure. The trend is that South African components companies are bought out by foreign owned companies that have greater links with the OEMs, with the result that technology is usually removed and taken abroad, leaving no local research and development facilities. As a result small component companies are struggling to survive and are subsequently taken over by large multinationals. This presents problems for these newly foreign-owned companies to meet black economic empowerment criteria and many rate poorly on scorecards.
The idea that because they are multinationals therefore they must be excluded from BEE deliberately distorts government policy. Since it is the South African component of the multinational that benefits from South African government policies, therefore those who benefit should adhere to the BEE policy.
The recent announcement by Old Mutual that it will sell its South African component to BEE partners is further proof of the correctness of our insistence that OEMs should be subjected to the BEE policy. It will also be undermining policy if they were to be excluded. The policy clearly states that all those companies doing business with government should implement BEE. Since all three spheres of government spend billions of rands purchasing vehicles from the same OEMs, it therefore follows that they should not be exempted from BEE policies. We need an integrated BEE approach to all OEMs, this will allow the industry to have a long term view on issues of monitoring and assessing the sector in relation to the scorecard.
“We must understand that giving business what they always want is not enough to get them to invest their profits in South Africa. ”
We are not happy with the case by case scenario as suggested by OEMs because it will deviate from the broad policy objectives. Of course the inevitable end result of the case by case approach is unevenness. By far the most important thing is to rehabilitate the industry and seek to perform at desirable standards. We must understand that giving business what they always want is not enough to get them to invest their profits in South Africa. The economy we have today developed on a strong foundation of raw material extraction and included controls to keep black labour cheap.
The automobile companies remained in South Africa during apartheid because they were able to reap extraordinarily high monopoly profits by exploiting cheap labour. They continue to get cheap labour. Therefore no one can separate the development or the growth of South African motor sector from the history of oppression of the black population. These companies have not been exempted from government support and incentives. The country has spent billions of rand giving support to these companies in the MIDP. They enjoy all benefits of the MIDP incentives and cry foul when they are supposed to give back. They cannot have the cake and eat it alone, there has to be distribution of economic resources.
Fourthly, Numsa supports an empowerment charter to set policy guidelines, code of conduct, standards and monitor the activities of companies. The empowerment charter will address industry problems. It will be uniform and there will be synergy in terms of implementation. The enterprise charter will not be practical if we have to consider the diverse nature of companies. There will be problems of unevenness and it will be difficult to coordinate BEE activities in individual companies. It will be extremely difficult to exercise universality in the industry. Most of the OEMs have skewed and distorted procurement and distribution policies which predominately favour white companies. The preference of these OEMs to have enterprise charters we believe may be informed by their attempts to limit BEE to a few individuals as opposed to a broad-based BEE.
In conclusion, we do not need a “stock market” of BEE based on individual company performance. That approach could lead to individual gain clothed as broad-based empowerment. There will be no tangible value on the policy to shift the pattern of power. Transformation and empowerment of people should not be used as camouflage to the upliftment of a few individuals. Any empowerment must change the lives of the poor. There has to be wider distribution of economic assets.
In any event we are not surprised as Numsa by the position of OEMs with regards to BEE. This is consistent with the way they conduct themselves. They refuse to make a contribution by reducing car prices, this is despite the strong Rand and the high subsidies that they are getting from government.
Dumisa Ntuli – Numsa information officer.