Business and Economy

Black Industrialists Programme: ridiculous or miraculous?

The government has mobilized R20 billion to fund the programme through state-owned financiers such as the Industrial Development Corporation, the Development Bank of Southern Africa and the Public Investment Corporation. Photo: African Leader

The plan to create 100 large-scale black industrialists by 2020 is so incredibly ambitious that sceptics would be excused for believing the programme to be nothing but an illusion.

However, the programme’s backers are confident that South Africa can reach that goal in three years.

Although this may sound ridiculous, its supporters say there is a serious strategy to deliver the black people’s industrial miracle. But is there a magic wand to achieve in three years a dream that has proven elusive in more than two decades of South Africa’s democracy?

Xolani Qubeka, the general-secretary of the Black Business Council (BBC), is adamant that government has a quick-fix solution that the black business lobby group supports wholeheartedly. The solution involves selecting a minimum of 100 black industrialists from a pool of at least two thousand companies wishing to participate. Only the best companies with the highest potential will be picked and put on a fast-track for three years.

“What would then happen is that government would provide targeted support and avail its procurement spend and related incentives and grants, thus providing the necessary steroids to propel accelerated growth. At the end of the three years, the expectation is that these companies should be in a better position to compete,” Qubeka explains.

After being placed on special support for three years, the 100 black industrialists will not be abandoned by government. “It is important to note that, as these companies grow within those high- impact sectors, they will still be eligible to receive existing grants and incentive schemes that are given to everyone,” says Qubeka. “After three years, they will be in a better competitive position as medium businesses within their market segments.”

What happens to the other 1 900 hopefuls that applied to be on the programme, but did not make the cut? Qubeka says these companies will still receive support from the Department of Small Business Development, which is developing a suite of incentives that are aimed at assisting small, medium and micro-sized enterprises (SMMEs) to grow and expand.

“We need a minimum of R100 billion over five years if we are to expand our economy through reindustrialisation in South Africa” 

The government has mobilized R20 billion to fund the programme through state-owned financiers such as the Industrial Development Corporation (IDC), the Development Bank of Southern Africa (DBSA) and the Public Investment Corporation (PIC). However, the BBC, which lobbied government heavily to create the Black Industrialists Programme, says the R20 billion is a drop in the ocean and woefully inadequate to fund the programme’s participants.

“We need a minimum of R100 billion over five years if we are to expand our economy through reindustrialisation in South Africa,” says Qubeka.

“This investment could create a turnover of more than R500 billion over five years and assist in creating hundreds of SMMEs, as well as other economic spinoffs, such as expanding the retail sector exponentially.”

From the BBC’s perspective, the programme will stand or fall on the ring-fencing of large contracts from state-owned enterprises (SOEs), such as transport and logistics group Transnet, power producer and distributor Eskom, arms manufacturer Denel, national airline South African Airways, the South African National Roads Agency Limited, the South African Broadcasting Corporation, and many others.

The private sector will also be targeted to open up its supply chains to black industrialists, as it is now compelled to do under the revised codes of broad-based black economic empowerment, which places greater emphasis on large corporates developing black suppliers and awarding contracts to enable them to survive and thrive.

The Department of Trade and Industry (dti), the lead implementer of the programme, describes black industrialists as black South Africans who own significant shareholding or control in an enterprise whose products are significantly used and have the concomitant impact on decent employment and create broad-based economic opportunities.

The IDC stretches the description further and defines the black industrialist as a “black entrepreneur who provides long-term strategic and operational leadership to a business. The industrialist is not a portfolio or purely financial investor and owns more than 50% of the business as well as (exercising) control over the business.”

While there is a desire to develop black industrialists that have 100% ownership, there is an acceptance that white shareholders in black-controlled, large-scale businesses will have to be accommodated to attract skills and finance. According to the dti’s black industrialist concept document, entrepreneurs in agriculture, construction, financial services, manufacturing, mining and mineral beneficiation, services and creative arts will be prioritised.

The concept document says the current base of white entrepreneurs and industrialists – who constitute a minority that drive the South African economy – were created through dedicated support, and the same will be extended to blacks. Over and above receiving preferential access to large state contracts, grants and soft loans, black industrialists will receive specialised technical training, mentorship and incubation.

If the black industrialist project is executed well, it could help arrest South Africa’s deindustrialisation, which liquidated jobs in the clothing and textile sector

“Black entrepreneurs, industrialists, and business continue to contend with greater barriers and obstacles in comparison to their white counterparts,” the document reads.

“The greater majority of black entrepreneurs have no historically accumulated capital assets as a result of our history of political and economic suppression. Thus, they have limited capacity to finance their industrial ambitions and have difficulty accessing private credit without productive assets to use as collateral.”

If the black industrialist project is executed well, it could help arrest South Africa’s deindustrialisation, which liquidated jobs in the clothing and textile sector, once a big employer of industrial workers.

The deindustrialisation of these industries has coincided with the rise of consumption-driven sectors, such as banking and consumer retailing, and the decline of productive sectors such as mining and manufacturing.

The proliferation of shopping malls in cities, small towns and townships across South Africa is all around us, while mines and factories have been closing down. Hence the country is sitting on massive unemployment and inequality.

According to the IDC, the economy grew by 3.3% annually between 1994 and 2012. During this period, the manufacturing sector’s share of GDP declined from 20.9% in 1994 to 12.4% in 2013. This deindustrialisation was worsened by the country’s mediocre infrastructure, which constrained the production of goods and the ability to reach global markets. Labour unrest further aggravated the situation.

The IDC says textiles and clothing, furniture and other manufacturing have lost substantial market share since 1994.

However, sectors with links to mining (chemicals, metals and machinery) experienced relatively high growth rates post-1994, thanks to the commodities boom that ended in 2008 and 2009.

The black industrialists are expected to lead the reindustrialisation. However, they will lead the strategy under different economic circumstances than white industrialists, who had the advantage of accumulating their wealth behind tariff and protectionist walls.

White capitalists and industrialists also benefitted immensely from cheap African labour, which in turn served as a big market for their goods and services. Contrast this with black industrialists, who will have to accumulate wealth in a highly competitive global economy and have no protection against cheap imports from all over the world, particularly China and Brazil.

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