Johannesburg - South Africa celebrated its 18th anniversary
as a democracy on Friday, yet wealth accumulation continues to elude blacks,
who make up about 90% of the population.
Gross capital formation statistics, JSE shareholding figures
and home ownership levels indicate that black people own low levels of
productive assets in the economy – leading to concerns that there is a crisis
in black wealth accumulation.
This means they do not have the kind of assets or capital
base to create new wealth, and invest and participate sufficiently in the
growth of the economy.
The figures also indicate that thus far, black wealth
creation has taken place through the limited transfer of assets or shares from
white to black individuals and that there has been little new value or
investment by blacks in the economy.
Capital formation figures measure the value of new or
existing fixed assets and are a good indicator of how much new value is invested
in the economy rather than consumed.
Capital formation figures for South Africa, compiled in 2011
by the World Bank, indicate that there has been a rise in the creation of new
wealth of up to 20% between 1991 and 2o11. The statistics show that the black
contribution to this crescendo of output has been muted.
Gross fixed capital formation stood at 25.51% of gross
domestic product in 2010. This, bar a few fluctuations – including a peak in
1976 – is a steep rise from 19.6% in 1960.
So, impressive levels of new value are being created in the
South African economy, but black people still lack the ability to contribute to
this as they lack the capital base to invest.
Last October, the JSE released a study that showed that
blacks owned 17% of the top-100 listed companies, which represent 85% of the
bourse’s total market capitalisation.
This research indicates that just over half of JSE’s black
wealth is held through third-party mandated investments like pension funds. The
rest of the shares accounted for as black ownership on the exchange are owned
by blacks directly.
Direct ownership by blacks on the JSE was acquired through
black economic empowerment (BEE) deals, which were financed through debt.
But the debt-free portion of black JSE ownership is just
Since wealth is the total value of what is owned minus what
is owed, the net worth of black direct ownership of the JSE is significantly
less than the figure indicated in the JSE research document.
The JSE’s study implies that about 83% of the country’s
listed shares are owned by white South Africans and foreign investors.
According to a research paper for the Gordon Institute of
Business Science written by Andile Makhunga, the levels of BEE deal flow have
In an interview with City Press this week, Makhunga said
“the era of mega BEE wealth transfers is gone for good”.
He said there were “two main problems with this model. The
first is that whereas there is more than R200 billion worth of BEE deals done
thus far, valuations of the wealth created by this model have been eroded by
the economic crises.”
He said the second problem was that the model simply
transferred wealth to a few individuals – while in the rest of the economy,
black people’s incomes were declining significantly.
Thabo Masombuka, executive director of transformation
services at Siyakha Consulting, said blacks needed to change the way they
amassed wealth instead of focusing on buying BEE stakes from white companies.
“We approach BEE from a minimalist point of view. The top 20
rich black South Africans
have stakes in white companies and they have rarely created
wealth by starting companies from scratch.
“If blacks want to create meaningful wealth, they must start
their own companies instead of buying small stakes from white companies,” said
Masombuka, a former director of BEE charters and partnerships at the department
of trade and industry.
Businessman Sandile Zungu – who is also the
secretary-general of the Black Business Council, a mouthpiece for black
business – said the state has also let black people down by failing to use its
buying power or procurement capacity to put more wealth in their hands.
“We expect the state to disqualify companies that have poor
“The state should say you cannot tender for certain
contracts unless you have an AAA+ rating,” he said.
Fronting was seen as another wealth-creation inhibitor.
“Black people have allowed themselves to be used as fronts
willingly by white companies. This has set us back,” Zungu said.
On the home ownership front, whites still rule the roost and
blacks still lag behind. White people own 41% of South Africa’s property and
blacks 27%, according to a study done by economic research outfit
The research also found that the wealth of whites is largely
held in listed shares and houses, while almost half of all black people’s
assets are houses.
Experts’ solutions to the problem of blacks’ inability to
amass wealth must be implemented by government, the private sector, and black
and white investors.
These would include:
- More effective and transparent use of the procurement
lever of the state to strengthen a fragile black enterprise base;
- More targeted support of the fragile manufacturing sector
and a re-examination of our exchange rate;
- More skills creation to underpin small and medium
enterprise and sustainability;
- Creative solutions to the problems of access and the cost
- Development finance institutions must use different credit
finance criteria and approaches from commercial banks; and
- The South African venture capital community must develop a
greater appetite for risk.
- City Press