How Investec’s CEO would fix BEE

Investec CEO Fani Titi said South Africa needs a reformed empowerment framework that focuses on effectiveness, accountability, and broad-based economic growth.

Commenting on South Africa’s Broad-Based Black Economic Empowerment (B-BBEE) policy, Titi argued that while it remains essential for economic inclusion, its impact has been weakened by corruption, inefficiency and slow growth.

The 2002 to 2008 period proved that inclusion and strong growth can coexist, noting major gains in representation, skills development and employment.

However, state capture and procurement abuses, such as the Tembisa Hospital scandal, reversed the progress made by initiatives like B-BBEE.

“The evidence suggests that we need a more innovative approach, premised on effectiveness, integrity, accountability and a foundational commitment to rapid economic growth,” Titi said.

“The guiding principle of such a policy framework should be to reach the largest number of economically excluded citizens in the shortest possible time, with a clear focus on four key areas.”

The first key area, Titi explained, should focus on getting value for money in public procurement, by using taxpayers’ hard-earned money to maximise the reach and quality of essential services.

“Current public procurement policies allow SOEs, municipalities and government departments to spend significantly more than the lowest bid based on a B-BBEE preferential point system,” he said.

“This incurs an opportunity cost for ordinary South Africans, who might otherwise benefit from resources allocated to hospitals, schools, training colleges, or network industries crucial for economic growth.”

According to Titi, any preference given for public procurement beyond value-for-money should be transparent and minimal.

He explained that another key area which requires focus to reach the largest number of economically excluded citizens in the shortest possible time is putting an end to cronyism.

“The appointment of well-connected but unqualified people to public positions has done untold damage to state capacity and vital network industries,” he said.

“It has furthermore robbed highly qualified black and female candidates of professional opportunities. We must prioritise hiring the most qualified individuals to lead key government departments, municipalities and SOEs.”

He recommended that transparent hiring processes, and, where possible, public interviews of shortlisted candidates should be conducted.

Employee participation and equity equivalence

The third key area Titi highlighted was employee participation. Those most vested in the long-term success of companies are those who rely on them for their livelihoods and are direct contributors to the creation of wealth.

He explained that highly concentrated equity deals often serve only to benefit the existing elites in an organisation.

Broad participation of employees in company ownership is a far better mechanism for enduring and productive inclusion. “The scales should swing towards employee ownership,” he said.

The final pillar of Titi’s innovative approach is equity equivalence. “South Africa is blessed with many public benefit programmes that advance our nation’s long-term growth and equality goals,” the CEO said.

These initiatives can deliver a broad and durable impact. However, this is not possible when they are centralised in mandated government programmes liable to abuse by patronage networks.

Instead, Titi suggested that they should be managed with the hallmark efficiency of well-run private sector businesses to achieve a long-term impact.

“Companies’ contributions to these programmes should be more extensively reflected in their empowerment credentials,” he explained.

“It is worth dwelling on the concept of equity equivalence, as the expanded use of this mechanism would represent a significant innovation in our empowerment policy framework. It is already applicable to multinational companies.”

Samsung’s Equity Equivalent Investment Programme, for example, initiated with a R280-million investment, actively supports the development of black-owned SMEs in the ICT sector.

“But there is no shortage of home-grown initiatives whose broad-based impact will be felt for generations to come,” Titi said.

“Jannie Mouton’s recently announced transformation of Curro Schools into a public benefit organisation is one vivid example.”

Others include the late Donald Gordon’s contributions to education and healthcare, as well as Kagiso Trust’s long-term investments in education and rural development.

There are few businesses, let alone individuals, that have the resources of someone like Donald Gordon or a Jannie Mouton.

“But there are ample opportunities for companies of all sizes to contribute to programmes that support youth employment,” he said.

This includes the Youth Employment Service, which provides invaluable work experience to unemployed youth.

It also includes education support programmes like Promaths, which offer maths and science tuition to thousands of underprivileged learners.

South Africa must shift from race-based policy

“The most delicate question is one we can no longer postpone,” Titi said. “At what point should South Africa move beyond race as the primary proxy for disadvantage?”

“Race shaped our history and still shapes access to opportunity; to deny that would be disingenuous. But inequality and underdevelopment are complex, global problems in which race is but one of many factors.”

According to Titi, transformation efforts should ultimately be directed at poverty and capability rather than focusing solely on race and gender.

“Economic inclusion policies should serve those who remain marginalised and excluded based on a credible economic means test,” he said.

“Notwithstanding the multi-generational impact of apartheid, race cannot forever remain the organising principle of our economy.”

He said it is far from ideal to live in a society in which competent black professionals are unfairly seen as token appointments.

At the same time, their young white compatriots are left wondering if there is a viable future for them in the country of their birth.

“To paraphrase Martin Luther King Jr, our children should be judged on the strength of their character, not the colour of their skin,” he said.

Titi said South Africa stands at a pivotal moment in its democratic history, facing a choice that will determine the shape and pace of social and economic development over the next 30 years.

“Will we continue to cling to ideological baggage weighing down our prospects for growth and equality, or will we have the courage to forge a new path towards a more prosperous and inclusive society?” he said.

He stressed that South Africa’s moral and social commitment to empowerment should remain as steadfast as ever.

“But we need to change its mechanisms: to reward those who build, teach, employ and create, and to measure what matters. Pragmatism, not ideology, should guide us,” he said.

“A system that values contribution over compliance and productivity over patronage would transform empowerment from a brake on growth into a flywheel for it. That, ultimately, is what the country needs: a proverbial cat that catches mice.”