Troubled policy

SOUTH AFRICA: One of the mainstays of South African political and economic policy is at risk. Falling share prices and an economic downturn threaten black economic empowerment (BEE), which was developed to help black citizens who had suffered under apartheid. Now the ruling African National Congress (ANC) is looking to reform the policy.

Under BEE, white-owned companies were required to sell equity stakes to black business groups, as well as to give management positions to blacks. “The outlook for black economic empowerment deals and black-empowered companies is very bad,” ANC treasurer Matthews Phosa told the Financial Times. “Some share prices have collapsed, and these companies are in real trouble.” Phosa said that the ANC has no plans to bail out the failing companies.

"The outlook for black economic empowerment deals is very bad," says ANC treasurer Matthews Phosa.

Critics of BEE say that black companies were given funding without guarantees that they could function adequately. As with the US subprime mortgage crisis, when Americans expected house prices to continue to rise, many South Africans thought share prices would also go on increasing in value.

Consultant Jenny Cargill says BEE needs radical reform. “The very motivation for such a policy — the absence of black capital — is the seed of its downfall,” Cargill comments. “In empowerment deals, we just don’t have a group of shareholders that can help you through the bad times.”

For more on South Africa, see Business Spotlight 1/2009.