Black middle class has more than doubled in eight years - Zuma

Posted 06 October 2013 Written by President Jacob Zuma

President Jacob Zuma's opening address to the B-BBEE Summit in Midrand last week highlighted the fact that South Africa's black middle class has more than doubled from 1,7 million to 4,2 million since 2004, due in large part to transformation measures introduced by the government, but average household income for whites remains six times that of blacks. The new B-BBEE Amendment Bill, passed in June 2013, is intended to further accelerate government's transformation plans, while outlawing fraudulent practices such as "fronting" (where blacks are mere fronts for white businesses in order to secure business advantages under the country's B-BBEE laws).

The Minister of Trade and Industry and all Ministers and Deputy Ministers present, Members of the Presidential Broad-Based Black Economic Empowerment Advisory Council, distinguished delegates, good morning to you all.

It is my pleasure to welcome you to this important Broad-Based Black Economic Empowerment (B-BBEE) Summit.

The country is marking 10 years since the passing of the Broad-Based Black Economic Empowerment Act and the implementation of that law. There have been successes and there have also been challenges.

This summit is intended to reflect on what has worked and what has not, so that we can forge ahead towards building a truly inclusive economy in which the black majority participates fully as owners and managers.

In 1994 we inherited a racial economy whose capacity to grow was severely constrained by the exclusion of the majority.

We knew that transformation was not going to happen by osmosis. Deracialisation had to happen through an effective implementation of transformative policies.

We pride ourselves on having sound economic transformation policies. Our approach to economic transformation is informed by the historical principles espoused in the Freedom Charter, Ready to Govern and the Reconstruction and Development programme. It is further elaborated in ANC conference resolutions every five years.

The fundamental guide, the Freedom Charter states clearly that the people shall share in the country’s wealth. Setting the scene for implementation, the Reconstruction and Development Programme spoke of a need to de-racialise business ownership and control through focused programmes of B-BBEE.

Informed by these policy documents, we approach economic transformation guided by the following pillars:

(a)  Creating decent employment for all South Africans.
(b)  Eliminating poverty and dealing decisively with extreme inequalities in our society.
(c)  Democratising ownership and control of the economy by empowering the historically oppressed, Africans and the working class in particular to play a leading role in decision-making.
(d)  Restructuring  the economy so that it meets the basic needs of all South African and the people of the region, especially the poor.
(e)  Ensuring equitable and mutually beneficial regional development in Southern Africa, thereby fostering the progressive integration of the region, and
(f)   Limiting the negative environmental impact of our economic transformation programme.

Enhancing the policy framework, in 2007 at the ANC’s national conference in Polokwane we took a landmark economic transformation resolution which was reaffirmed in Mangaung last year.

We said; “The skewed patterns of ownership and production, the spatial legacies of our apartheid past and the tendencies of the economy towards inequality, dualism and marginalisation will not recede automatically as economic growth accelerates.

“Therefore, decisive action is required to thoroughly and urgently transform the economic patterns of the present in order to realise our vision for the future. This includes addressing the monopoly domination of our economy, which remains an obstacle to the goals of economic transformation, growth and development."

It is important therefore to underline, that Broad-Based Black Economic Empowerment is an integral part of our economic policies and economic transformation. It is part of a broader objective of promoting inclusive growth and economic development.

I would like to emphasise as well that economic transformation is not just about big business deals for a few individuals in society.

The policy should be consistently implemented across all parts of the economy to ensure maximal impact on as many South Africans as possible.

Informed by this policy background, we have since 1994, worked to create a transformed and adaptive economy that will be characterised by a high growth rate, low levels of unemployment, and the majority of South Africa’s citizens participating in the mainstream economy.

Along the legislative route since 1994 we can reflect on several milestones. This includes the early ground-breaking work done by among others the Black Management Forum, the Black Business Council and its member organisations through the B-BBEE Commission, which resulted in the B-BBEE Act of 2003 and the issuing of the Codes of Good Practice by the Department of Trade and Industry in 2007. 

A lot of progress has been made over the years to open up opportunities and to grow the economy. In this regard, the South African economy has expanded by 83 per cent over the past 19 years.

National income per capita has increased from R27,500 in 1993 to R38,500 in 2012 – an increase of 40 per cent.

Disposable income per capita of households has increased by 43 per cent, which is just over 1.9 per cent a year. Total employment has increased by more than 3.5 million since 1994.

As a result of these and other developments resulting from progressive government policies, there has been an impressive growth of the black middle class.

The recent income and expenditure survey from Statistics South Africa indicates a significant increase in household consumption, which of all the factors, is plausibly explained by a significant growth in income.

The category of key items of consumption, such as housing, communication, education and transport for example, are all in line with a rising middle class with sustained higher income.

This assertion of a growing black middle class by Stats SA is also borne out by independent researchers. 

The University of Cape Town’s Unilever Institute of Strategic Marketing for example, indicates that South Africa's black middle class has more than doubled over the last eight years, growing from 1.7 million South Africans in 2004 to an estimated 4.2 million in 2012.

Let me hasten to add however, that while we have made strides with regards to black economic empowerment and the growth of the black middle class, we are still faced by unacceptable levels of poverty, inequality and unemployment.

These result from our country’s history of exclusion and marginalisation of the majority and in particular the challenges with regards to education and skills development.

Income equality in particular still remains skewed in terms of race.

You may recall that Census 2011 revealed that that the income of the average white household remains six times that of the average African household.

The average annual African household income is R60,613 and of the white household stands at R365,164, indicating the enormous work we must still do to bridge the gap at the levels of the poor and the working class.

With regards to progress in terms of BEE transactions, according to our National Treasury, over R600 billion in BEE transactions have been recorded since 1995.

According to Ernst and Young, since 1995 there have been more than 1,500 publicly announced BEE ownership transactions worth at least R533 billion.

Most of the transactions involved JSE listed companies. Of concern is that black participation in the economy continues to involve share ownership schemes in the main.

In addition, gross black ownership of South African assets on the JSE was equivalent to only 6.8% by 2010 and there has been minimal progress since then.

More importantly, we are yet to see the growth of black industrialists despite government’s aggressive focus on boosting the manufacturing sector.

The day we see factories all over the country owned by black entrepreneurs taking advantage of our Industrial Policy Action Plan, we will be moving towards achieving our B-BBEE goals.

We have now also placed more emphasis on developing SMMEs. We encourage the growth of more SMMEs owned by black people, women, youth and persons with disability in our six New Growth Path job drivers – mining, agriculture, the green economy, tourism, manufacturing and infrastructure development.

The backbone of any growing economy will depend on its SMMEs sector, and will have huge impact on creation of jobs and skills development in our economy.

The B-BBEE Codes will ensure that both public and private sectors procure certain a percentage of goods and services from local black owned and controlled entities.

We acknowledge the sore point of late payments by government departments to SMMEs in all three spheres of government which is a serious hindrance to our empowerment programme.

We have instituted payments to SMMEs as a special project run by the Department of Performance Monitoring and Evaluation in the Presidency and the National Treasury.

Government cannot undermine its own programme of promoting black economic empowerment.

Government will continue to provide support as much as possible and has been doing so over the years.

This summit should deliberate on what else government can do to ensure the growth of this black industrial class and also the growth of cooperatives and SMMEs that will expand empowerment in both urban and rural areas.

Let me share some progress in existing government support programmes.

The Black Business Supplier Development Programme run by the Department of Trade and Industry has since its inception in September 2010, approved 2128 applications to the value of R797 million.

A total of 1 213 applications were approved in the last financial year, 2012/13, for the support of Black owned SMMEs amounted to R451.2 million.

Out of these applications, 409 were from Black women owned SMMEs and received financial support to the value of R155,6 million.

The National Empowerment Fund, mandated to grow black economic participation in South Africa, has approved over 500 transactions worth more than R5 billion to black-empowered businesses across the country.

Over 60% of its beneficiaries are SMMEs, and these are in virtually all sectors of the economy. To date the NEF has supported in excess of 44,000 jobs. 

The cooperative sector has proven to be highly successful in empowering disadvantaged communities and countering poverty.

Over 200 cooperatives were supported through a special incentive scheme, creating over two-thousand new direct and over 700 temporary job opportunities, in the past year.

A total of 100 new small scale cooperatives offering around 500 new job opportunities were established, and more than a hundred cooperatives were assisted to enhance their market access through local and international exhibitions.

Going forward, active Broad-Based Black Economic Empowerment will continue to be an important policy of the ANC government, driving real and meaningful economic transformation and growth.

The State will continue to intervene and promote transformation.

Where the state intervenes strongly and consistently, it can turn around key industries that face external or internal threats as has happened in our manufacturing sector.

Intervention by way of targeted financial support and localised State procurement has seen the revitalisation of industries such as train and bus building as well as clothing, textiles and footwear manufacturing.

This has helped to protect existing jobs and to create new ones.

We are moving a step ahead to promote transformation, and the passing of the B-BBEE Amendment Bill by the National Assembly on 20 June 2013 represented a huge step forward.

We have reviewed B-BBEE in order to align it with other key pieces of legislations, including, but not limited to Industrial Policy, National Development Plan, New Growth Path, and National Skills Development Strategy 3, which are all geared to support job creations, localisations, skills development and growth.

One of the obstacles has been the practise of “fronting”, which is criminalised in the newly adopted B-BBEE Amendment Bill. 

Fronting is unforgiveable as it distorts our empowerment picture giving an impression of progress where there is none. It is for this reason that we will work hard to prevent and eradicate this practice.

While condemning fronting, we also need to heighten our emphasis on education and skills development especially technical and managerial skills for emerging entrepreneurs, without entrenching the stereotype that black people need perpetual training!

Business training is crucial so that our emerging entrepreneurs can gain confidence and can also boldly expand beyond share ownership to become fully fledged industrialists.

Our BEE policies are interlinked with affirmative action policies aimed at opening up the management and control of the economy by black people, women and persons with disability.   

The appointment of black people and women in senior management positions in the private sector has increased from less than 10% in the 1990s to over 40% today.

More progress is needed, especially given that the Employment Equity Commission report each year records that white males are still very much at the higher echelons of companies. That means we need to find new methods of encouraging compliance. The Gender Equality Bill and the amendment of the Employment Equity Act are designed to improve loopholes.

Ladies and gentlemen, let me thank the Presidential Advisory Council on BEE for the important role they have played since 2009 in monitoring and reviewing progress on the implementation of B-BBEE and for providing solid advice on amendments to the Codes of Good Practice.

We also thank all other stakeholders who have contributed to the refinement of the Bill which is now before parliament.

We have made progress in the past 10 years because of collaboration amongst all sectors. Working together we will continue to do more.

May your deliberations be fruitful and play a meaningful role in helping to define and inform the way forward.

Ladies and gentlemen, it is my pleasure and honour to declare this Summit officially opened.

I thank you.

President Jacob Zuma

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