By Fiona Wakelin
In 2003, the Broad-Based Black Economic Empowerment (B-BBEE) strategy was published as a precursor to the B-BBEE Act, No. 53 of 2003.This groundbreaking piece of legislation was followed by the 2013 B-BBEE Amendment Act Act No. 46 of 2013.
The fundamental objective of the Act was to advance economic transformation and enhance economic participation of previously disadvantaged people in the South African economy. In this article we take the temperature of transformation of a number of key sectors in the country.
THE ECONOMY – GDP GROWTH SINCE 1994
South Africa is the most developed country in Africa and was the largest until 2014, when it was overtaken by Nigeria. The largest sector of the economy is services which accounts for around 73 percent of GDP. Within services, the most important are finance, real estate and business services (21.6 percent); government services (17 percent); wholesale, retail and motor trade, catering and accommodation (15 percent); and transport, storage and communication (9.3 percent). Manufacturing accounts for 13.9 percent; mining and quarrying for around 8.3 percent and agriculture for only 2.6 percent. – Trading Economics
South Africa’s economy grew by an annualised 6.3% in the fourth quarter of 2020, following an upwardly revised 67.3% advance in the July-September period and easily beating market expectations of a 5% rise, largely due to the further easing of lockdown restrictions. Eight out of ten industries reported positive growth rates in the fourth quarter, primarily manufacturing (21.1%), trade (9.8%), transport (6.7%), construction (11.2%) and agriculture (5.9%). Expenditure on real gross domestic product increased at an annualised rate of 6,5%, driven by household consumption, exports and fixed investment. Year-on-year, the economy shrank 4.1%, after an upwardly revised 6.2% contraction in the previous period and compared with market expectations of a 4.6% slump. Considering the full year of 2020, the GDP shrank 7%, the most since 1946, as the devastating impact of COVID-19 in the second quarter when lockdown restrictions were at their most stringent weighed heavily on the economy – Statistics South Africa
TRANSFORMATION ACROSS SECTORS
Mining is an important foreign-exchange earner, with gold accounting for more than one-third of exports. South Africa is also a major producer of coal, manganese, chrome, platinum (world’s largest producer), and diamonds (6th-largest producer). The Mineral and Petroleum Resources Development Act (MPRDA) requires the Minister of Mineral Resources and Energy to set socio-economic targets through the Mining Charter.
Mining Charter III came into force on 1 March 2019 – almost three years after the publication of the first draft. The Charter states that a minimum of 70% of total mining goods procurement spend must be on South African-manufactured goods and apportioned as follows: 21% from black entrepreneurs, 5% on black economically empowered women entrepreneurs and 44% from black economic empowerment-compliant companies.
In the case of services, a minimum of 80% of the total spend on services (excluding non-discretionary expenditure) must be sourced from South African companies and apportioned as follows: 50% on black economically empowered entrepreneurs, 15% on black economic empowerment women entrepreneurs and 10% on black economic empowerment-compliant companies. – BizNews – Peter Leon
The African Farmers’ Association of South Africa (AFASA) has been at the forefront of pushing for the transformation of the agriculture sector as part and parcel of the broader agrarian reform government policies promote.
AFASA‘s second Agribusiness Transformation Conference, which took place in 2018 and focused on value chain integration and farming as part of the Fourth Industrial Revolution, succeeded in promoting smart partnerships between investors and landowners and amongst farmers themselves.
In 2008 the AgriBEE Transformation Charter was gazetted and in 2017 the Amended AgriBEE Sector Code was published.
The objectives of this Amended AgriBEE Sector Code are to facilitate B-BBEE in the sector by implementing initiatives to include black South Africans at all levels of agricultural activity and enterprises by:
- Promoting equitable access and participation in the entire agricultural value chain
- De-racialising land and enterprise ownership, control, skilled occupations and management of existing and new agricultural enterprises
- Unlocking the full entrepreneurial skills and potential of previously disadvantaged individuals
- Facilitating structural changes in agricultural support systems and development initiatives to assist black South Africans in owning, establishing, participating in and running agricultural enterprises
- Social upliftment
- Increasing the extent to which communities, workers, cooperatives and other collective enterprises own and manage existing and new agricultural enterprises, increasing their access to economic activities, infrastructure and skills training.
In 2019 the manufacturing sector accounted for 11.78% of GDP (global average is 18%) and approximately a third of this contribution comes from the automotive sub-sector – which as a whole contributes in the region of 7.6% to GDP. Automotive manufacturing takes place in three provinces: Gauteng (Nissan-Renault, BMW and Ford); KwaZulu-Natal (Toyota, Bell Equipment); and the Eastern Cape (Volkswagen, Mercedes-Benz, General Motors and Ford engines).
Support and incentives from the state for the automotive industry include the Automotive Production and Development Plan (APDP) and the associated Automotive Incentive Scheme (AIS). This policy support has resulted in sustained investor confidence.
The South African Automotive Master plan (SAAM) is a roadmap to 2035 with targets that include expanded vehicle production, doubling employment, an increase in local content to 60%, and an increase in the contribution of black-owned suppliers.
There are several industry-led initiatives aimed at facilitating support for existing companies on this transformation and black supplier development journey. Incubator structures, private advisory services and cluster initiatives such as East Cape Automotive Industry Forum (ECAIF) and Durban Automotive Cluster (DAC) provide valuable structures to support these objectives.
Manufacturing the future
Traditionally Africa’s greatest wealth has been seen to be its natural resources and primary sector extraction, relying on other developed economies for secondary beneficiation and imports. Now we stand on the brink of a major disruption to this paradigm. Digitisation will transform the continent’s economy into one that is exports-based.
Data, connected infrastructure and industrial ecosystems will together create the perfect storm for Africa to manufacture smart factories of the future.
According to a Frost & Sullivan White Paper by the Manufacturing Leadership Council, the manufacturing industry will look completely different in the next 10 to 15 years as industries become high-tech engines of mass customisation.
“Highly automated and information-intensive, the factory of tomorrow will look like an integrated hardware and software system, fuelled by vast quantities of information from every corner of the enterprise and beyond, moderated by analytical systems that can identify and extract insights and opportunities from that information, and comprise of intelligent machines that learn, act and work alongside highly skilled human beings.” – Frost & Sullivan White Paper
TRAINING AND SKILLS DEVELOPMENT
The 1994 democratic government inherited a population with low educational and skills levels and an education and training system that was fragmented, dysfunctional and unequal. From 1994 to 2009, the Department of Education was responsible for higher and technical vocational education delivered through the universities and further education and training (FET) colleges.
The then Department of Labour was responsible for workplace skills programmes, delivered largely through the Sector Education and Training Authorities (SETAs). This split in the education, training and workplace skills production created difficulties in delivery and the education and training levels of the population did not improve much. The education, training and skills system was described as ineffective and inefficient.
In 2009, the government created the single ministerial portfolio of Higher Education and Training. The portfolio shifted the higher and further education and training functions associated with colleges and universities from the Minister of Education to the new Department of Higher Education and Training (DHET).
Skills development and vocational training has been key to job creation and reduction of poverty.
The focus of the Skills Development Act, 1998 (Amended 2008) was to:
- Empower the South African workforce with skills
- Ensure employees access more opportunities for skill acquisition
- Create space for the new entrants to the labour market to gain work experience, introduce transformative tools through training and education to redress unfair discrimination practices in the labour market.
Furthering the national skills development and training imperative, DHET presented the National Skills Development Plan to the portfolio committee on higher education and training in August 2018. The nine principles of the Plan were outlined as follows:
- Locating the NSDP within an integrated post-school system
- Contributing to the country’s socio-economic objectives
- Advancing an equitable and integrated system
- Greater inclusivity and collaboration
- Focus on support system for learners and employers
- Strong emphasis on accountability
- Understanding demand
- Steering Supply – Qualifications and Provision
- Steering Funding – Funding Mechanisms
Since 1994 financial services have seen strong growth and investors cite this sector as one of the key motivations for investing in our economy. In the South African context, access to finance and financial services are key to achieving economic and social transformation.
Meaningful transformation of the financial sector includes issues such as access, lower rates, appropriate product development, procurement, empowerment financing, socio-economic development, employment equity and skills development. True transformation of the financial sector means that it will work for all South Africans, enabling all citizens to save, borrow, insure and transact.
Structure of the South African finance sector arranged according to value of assets:
- Pension funds
- Long-term insurers
- Collective investment schemes
- Short-term insurers
The period since 1994 has seen the South African economy undergo profound restructuring which has included policy initiatives such as the Broad-Based Black Economic Empowerment Strategy, the Microeconomic Reform Strategy, Transformation Charters, Sector Codes, Codes of Best Practice, the Black Industrialist Programme and the Financial Sector Regulations Act (2017).
“In 2017 the Financial Sector Code was amended to ensure it was in line with the dti Codes of Good Practice. The year 2018 saw the sector contribute R640 368 228 613 to the gross domestic product of the economy (22.39%).
The Financial Sector Code (FSC) commits all participants to actively promoting a transformed, vibrant and globally competitive financial sector that reflects the demographics of South Africa, which contributes to the establishment of an equitable society by providing accessible financial services to black people and by directing investment into targeted sectors of the economy.
Recognising the unique position that financial institutions hold in the development of South Africa, two unique elements exist in the FSC scorecard over and above the five elements in the Codes of Good Practice. These are: Empowerment Financing and Access to Financial Services. These elements are intended to accelerate the transformation process as they focus on making financial services accessible to the previously unbanked and under-served. They empower the previously disenfranchised through the provision of affordable housing, financing of black Small, Medium and Micro Enterprises (SMMEs) and agricultural activities, and investing in various types of transformational infrastructure that help create the necessary platforms to grow the economy on an equitable basis.”
– Government Gazette 1 December 2017
*For more updates on the public sector, check out the latest edition of the Public Sector Leaders publication here.