The Economic Impetus of Indigenization Laws

Fostering Development Through Local Empowerment

This morning, I read that one of the opposition parties within South Africa is looking to scrap the Black Economic Empowerment laws currently, loosely enforced within South Africa.
This surprised me for a so-called liberal party with historically clear and intellectually ethical researchers and policy developers.
Let me attempt to strong man the fallacy that black economic empowerment and any indigenisation laws bring ruin and lack of investment within an economy. And for the South African context, the major requirement for this law to keep enforce.

Let me start at the beginning, and this context is important to understand where are today. This is merely a desktop dive into this subject and more in-depth analysis is possible an should be looked into.
The Vereenigde Oost-Indische Compagnie (VOC) or more understood as the Dutch East India Company, was a trading company founded in the Dutch Republic (present-day Netherlands) in 1602 to protect that state’s trade in the Indian Ocean and to assist in the Dutch war of independence from Spain.
As every child in South Africa is forced to learn, they landed at the coast of Good Hope, present day Cape Town in 1652. Where they developed a strategic refreshment station of global importance — before the development of the Suez Canal in 1869.
Now, I am not going to delve into the human destruction of this phase in our historical context but move to the economic development that came. A lot of externalities and conflict did however occur.

Due to this strategic imperative to global trade, opportunity arose and persisted for over 200 years for primary agriculture and trade to develop, cordially, forcibly and through treachery. However it all happened, it did, and the South African economy flourished.
Barrons of capital were minted at the Cape, as early as the 1690s, the first of which was Henning Hüsing — who become the richest man at the Cape. He would go on to be claimed as the first Afrikaner industrialist, entrepreneur, what ever you may want to call it.

Now, anyone who has every been to South Africa will know that South African law is predominantly based on and influenced by both Roman-Dutch law and English law in respect of legislation and case law. What this signifies that the governing structure under which indigenous people had known and understood for 100s of years, got swept away with new, restrictive and abuse laws. Culturally foreign terms and understandings of commerce, land use and labour were enforced, by military might and weaponry.

The South African economy, which had developed as an agrarian one, feeding the requirements of passing ships, developed differently, at the discovery of diamonds in 1867 and gold in 1886. From the land, came riches, unforetold and new barons were minted in the interior of the country. One of the notable early Afrikaner entrepreneurs was Johannes Henoch Marais, commonly known as Jannie.
He would later in 1906 become the benefactor of Stellenbosch, seeding the funds required to start that university. Later in 1905, he was instrumental in the founding of De Burger newspaper, which later become known as Die Burger. The flagship newspaper for the Nationale Pers or Naspers Limited today. The global investment holding company which owns Tencent.
I draw this string through time, to articulate and showcase that, at no time, from 1652 till the 1900s, was there any meaningful participation and economic development by black people of South Africa. Again, without delving into the repressive laws, of the day, black people were materially barred from holding land, cattle and livestock, which was a form of capital or wealth. And were forcibly encouraged to make up the required labour force for the growing mining sector in the country.
Conversely, Afrikaner economic development, historically Dutch people, can be traced all the way back to the 1690s.

In 2003 the South African government, which was made up of legitimately elected people, after the free election of 1994, introduced the Broad-Based Black Economic Empowerment Act 53 of 2003. This was a form of affirmative action, it was intended to redress the inequalities created by apartheid.
The policy provides incentives — especially preferential treatment in government procurement to companies that have a greater empowerment level or score.
When first practiced, this law focused narrowly on black ownership in businesses and not participation in the economy.

Now that we have concluded with the historical context, lets commence on the value of BEE or the new Broad-Based Black Economic Empowerment (BBBEE) laws that some are looking to repeal.
Indigenization laws, also known as economic empowerment or affirmative action policies, have become an integral part of many countries’ efforts to promote economic development.
These laws are designed to empower local populations by ensuring their participation in various economic sectors.

While these policies may take different forms and have varied degrees of success, the overarching goal is to foster sustainable economic growth and reduce dependence on foreign influences.

Wealth Redistribution and Poverty Alleviation
One of the primary objectives of indigenization laws is to address economic disparities in effect due to historical injustices.
As argued, the compounding effect of Afrikaner economic development over the last 500 years, has yielded great disparity in income, income mobility and prospect for economic growth for the indigenous population.
The aim of these laws is to equitably facilitate the transfer of resources from those with great advantage to those with historically less advantage. By so doing, increasing the pool of participants within the economy and contribute to poverty alleviation.

Promotion of Local Entrepreneurship
According to the Global Economic Monitor report, South Africa has been on a steady decline in the number of entrepreneurs available and building businesses in the economy.
This may be true, but it sits outside the reality that, more South Africans today, work for businesses that are black owned, than ever before. Entrepreneurial activity might be declining at subsistence level, but at small, medium, and corporate levels, there is greater black participation and growth.
In many ways this has been encouraged and spurred on by BBBEE laws and subsequent affirmative action laws.
Indigenization laws often encourage and support local entrepreneurship. By providing incentives, opportunities and role models for indigenous individuals and businesses, these policies stimulate the growth of a vibrant entrepreneurial ecosystem. And when it works well, it offers a capital base that can invest in the next generation of entrepreneurs.
The spirit of BEE has not been implemented as it should have, but at least it has sparked a start. A spark, I would argue was never going to materialise, had it not been in effect and a spark that will dwindle and die, if at this young age in our democratic life as a country, repeal.

Technology Transfer and Skills Development
Encouraging local participation in key industries through indigenization laws facilitates the transfer of technology and skills.
As local entrepreneurs collaborate with international partners or acquire foreign businesses, they gain access to advanced technologies and knowledge.
This not only enhances the competitiveness of local industries but also contributes to the development of a skilled workforce, able to find innovative solutions within smaller markets in the economy.

Social Cohesion and Political Stability
One major component of those against Black Economic Empowerment laws, is the argument that they disadvantage the white minority population within South Africa.
I guess that is a viewpoint based on what your understanding of advantage vs disadvantage is. And a viewpoint on what equitable sharing and partnerships should look like.
From this land, some have prospered at the expense of others, it is therefore imperative that from this land, a system of partnership for wider economic participation is achieved, and the most tangible manner to do so, is though the advocacy of indigenisation laws like Black Economic Empowerment.

Any entrepreneur who is able to develop a business and allow for meaningful worker participation within the business, be it on a ceding of shares over time, or some other mechanism that allows for participation, is engaging in economic empowerment, and as an incentive system, lies at the heart of pure capitalism.
The continued misunderstanding that businesses and entrepreneurs have, on the fundamental responsibility they have to their communities and society as a whole is quite misguided.
It is polarising and, in many ways, stokes the fires of dissention and destroy the social fabric of our country.

In conclusion, democratic South Africa has minted more billionaires than Apartheid ever did, those billionaires however, were minted on the inertia of 400 years of Afrikaner economic advantage, at the cost of black people of South Africa.
The hope for BEE laws has been, as a tool for fostering economic development by empowering local communities, redistributing wealth, and promoting sustainable business practices.
While the implementation of these policies may pose challenges, the long-term benefits in terms of poverty reduction, entrepreneurship promotion, cultural preservation, and economic resilience make them valuable instruments for shaping a more equitable and prosperous future.