South African companies are trying to confront apartheid legacies that the new government has yet to resolve

 

South African companies are trying to confront apartheid legacies that the new government has yet to resolve

South Africa’s state-owned tourism agency used to advertise “South Africa: a world in a country”. Today, the idea that might be used to symbolise the challenges for South African business.

South Africa is the continent’s largest and most industrialised economy as well as the 12th largest emitter of greenhouse gases globally. At the heart of the economy is a small, financially sophisticated developed-world core, which accounts for 10-15% of the population. The country might be about to host the football World Cup, but for 85% of the population, poverty and underdevelopment remains the reality of everyday life.

Fifteen years after the end of apartheid, most of the developmental challenges of South Africa’s historically disadvantaged majority – as non-whites are now officially referred to – remain unaddressed. This is despite enormous shifts in public spending towards delivering social services to the historically disadvantaged by the government.

The most fundamental failure has been in education. Former University of Cape Town vice-chancellor and World Bank director Mamphela Ramphele compares the situation unfavourably to bantu education – the inferior system offered to Africans by the apartheid state to deny them opportunities.

While there are many contributing factors, significant is opposition from the teachers union – the largest union affiliated to the ANC-led government – to the removal or disciplining of substandard teachers that have been inherited from the apartheid-era government. As a result the number of university entrants who progress to engineering, nursing and accounting continues to stagnate. This leads to capacity constraints in the private sector, but also in the government and within civil society.

Literacy issues

Paul Hoffman of the Institute for Accountability in Southern Africa says that only a minority of African high school graduates “are able to pass a basic functional literacy test”. Nevertheless, many of them find employment as clerks, constables and community development workers in the public sector.

Coupled with the politically motivated advancement of people into public sector positions for which they are often not qualified, this creates barriers to realising the promise of what 15 years ago was Nelson Mandela’s “new” South Africa. In January this year the ANC admitted that “there are those placed in positions of responsibility who do nothing, either through incapacity or unwillingness”.

Hoffman says the problem affects all aspects of the economy – as well as public sector and civil society capacity. This leads to the promises of social services going mostly unfulfilled. These are the dominant factors shaping corporate responsibility in South Africa today.

Apartheid was built on the principle of denying the non-white majority access to education and opportunity. The apartheid government systematically and successfully used preferential procurement and ethnic favouritism towards the Afrikaner community to advance their economic role.

By the time apartheid fell, Afrikaners had established powerful positions in all sectors of the economy. English-speaking whites, traditionally associated with dominating most of the sectors of the modern economy, worked within the constraints of apartheid and sometimes benefited from it.

Nevertheless, the majority of them understood early on that ultimately apartheid would constrain their business opportunities, their security and long-term sustainability.

Sir Ernest Oppenheimer, then chief executive of South Africa’s largest and still most iconic company, Anglo American, summed up his vision in 1954: “The aims of this group have been – and they still remain – to earn profits but to earn them in such a way as to make a real and permanent contribution to the well-being of the people and to the development of southern Africa.”

So, from as early as the 1950s South African big business focused its corporate responsibility on funding political reform and opposition parties. At a more practical level companies invested in infrastructure designed to make up some of the educational shortfalls that apartheid created among the majority.

Social philanthropy

Formal corporate charities, usually dispensing 1% of pre-tax profits to philanthropic causes, came in the 1970s. Most of them focused on social issues such as education, agricultural development and rural health.

Environmental causes came much later and were restricted to traditional conservation. It was not until the mid-1990s that major South African companies began to cautiously mention environmental issues as they related to their business.

The demise of apartheid brought little change as business continued to see itself as a developmental agent and built on its corporate responsibility tradition. Initially public-private partnerships such as the Independent Development Trust injected substantial funds – as much as £100m (in today’s value) a year just into the expansion of educational infrastructure.

Journalist RW Johnson says the IDT was sidelined when its successes started showing up the government’s shortcomings in education and development work. But as the state’s capacity to engage has stagnated, business has begun to reassess its role as an agent of development.

Sustainability and corporate responsibility continue to be taken seriously in South Africa. Surveys by sustainability consultancy Trialogue show that corporate responsibility programme budgets have kept pace with inflation over the past decade. Corporate giving has been unaffected by the current recession, rising 24% year on year to 5.1bn rand ($690m) for the 2008-09 financial year. Few, though, expect this rate of increase to be sustained in the face of a lingering recession.

There is a mismatch between how the public and the private sector understand corporate responsibility. While South African business may pay more attention to social issues than is common in the developed world, it generally understands the concept in the holistic sense common to European business – the challenge to balance the needs of the economy, the environment and society. By contrast the government, despite rhetoric to the contrary, is primarily concerned with the economic and social aspects.

Complicating matters is that business is increasingly finding its corporate responsibility efforts directed towards taking over, or propping up failing and under-capacitated government service infrastructure, especially in rural areas. So despite having developed a much broader corporate responsibility definition than the government, private sector initiatives are becoming skewed away from environmental causes. This at a time when it is becoming clear that water availability and climate change are among business’s main future challenges.

Transforming society

Since coming to power the ANC government has made transformation of the formerly white-ruled economy its priority. It has done so in many ways copied from the former apartheid government but with the difference that preferential treatment now applies to a majority as opposed to an ethnic minority.

As a result, the 15 years since the demise of apartheid have seen the rise of a new black middle class. The majority have acquired their status and wealth through public sector employment or government contracts, rather than the private sector. This is reflected in attitudes towards corporate responsibility.

The government calls its broader policy Black Economic Empowerment. It has forced the “voluntary negotiation” of charters for each sector of the economy. These set transformation targets and timelines for matters such as black ownership of companies, racial quotas at all levels of company management, requirements for expenditure on training and skills development and targets for procurement from black-owned small business.

South Africa became the first country in the continent to introduce components of corporate responsibility when it established the department of trade and industry’s codes of good practice for black economic empowerment.

From the end of January 2008 all companies with a annual turnover of more than 5m rand ($680,000) that want to do business with the government have had to measure and account for contributions to the government’s broad transformation agenda in seven areas: company ownership, management control, employment equity, skills development, preferential procurement, enterprise development and socio-economic development.

The challenge for business is that some of the targets cannot be reached because the country lacks skilled manpower. For example the gender target for the mining industry charter could not be achieved even if all female mining students currently in South African universities were to pass.

The often unrealistic nature of some of these targets has even forced some government-owned companies, such as power utility Eskom, to hire foreign non-whites to meet these racial targets.

But as educationalist Graeme Bloch points out, although education accounts for a quarter of the government’s budget, the number of non-white university students graduating each year “has hardly moved since 1994”. This means that the focus on transformation has come at the expense of social service delivery. More than half of the state-owned companies to which politically connected leaders were “deployed” lack chief executives or are paralysed by governance issues.

And the state also has not walked its own development talk. For years it decried the toll that high telecoms charges were taking on the country’s development, yet it controlled the state telephone monopoly. The high internet and telephone charges spawned a massive mobile-phone sector, itself now under the spotlight for potential collusion. The government promotes literacy campaigns, but continues to tax books.

Nowhere is the divergent approach between government and business on corporate responsibility as evident as in energy. South Africa is the world’s most coal-dependent country when it comes to electricity generation.

Worse, Eskom, a quasi state monopoly, has been plunged into crisis through years of poor management that now threatens the stability of electricity supply. In response many companies have proposed and initiated co-generation, energy efficiency and renewable projects only to find them frustrated by Eskom’s insistence that the only solution lies in the construction of additional large coal power stations.

Renewable energy could provide power security and massive job creation for the marginalised majority. But this seems to matter little when an investment company – Chancellor House – controlled by the ruling party, the ANC, is alleged to potentially benefit massively from “partnering” with those companies selected to build mega coal powered stations.

In the meantime the government’s climate change policies and positions – which formally endorse the expansion of renewables – stand discredited. And such contrasts continue to weigh heavily on business’s practical approach to corporate responsibility in South Africa.

South Africa corporate responsibility factsheet

Socio-economic statistics
Population: 49 million
GDP (purchasing power parity): €358bn
GDP per capita: €7,300
Monthly minimum wage (2008): €109
HDI: 0.683, ranked 129 out of 182 countries

Current leadership:
President: Jacob Zuma
Type: parliamentary republic

Primary industries:
Mining (platinum, gold, chromium), automobile assembly, metalworking, machinery, textiles, iron and steel, chemicals, fertilizer, foodstuffs, commercial ship repair

References:

 

 

• Socio-economic statistics obtained from recent publications by the IMF, the CIA World Factbook, the European Commission, the ILO and the Human Development Index.
• Corporate responsibility statistics obtained from a January/February 2010 Ethical Corporation survey.
• Guideline and standards statistics obtained during February 2010 from official website of each initiative.