Wall St. and Business Wednesdays: South Africa's Growing Middle Class

The head office at Lechabile Technology Solutions looks like any other business executive's - motivational posters on the walls, a small plastic putting green in the corner.

But one key difference sets Lechabile apart in South Africa: It was founded by blacks, and most of its 80 employees are black.

With apartheid abolished, new black-owned companies like Lechabile are gaining ground, major white-owned corporations are bringing in new black partners, and a black middle class is emerging.

But as South Africa heads into its third democratic elections on April 14, and two weeks later the 10th anniversary of the end of apartheid, many complain the country's much vaunted economic transformation has benefited only a small black elite.

"You see more successful black people than ever before, you see more rich black people," said Winston Mosiako, a former IBM employee who co-founded Lechabile in 1998 and is among the country's most successful black entrepreneurs. "But there's still a long, long way to go."

Mosiako was 41 when apartheid ended. He has since moved from the crowded black township of Soweto to a large house in one of Johannesburg's wealthiest and whitest suburbs. He now spends his weekdays managing the company's expanding consultancy business. On weekends, he golfs.

"Life has really changed," he said - but adds he is among a lucky few.

When they took the reins of government after South Africa's first all-race elections in 1994, Nelson Mandela and his party, the African National Congress, inherited a deeply skewed economic system built on cheap black labor.

Whites, who make up about 10% of South Africa's 45 million people, controlled most of the country's vast mineral wealth and fertile land. Blacks lived in poverty, squeezed into crumbling townships on the fringes of white cities and towns.

Hoping to stimulate growth after years of economic stagnation and political isolation, the once socialist ANC has sought a delicate balance between redistributing wealth and retaining business confidence. But transforming that economy has become one of its most difficult challenges.

New laws set targets for black employment and ownership, give preference to black-owned or -managed companies for government contracts, and require industry to train people denied opportunities under apartheid.

Today, almost half of the richest 15% of South Africans are black or Asian. But while the number of top black executives has grown, the business world remains largely white and male.

Black entrepreneurs who want to start their own businesses say they struggle to get financing. Few have management or business experience, and many say racism remains widespread.

"People think the services they get from black companies are inferior," says Mosiako, who gets 70% of his business from the government. "You have to work twice as hard to prove to a customer that you can deliver."

More serious is the failure so far of the government's Black Economic Empowerment program to create jobs - a pressing need in a country where more than 30% are unemployed, most of them black.

"We've always said Black Economic Empowerment is a growth strategy," said Nolitha Fakude, president of the Black Management Forum, an influential professional association. "But at the end of the day, we haven't succeeded in that."

Government and business leaders have touted a few high-profile transactions, in which black executives have bought stakes in major companies like mining giants Harmony Gold Mining Co. (HAR.JO) and Anglo American Platinum Corp. (AMS.JO).

But many of the deals involve a handful of prominent black businessmen with strong ties to the governing party, like former ANC provincial premier Tokyo Sexwale and its former secretary-general, Cyril Ramaphosa. Both are now among the country's wealthiest men.

"It creates an impression that they're creating new entrepreneurs, when actually they're not. They're just financing the transfer of assets from one group to another group," said Moeletsi Mbeki, brother of Mandela's successor, Thabo Mbeki, and a critic of the way government has implemented its empowerment program.

Meanwhile, millions of blacks remain mired in poverty. Lesia Matonsela walks each day from her shack in the Johannesburg squatter camp Thembelihle to a nearby white suburb in search of odd jobs to feed her five children.

"They are rich, but they don't help us," she complained angrily of the new black elite. "They have forgotten about us."

The government argues that transferring ownership of companies will help break the link between wealth and race and create a new class of black entrepreneurs. But even measured against this standard, progress has been slow.

In 2002, fewer than 30 of the about 450 companies listed on the Johannesburg Stock Exchange had significant black ownership, according to the BusinessMap Foundation, which researches empowerment. And those companies accounted for only 3% of the exchange's total value.

Nor have South African companies succeeded in substantially diversifying their top management. BusinessMap's research for 2002 found that 98% of executive directors for JSE-listed companies were white, and most of the country's 64 black executive directors worked for black-owned companies.

That doesn't surprise Mosiako, who says he remains a lone black face at technology conferences, or Fakude, one of South Africa's few black women executives, who sits on the boards of companies like Harmony Gold and financial group Nedcor Ltd. (NED.JO).

"We're all brought in because they want a woman or a black person," says Fakude, a trim woman in a black suit and beaded necklace. "You have to prove that you're going to sit down at that table as an equal."

While white-dominated companies say they are committed to diversifying, they insist the need for change must be balanced against the need to remain competitive.

"This country has suffered for many years under the apartheid education system," which did not prepare blacks for skilled jobs, said Frans Barker, senior executive at the South African Chamber of Mines. "That means that the supply of qualified people who you can train further and educate further is not as substantial as you would have liked."


Note: This article first appeared in the Associated Press

Wednesday, March 10, 2004

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