Examination of Witnesses (Questions 60-79)
9 DECEMBER 2003
MR JESMOND
BLUMENFELD AND
MR ALASTAIR
FRASER
Q60 Mr Chidgey: Is by any chance, and
I am not sure on this at all, within this equation, within this
controversy, this opposition, whatever, is there a factor there
that there is a concern that the privatisation exercise might
result in the creation of a new elite, a new ruling class to replace
the old, white-based elite?
Mr Blumenfeld: No, I would not
say that, because all privatisation transactions would, like most
other investment transactions, be subject to the whole new approach
which ensures there is a substantial black empowerment element
within the investment.
Q61 Mr Chidgey: Could it be a black elite
which was created out of this process?
Mr Blumenfeld: A black elite has
been created, and again this is a contested issue and one of the
problems around the whole black economic empowerment programme.
In the second half of the 1990s there was a privately-driven,
market-driven process whereby corporations sold off stakes to
black empowerment groups, the terms on which they were done, the
financial structures underlying those deals, were often not very
sound, they were based on black groups borrowing substantial funds
in the hope that both capital gain on the stock market and organic
growth within the companies would enable them to repay those loans,
and the stock market then collapsed. So what one got was a perception
of black economic empowerment, which was the creation of a get
rich quick, capitalist elite. That led to the appointment of the
Black Empowerment Commission which deliberated for two or three
years, produced a report which has formed the basis of the new
legislation which is currently going through Parliament for the
establishment of what is called the broad-based black economic
empowerment strategy. There is concern about the fact that a relatively
small number of elite people are benefiting from this to the exclusion
of others; that is very much part of the debate in South Africa.
Mr Fraser: Just on that, there
is an important point about the idea of a home-grown adjustment
process in South Africa, because although I have said economic
policy should and is being made by South Africans, the key focus
both for the Foreign Office and for this Committee should be on
the international constraints on South African policy making.
We need to be aware that, for example, the shift from RDP[57]to
GEAR was heavily informed by the currency crisis in South Africa,
itself in many ways a result of the international financial system
over which the UK has significant influence, and therefore it
is something we can do something about. Similarly, the World Bank
and IMF advisers, who ultimately answer to the board members in
the UK to some extent, were offering so-called expert advice in
South Africa right through the transition and through the RDP/GEAR
period, and we need to be aware of that. We need to be aware of
what our Government is selling to the World Bank and IMF to sell
to other countries. South Africa is also constrained by the rules
in the Trade Development Co-operation Agreement with the EU, and
it is constrained by the rules of the WTO, and South Africa itself
is very aware of these problems and has laid out an ambitious
challenge to it in the form of NePAD, which you talked about earlier.
It runs through all these issues. The interesting thing about
the G8 response to NePAD is that it has attempted to entirely
ignore that structural debate and to shift focus on to the issues
which interest us. So there is a real problem there and if we
are not able to pick up on that, we are not really saying anything
to the UK government.
Q62 Richard Ottaway: May I touch on the
point Mr Blumenfeld touched on, black economic empowerment. You
seemed to be suggesting a second ago that you did not think it
was making much progress. Is that right? If so, what can be done
to speed it up?
Mr Blumenfeld: What I was suggesting
was it did not make much progress in the first phase of this,
which was in the late 1990s, and it became a rather discredited
strategy. In a way, black economic empowerment has now become
almost the new religion in South Africa, and that I have to say
worries me somewhat. There is no quibbling with the fact that
blacks need to be empowered, that a much greater share of ownership
and control of resources ought to be exercised by black South
Africans, my concern about the current policy is that it comes
out of the report of the Black Empowerment Commission which came
up with the key conclusion that economic growth in South Africa
is being fundamentally held back by the lack of empowerment and
by engrained racism within the control of the economy. My point
about that, and I spelt it out earlier, is that I think one should
not be looking for simplistic explanations for why growth in South
Africa has been slow. It is a very complicated story, there are
huge structural problems which need to be addressed or are in
the process of being addressed, and lack of empowerment of blacks
is only one element of that. But the conclusion of the Commission
was that this was a fundamental constraint on economic growth,
therefore if one empowered blacks one would get much more rapid
economic growth. That has yet to be seen.
Q63 Richard Ottaway: What is the logic
in that?
Mr Blumenfeld: If something is
a constraint and you remove the constraint, presumably you are
expecting—
Q64 Richard Ottaway: Why was lack of
black economic empowerment a constraint?
Mr Blumenfeld: That was the argument
of the Commission, it is not my argument, I am simply reporting
the findings of the Commission. I am just trying to say that I
think the reasons why South Africa has problems growing at a much
more rapid rate are very complex and there are a wide range of
them. For one thing the market is relatively constrained because
you have had for four generations a relatively small number of
people who owned assets, had access to income-enhancing educational
opportunities and so on, and the vast majority did not, so by
definition you have a restricted domestic market. The more that
market grows the greater the economic opportunities which are
there. The more blacks are acquiring assets and property and marketable
skills, the greater the benefits which will come from that. My
concern is that it is being seen as the key policy aspect at the
moment, and whilst there are certainly strong commercial arguments
for firms to take account of the pressures for black empowerment,
some of this is being induced. It reminds me in a way of the era
of the Reconstruction and Development Programme immediately after
1994. The Reconstruction and Development Programme was the ANC's
policy manifesto and when you spoke to South Africans, it did
not matter who you spoke to, you could not find anybody who did
not believe in the Reconstruction and Development Programme, but
it proved not to be a coherent strategy and it was dumped very
quickly, by early 1996 the RDP office had been closed down and
the RDP has been abandoned in all but name and replaced by this
new Growth Employment and Redistribution strategy. One senses
the same sort of thing happening now in relation to black empowerment.
Everybody is on the black empowerment wagon. Without in any way
denigrating the need for greater empowerment, I think there is
insufficient attention being paid to the risks and the costs which
are involved. Insofar as the perceptions of those risks inhibit
new investment, that is a factor which ought to be taken into
account.
Mr Fraser: My only comment would
be about UK companies and investors and again focusing on what
contribution we can make to black economic empowerment. There
is an obvious need for black economic empowerment. In 1995-2000
the average household income for an African family in South Africa
dropped 19 per cent, for a white family it rose 15 per cent, so
there is an obvious need. There is the issue of a mass consumer
market amongst the black population which is essential to have
a balanced economic development. I would come back to the point
that South Africa is not normal, it is one of the world's most
unequal societies, and that does something distorting not just
to society but to the economy, and whatever it means, black economic
empowerment is a necessary rejoinder to that situation. For UK
companies, I guess our investors need to be looking at what they
can do to make the maximum contribution to the society and the
communities they are investing in. For example, in fields like
tourism and mining, and a lot of the investments are in those
fields, it is very easy to repatriate profits very quickly without
any significant impact on the local environment. So it is thinking
through what the UK companies can do to go beyond the legal minimums,
which in South Africa compared to the UK are fairly basic—they
are not legally required to leave very much in the communities—and
they need to think, "Do we need to hit the legal minimums
or do we need to become model employers and model investors",
and there are questions about what the UK government could do
to encourage that.
Q65 Richard Ottaway: Has black economic
empowerment filtered down into the education system at all?
Mr Blumenfeld: It depends what
you mean by black economic empowerment. If you are asking whether
the composition of the labour force or the composition of the
school teaching force within education has changed, the answer
is yes, dramatically. But it really depends what you mean by empowerment.
I would understand empowerment in that sense to mean effective
control and direction and ownership of productive resources.
Q66 Richard Ottaway: Has this been discussed?
Is it part of the national curriculum? I am sure there is no such
thing as a national curriculum but is it becoming part of everyday
life?
Mr Blumenfeld: I would answer
that rather differently by saying there was a whole series of
legislative measures in the mid-1990s, some of the first legislative
actions that the Government undertook, which were to redress what
it regarded as the inequities and imbalances in the labour market,
and that is where the empowerment thrust was in the first three
to four years of the new Government. It was to begin a process
of correcting the legacy of discrimination and inequality in the
labour markets. So there were a number of employment equity laws
and related laws which were passed that sought to ensure that
the composition of the labour force at all levels and in all occupations
and across all firms and sectors more accurately reflected the
composition of the population. It was not quite a quota system
but it was informed by the same idea, that the composition of
the labour force, not just at the unskilled level but at the middle
management level and senior management level and the board of
directors level and so on, should reflect more accurately both
the gender composition of the population and the racial composition.
That was where the thrust was initially. That is having very dramatic
effects. There was a whole series of affirmative action programmes
which had the same consequences.
Q67 Chairman: How significant is crime,
or the perception of crime, as a deterrent in terms of inward
investment and skilled personnel at a senior level moving to South
Africa?
Mr Blumenfeld: It is one of a
number of factors which inhibit inward investment. There is no
getting away from it. The crime problem is serious, it creates
difficulties for any firm wanting to send skilled personnel there
because they have a responsibility for their welfare. There is
a perception but also a reality that crime levels are high particularly
in certain areas. There is no question that it does have an impact
on investment. It is of course one of the reasons why one of the
most rapidly growing industries in South Africa is the security
industry, it is an ill wind which blows nobody any good, but there
is no getting away from the thrust of your question.
Mr Fraser: It is difficult to
know what is going on in the mind of investors, it is rather like
knowing what is going on in the mind of criminals. I suppose the
two most useful comments I can add are that the latest crime statistics
suggest there is some downward trend and that there is a new plan
for the regeneration of central Johannesburg.
Q68 Chairman: Is that an area where the
UK can help—in training?
Mr Fraser: There are already police
exchanges and that kind of thing, so I imagine so, yes. The situation
in Johannesburg is interesting because it is the location where
big investors, both South African and foreign, will look, and
having a city of that size which has a CPD16[58]in
the situation it is in at the moment is bizarre.
Q69 Chairman: Is the Carlton Hotel still
mothballed?
Mr Fraser: There is a lot of property
still mothballed but there is a plan which has emerged for the
state legislature and the state Government to take over significant
land and some of the empty buildings in Johannesburg city centre—they
are trying to turn it into a pedestrianised area—and there
may be some hope that the atmosphere in that area could be turned
around.
Q70 Chairman: How significant a constraint
is the exodus of trained people? We may be benefiting our own
National Health Service, for example, at the expense of South
Africa. Is that a significant factor?
Mr Fraser: It is a huge factor
and it is something which enormously annoys both South Africans
and the South African government. It is quite a complex issue
to try and find a solution to in that you cannot stop people travelling
or taking individual decisions about how to lead their lives.
There has been, as I understand it, a deal struck recently to
do with the operation of British employment agencies which recruit
in South Africa, both their recruiting techniques and what they
are telling people the situation will be in the UK. There is then
the situation for nurses when they arrive in the UK, and it is
something UNISON has done quite a lot of work on, the situation
for migrant nurses arriving here and finding it is not quite what
was advertised.
Mr Blumenfeld: I would not dissent
from that at all. I would add of course that the opposite is happening
within Africa, in that South Africa is denuding many other African
countries of their skilled personnel and professional people from
teaching, universities and professions. You find people from every
corner of the African continent in South Africa at the moment,
and they have gone there because the opportunities seem to be
better there than in their home countries. So it is a complex
issue.
Q71 Mr Hamilton: I think both of you
were in the room when I asked Professors Simon and Barber about
Zimbabwe and South Africa, and South Africa's relations with Zimbabwe
and the attitude of leaders in South Africa. I wanted to explore
some of those points with you. You will have heard me say that
we have published three reports as a committee into Zimbabwe,
the latest being in May of this year, and one of the points we
drew attention to in our most recent report was the fact that
South Africa could have enormous influence on the Mugabe regime
in Zimbabwe but seems very reluctant to be at all critical. In
the light of the worsening situation in Zimbabwe, especially the
economic spiral downwards and the effect that has not on the white
farmers who are left but on the Zimbabwean population, the African
Zimbabweans, I wonder whether you would concur with Professors
Simon and Barber in their views that there were many complex reasons
why South Africa and especially Thabo Mbeki refused to be critical
openly of Robert Mugabe despite the gross violation of human rights
in Zimbabwe?
Mr Blumenfeld: I do not think
I would be able to add very much beyond what they said. I think
they summed it up fairly accurately.
Mr Fraser: I have submitted comments
to your Zimbabwe inquiry as well. Particularly given the last
few days, one of the mistakes we could make would be believing
that British pressure on South Africa to put pressure on Zimbabwe
would be a positive thing. South Africa has its reasons which
have been discussed for its approach to Zimbabwe, some of which
we would disagree with—South African quiet diplomacy should
be more balanced, much clearer condemnation of the human rights
abuses in Zimbabwe, for example. But South Africa being seen to
act in response to a UK demand for it to do so is likely to be
extremely counter-productive. So in terms of FCO policy, there
are real questions about how much is done in the background and
how much is done in the foreground. Our consistent advice to the
FCO is, yes, they should be talking but they should be talking
in the background. Every time the megaphones come out in the UK,
it tends to have an unfortunate result, whatever the intention.
Q72 Mr Hamilton: I understand that and
I think you are right, Professors Simon and Barber expressed it
very clearly, but I wonder this: surely South Africa as a sort
of beacon of democracy in the region would enhance its own reputation
by being seen to come down fairly hard on an African leader who
is oppressing many more of his own people than any perceived colonial
influence or white influence?
Mr Fraser: I think it rather depends
what you mean by "come down very hard".
Q73 Mr Hamilton: Well, be very critical
and try and support a democratic change in Zimbabwe as well as
economic change. It seems to me the people who are suffering are
the very people who cannot afford to suffer, not that anyone can
afford to suffer.
Mr Fraser: Nobody disagrees with
that. I think the question of what South Africa's best role could
be is a difficult one. Its current approach is claiming to be
a mediator between the two parties, and obviously for anyone attempting
to act as a mediator, overt bias is a problem. One of the comments
we have made is that South Africa is in danger of being seen to
be overtly biased in favour of the regime, and it needs to balance
this position, but balancing this position does not mean coming
out in favour of the opposition, taking a very strong public line.
It is a very difficult balancing act.
Q74 Mr Hamilton: Is there not enough
evidence made public of the severe oppression of anybody who opposes
Robert Mugabe in Zimbabwe?
Mr Fraser: Of course there is.
Everybody recognises that. The question is how useful is it to
shout that from the rooftops as compared to announce you believe
there are human rights abuses in the country, announce you believe
it is a complex crisis which involves the economy, governance,
AIDS, famine, etcetera, you understand the breadth of the issue
and that you want to be a mediator and a neutral mediator. It
simply depends on how you want it done. I never quite know what
people mean. When you say "South Africa should come down
very hard", if you mean South Africa should cut off the power,
you will not find a mass-based democratic legitimate movement
in Zimbabwe which agrees with you, so why say it? That is the
dilemma for South Africa.
Q75 Mr Hamilton: I know, Mr Blumenfeld,
you wanted to come in but let me finish off by asking you this:
is there any sign that South Africa's official policy is changing
to become, as you say, Mr Fraser, more balanced between the parties
so it can be a genuine mediator and ensure the very people who
are suffering have their suffering alleviated?
Mr Fraser: None that I have seen.
Mr Blumenfeld: No, I do not think
so, though the pressure is on and I think that pressure should
be maintained. As a UK citizen I would hope very much that the
UK government will at every opportunity, not necessarily in public
but certainly in private, make clear to the South African government
that it is in South Africa's and Africa's own interests that this
problem be dealt with, that the South African government in my
view made an error of judgment to begin with in not distancing
itself sufficiently from what was going on. The reasons for that
were partly explained by Professors Simon and Barber, but I think
also because there was a poor judgment made by South Africa's
policy makers on the nature of the problem and the issues that
it was going to raise, and I think they are backing themselves
into a corner. It is very difficult to change policy in that way
without losing face. NePAD is about improving good governance
and the South African government almost seems to be saying, "Zimbabwe
is such a special case we just cannot deal with that under NePAD,
it is too complicated." My personal view is that this is
a case of a naked attempt to retain power, and I do not buy all
the arguments that the key issue is land reform; I do not dismiss
the importance of land reform but I look at the consequences of
the land reform policy introduced and I am appalled. So I do think
there is an onus on the UK government to recognise this and to
push for change. It is very difficult from the outside to bring
about change, it can only come from inside, but every support
should be given to that.
Q76 Mr Chidgey: You were both here to
listen to the earlier evidence and you may remember I asked a
number of questions about NePAD, so I will try and do this fairly
shortly as you must know the questions. There is one I did not
ask before and I would like to run by you, and this is concerning
the Peer Review Mechanism which we are all familiar with. I understand
that so far 16 countries have volunteered to be reviewed, and
Ghana and South Africa are the first two. I wonder whether you
could give me your view on recognising that some countries in
Africa are less enthusiastic than others about the process, and
perhaps do not quite see the relevance as others might do. Can
you give me your view on what might be a critical mass in getting
universal acceptance throughout the continent? You have 16 countries
so far out of a total of 53/54 countries in Africa. What is the
critical mass for getting the concept of peer review universally
accepted throughout the AU? Coupled with that, are there any key
players who by signing up to the Peer Review Mechanism would give
this authenticity or authority which would make others willing
to join and accept this is the way forward?
Mr Blumenfeld: Your comments began
with "we are all familiar with it", I am glad you are
familiar with it because my problem with the Peer Review Mechanism
is trying to work out exactly what it is. I know in principle
what it is but where is the beef? I think the answer to your question
is, they need to get it going. I do not think the critical mass
is an issue.
Q77 Mr Chidgey: So you agree with President
Wade, that it is taking too long and if it takes much longer it
will drift away?
Mr Blumenfeld: Absolutely.
Mr Fraser: I do not have a strong
view on it. Although it is hard to work out exactly what it is,
which I find true of NePAD in general, I think the one thing you
can say about the Peer Review Mechanism is that it is a remarkable
thing to talk about doing. Nobody else in the world does it. I
think that we need to be careful about how we chivvy people along
and saying, "Come on, everybody must get into this thing";
though we are a supporter of the idea I think there has to be
a certain level of understanding about what people are committing
to and what kind of achievement that would be.
Q78 Mr Chidgey: I wonder if the EU nations
would be happy to have a peer review mechanism, but that is an
aside. We have looked at NePAD already, how significant is it,
what can it potentially deliver for South Africa and for the Continent
as a whole? Have you anything you want to add?
Mr Fraser: NePAD as a whole?
Q79 Mr Chidgey: Yes, what can it deliver?
Mr Fraser: I think it is enormously
significant, even if it is difficult to work out what it is. The
fact that a large group of African countries are able to agree
to a programme which lays out particularly the structural challenges
within the international system and sets that out as a challenge
to the rich world, "What are you going to do about this,
we are serious about this, we are going to come to the G8 meetings
and ask you what you will deliver", I think is enormously
significant. The G8 has within its power to completely kill NePAD
off and I think it is doing a good job of it so far, because its
response to the structural challenges has been so disappointing,
on debt, on trade, and even on the promises it has made on aid
or aid for AIDS specifically, it is either "No Comment"
or it is an empty promise. I think that is enormously dangerous
for the whole idea of a North-South partnership, which for me
is the most exciting thing about NePAD. What it looks like will
happen is that they will go away from a series of G8 meetings
enormously disappointed, African leaders will say to themselves,
"Let's just get on with this thing ourselves. It was a challenge
to the West, the West has failed the challenge, let's get on with
a variety of programmes, peer review mechanisms, etcetera, we
will do it ourselves", and that is great, but it is an enormous
missed opportunity on our part.
Mr Blumenfeld: I also think it
is enormously significant—or I would add the word "potentially"
enormously significant—but for very different reasons from
Mr Fraser. I think the appeal of NePAD was that it was sold as
an African-owned and African-produced solution to Africa's problems,
and the undertaking was, "We in Africa will do X, Y and Z
in relation to economic reform and governance and the establishment
of peace and security, in return for which we seek a partnership
with the international community." The fact it is already
being interpreted as "going cap-in-hand to the G8 for more
aid" I think simply undermines completely the innovative
aspects of NePAD and if that line continues will consign NePAD
to the same dustbin as every other programme of African attempts
to put the Continent back on the world's agenda. African leaders
know what it is they need to do in order to attract the attention
of the world again and to get the world to be committed to sharing
in a partnership with them in moving forward.
Mr Fraser: Can I come back on
that? I honestly think that is a crazy position. The arguments
for engagement with Africa, debt relief and fair trade, stand
with or without NePAD. The idea that Africa needs to prove itself
worthy, when much of the debt is what is described as odious debt,
when much of the debt has been repaid twice over; the idea that
Africa needs to prove itself again in order to get anything in
an unjust global trade system or through debt or through the World
Bank and the IMF, is ridiculous. The arguments for those initiatives
stand whether or not African leaders are demanding them, which
they are, and our response is not dependent on them playing tricks
to the audience.
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