South Africa must focus on growing more credible black businesses from the ground up if it is to help foster more equitable growth. Malaysia offers some valuable lessons.

The new draft black economic empowerment (BEE) codes of good practice, which were released for comment last month by the Department of Trade and Industry, allocate 40 out of a possible 105 points to companies that buy from black suppliers and support and mentor black business owners. This is a welcome move by the department.

Any attempt to shift the focus to growing the number of black shareholders of JSE-listed companies over increasing the size of business ownership among the multitude of small and medium-sized firms risks leaving black people as passive shareholders at best, or as rent-seekers at worst. Real transformation, as Malaysia has come to realise, takes place in business ownership.

In some respects, Malaysia has achieved much since the launch of its New Economic Policy (NEP) in 1970, which aimed to have 30% of the country’s wealth in Malay hands by 1990. At the onset of the policy Malays, or Bumiputeras as they are also known, held less than 2% of the economy, despite making up more than 60% of the population. Much of the economy was held by foreigners and Chinese Malaysians. By 1990, Malay ownership of shares on the country’s stock exchange reached 20% and has remained fairly constant over the past 20 years, even with subsequent policies having still favoured Malays. Chinese Malaysians, who make up a quarter of the population, still dominate the economy, holding about 40% of listed company shares.

While many have criticised the NEP and its subsequent policies as having fuelled rent-seeking behaviour by Malay entrepreneurs, the reliance on shareholding to transform the country has also come in for some questioning. Former Malaysian prime minister Mahathir Mohammed, who is credited with running the NEP, wrote in last year’s autobiography, "A Doctor in the House," that almost a third of Malays’ wealth on the country’s stock exchange is held in trust by various government institutions, which insulate most Bumiputeras from the real risks of doing business. Similarly, the real estate that Bumiputeras own is held by institutions set up by the government for the Bumiputeras, rather than being owned in person by Malays. Mohammed points out that although the policy helped increase the number of Malay professionals, artisans and heads of companies, it did little to encourage more Malays to run their own businesses.

"They (Malays) are not enterprising risk-takers but rather government co-ordinated rentier shareholders. The attitude and mentality of the passive beneficiary is not the mental revolution that the government wants to promote in the Malay and other Bumiputera communities, especially through the NEP," Mohammed wrote.

Article continues on page two: Malay entrepreneurs still fail at a higher rate than Chinese and Indian entrepreneurs...