Examining the Effectiveness of BEE Implementation: A Case Study of Eskom Restructuring 1995-2005 By G. Mabutho Shangase (Student No: 93-01226F) A dissertation submitted in partial fulfillment of the Master of Arts degree in Development Studies, University of the Witwatersrand, Johannesburg. June 2007 Supervisor: Dr Lucien van der Walt Department of Sociology Examining the Effectiveness of BEE Implementation: A Case Study of Eskom Restructuring 1995-2005 Abstract Black Economic Empowerment (BEE) has emerged as the premier policy instrument to redress the socio-economic inequalities created by the apartheid system in South Africa. BEE has evolved from a rudimentary concept that was casually coined outside government in the 1990s to being the policy instrument du jour of the post 1994 democratic dispensation. BEE has received critical attention culminating in its institutionalization through a BEE Council, an Act of Parliament, and a policy framework to facilitate its implementation. The institutionalization of this concept across government policy and practice settings, including, in particular, the government’s drive to restructure its enterprises, has accentuated BEE’s important role in the government’s reconstruction and development agenda. However, the evolution of BEE has not been a smooth journey. Its capacity and direction to respond to dire socio-economic demands has raised a deluge of questions and remarks, often negative, from many fronts. The purpose of this study is to critically examine the extent to which BEE produces the targeted results through its implementation via the restructuring of state owned enterprises (SOEs). What is also of significance is that the restructuring of SOEs and the implementation of BEE is occurring against a backdrop of a conspicuous neo-liberal drive. Whilst setting the scene with a theoretical background to the South African economy before and after 1994, the practical focus of this study is limited to the implementation of BEE using Eskom, an SOE, as a case study. Just as this study indicates a successful implementation of BEE through Eskom, questions remain as to how much widespread the benefits have been amongst the targeted previously marginalized black majority. Keywords: Black economic empowerment, Restructuring of State Owned Enterprises, Neo- liberalism, Eskom, Electricity, Parastatals, Privatisation. Page 2 Examining the Effectiveness of BEE Implementation: A Case Study of Eskom Restructuring 1995-2005 ACKNOWLEDGEMENTS To my family, oMashukumbela, oNdaleka, oMvula, Tomane, Tatazawela, oMkheshane, oVumezitha. From the smouldering ashes of Mpumalanga Township, when the fires died the phoenix arose in the person of Mabutho Shangase, Induna kaMakhehlane no Abigail, Umfana owawela iJukskei egodle iCV ekhwapheni, waphinda wagadla ezindengezini zolwazi, miles away from Road 2 where the monkeys dwell, wagadla kwelika Queen Elizabeth, waphinda wagadla kwelikaMthaniya. This work has been quite a journey for me, it has taken me deep into the vaults of scholarship, into the dungeons where the bogus don’t make it back as Nas said. I owe a great debt of gratitude to my supervisor Dr Lucien van der Walt for his insight, patience, inspiration and friendship. I am also grateful to my employer the Independent Development Trust for the financial support, I thank you. To all the participants in the study, the suppliers, Eskom management and library staff at Megawatt Park, black community based organisations, NUM, NUMSA and Solidarity, the APF members, you breathe life into the raw and theoretical clay of this study; I’m forever indebted to you all. The Hamms’ Underground, the confluence of hip-hop and scholarship! Page 3 Examining the Effectiveness of BEE Implementation: A Case Study of Eskom Restructuring 1995-2005 Declaration I hereby declare this to be my original work. It is duly submitted for the degree of Master of Arts (by coursework) at the University of the Witwatersrand, Johannesburg. It has not been submitted for any other degree at any other university. G. Mabutho Shangase, 28 June 07. Page 4 Examining the Effectiveness of BEE Implementation: A Case Study of Eskom Restructuring 1995-2005 TABLE OF CONTENTS Chapter Page List of Abbreviations and Acronyms……………………………………………... 8 List of Tables and Figures………………………………………………………….. 11 CHAPTER 1 12 INTRODUCTION………………………………………………………………………. 1.1 Introduction and Overview ......................................………………. 12 1.2 Project Aim………………………………………………………………. 17 1.3 Project Objectives………………………………………………………. 18 1.4 Rationale …………………………………………………………………. 19 1.5 Context ......………………………………………………………………. 20 1.6 Hypotheses Presentation ……………………………………………... 26 1.7 Chapter Summary ……………… ……………………………………... 26 CHAPTER 2 27 LITERATURE REVIEW……………………………………………………………….. 2.1 Introduction………………………………………….……..……………. 27 2.2 Black Economic Empowerment ………...……..……………………. 28 2.3 The Components And Elements Of BBBEE……..………...………. 40 2.4 Critique Of BEE Implementation……….........………………………. 41 2.5 Economic Development Theory………………………………..…….. 44 2.6 Restructuring Of State Owned Enterprises …………………..…… 65 2.7 Chapter Summary ................……………………………………….…. 74 CHAPTER 3 75 RESEARCH METHODOLOGY………………………………………………………. 3.1 Introduction………………………………………………………………. 75 3.2 Documentary Research………………………………………………... 76 3.3 Field Research……………………………………………………………. 77 3.4 Data Collection Process....…………………………………………….. 81 3.5 Coding and Analysis …………………………………………………… 82 3.6 Ethical Implications of the Study……………………………………... 84 3.7 Limitations of the Study………………………………………………… 84 3.8 Importance of the Study……………………………………………….. 84 Page 5 Examining the Effectiveness of BEE Implementation: A Case Study of Eskom Restructuring 1995-2005 Chapter Page 3.9 Chapter Summary………………………………………………………… 85 CHAPTER 4 86 RESEARCH FINDINGS: BEE AND NEO-LIBERAL RESTRUCTURING AT ESKOM…………………………………………………………………………………. 4.1 Introduction……………………………………………………………….. 86 4.2 Background……………………………………………………………….. 86 4.3 The National Energy Regulator ………………………………………. 90 4.4 Eskom and the South African Social, Economic, and Political 91 Context........................................................................................................... 4.5 The Electrification of Black Communities…………………………… 94 4.6 Eskom and the Restructuring of State Owned Enterprises………. 102 4.7 Black Economic Empowerment………………………………………. 107 4.8 Eskom Electricity Areas………………………………………………… 111 4.9 Organized Labour and Restructuring ………………………………… 118 4.10 Chapter Summary………………………………………………………… 119 CHAPTER 5 120 FURTHER RESEARCH FINDINGS: ESKOM, BEE AND NEO-LIBERALISM IN TSHWANE………….…………………………………………………………. 5.1 Introduction………………………………………………………….…….. 120 5.2 Interview Subsections: Descriptive and Analytical Coding..…….. 121 5.3 Restructuring of State Owned Enterprises .....……………………… 128 5.4 Black Economic Empowerment .....…………………………………… 133 5.5 Human Resources Development .………………………………..…… 139 5.6 Status of Workers………..……………………………………………….. 145 5.7 Indirect Empowerment …………….…………………………………… 148 5.8 Restructuring and Communities………………………………………. 157 5.9 Eskom and Corporate Social Responsibility………………………... 163 5.10 Chapter Summary………..………………………………………………. 168 CHAPTER 6 169 CONCLUSION…………………………………………………………………………. 6.1 Introduction………….…………………………………………………….. 169 6.2 Technical Discussion…………………………………………………….. 169 Page 6 Examining the Effectiveness of BEE Implementation: A Case Study of Eskom Restructuring 1995-2005 Chapter Page 6.3 Hypotheses Testing ………………………………………………….…... 179 6.4 Emerging Grand Themes: Neo-Liberalism, Class and BEE............. 181 6.5 Recommendations ..…………………………………………………....... 185 6.6 Concluding Note………………………………………………………… 186 6.7 Post Script………………………………………………………………….. 187 6.8 Chapter Summary………………………………………………………... 187 Bibliography…………………………………………………………………………… 189 Appendix 1. Sample Research Questionnaires…………………………………. Appendix 2. Field Research: Visuals from Projects…………………………… Page 7 Examining the Effectiveness of BEE Implementation: A Case Study of Eskom Restructuring 1995-2005 List of Abbreviations and Acronyms ANC African National Congress APF Anti-Privatisation Forum BEE Black Economic Empowerment BBBEE Broad-Based Black Economic Empowerment COSATU Congress of South African Trade Unions DTI Department of Trade and Industry DME Department of Minerals and Energy DPE Department of Public Enterprises EE Employment Equity ESI Electricity Supply Industry Eskom Electricity Supply Commission FABCOS Foundation for African Business and Consumer Services FBE Free Basic Electricity FEDSAL Federation of South African Labour Unions HDI Historically Disadvantaged Individual HSRC Humans Sciences Research Council IEC Independent Electoral Commission IMF International Monetary Fund kWh Kilo Watt per hour MERG Macro-economic Research Group MEC Minerals and Energy Complex MDGs Millennium Development Goals MW Mega Watt Page 8 Examining the Effectiveness of BEE Implementation: A Case Study of Eskom Restructuring 1995-2005 NACTU National Council of Trade Unions NAFCOC National Federated Chamber of Commerce NASASA National Stokvel Association of South Africa NEF National Empowerment Fund NEDLAC National Economic Development and Labour Council NERSA National Energy Regulator of South Africa NFA National Framework Agreement NP National Party NPM New Public Management NUM National Union of Mineworkers NUMSA National Union of Metal Workers of South Africa PAC Pan African Congress PDI Previously Disadvantaged Individual POP Poorest of the Poor PPP Public