AS PART of the historic deal struck in 1994 to ease the way for democracy, South Africa’s whites ceded political power to the ANC. In turn, the ANC accepted that (mainly white-run) capitalism would continue. But the new government also vowed to take action to redress the injustices and inequalities that had developed over 40-odd years of apartheid, not to mention centuries of colonial rule.

The Truth and Reconciliation Commission was part of that effort. Trading amnesty for truth, people from both sides of the struggle came forward to give testimony about the brutality of the apartheid regime. The work of that commission is now finished, and attention has shifted to the two other pillars of redress, black economic empowerment (BEE) and land reform. Both cause fear and alarm among foreign investors.

In fact, as originally conceived, both policies are more benign than their detractors make out. Formulated in the spirit of compromise and pragmatism that has characterised the best of the ANC since 1994, they involve hardly any direct government coercion. Supporters such as Leslie Maasdorp, an ANC activist, financier and former adviser to Goldman Sachs, argues that BEE is aimed at nothing more scary than the “normalisation of South Africa” by “de-racialising the capitalist class”.

But being a BEE-compliant company has become a legal minefield. A growing army of lawyers, consultants and accountants now specialise in BEE equity deals, adding considerably to the cost of doing business. Reg Rumney, director of the BusinessMap Foundation, a business-research organisation, argues that “in effect, the government has created a whole new industry of racial auditing.”

The big question is whether all this meddling will have the desired effect: to create a black middle class that reflects the share of blacks in the population as a whole, around 80%. This would be proof that the rewards of the “first economy” are being fairly spread around. But so far it has not happened. The government is justifying its ever more complicated interventions in the economy by the need to hurry the process along. Many in the ANC argue that by leaving things largely to the market, all that has been achieved is the creation of a small elite of rich, politically well-connected black businessmen, whereas the rest have missed out.

That elusive black middle class

The evidence on this is contradictory. Depending on how it is measured, and by whom, estimates of the proportion of blacks in the middle class range from 22% to 40%. Whatever it is, it has probably doubled since 2000. Certainly, impressive growth in the housing and car markets seems to be fuelled by an increasingly affluent black middle class, especially in cities such as Pretoria and Johannesburg.

But Neva Makgetla, a policy adviser for COSATU, points to something that explains a lot of the unease about the growth of the black middle class. Most of that growth has come from rising numbers of blacks in public-sector jobs, where they have been “politically more able to get jobs”. By contrast, the proportion of blacks in senior jobs in the private sector or the professions has moved up only slightly since 1995, to about 25%. The government has concluded that the private sector is not doing its bit, hence the more rigorous affirmative action in the 2004 BEE legislation.

Yet already the BEE project is causing a host of new problems. To meet their “employment equity” targets, companies are now raiding the only place where they can find trained black managers: the public sector. They are paying top money to lure away the best people, thus exacerbating the skills crisis in government. At the same time white skilled workers have been emigrating because positive discrimination in favour of blacks prevents them from getting jobs at home. In a U-turn, the government is now calling some of them back.

Current policies also discourage well-qualified blacks from becoming entrepreneurs. Why take the risk of starting up their own business when they can name their salary to join a company desperate to meet the BEE criteria? The big hole in the South African economy is its relative lack of small and medium-sized enterprises. Currently they create only 30% of new jobs. One business consultant estimates that of the serious new business start-ups in 2003-04, only 10% were black. But a better way to spread black empowerment would be to make life easier for start-ups and small businesses.

Land reform is an even more emotional and sensitive issue than BEE, partly because apartheid was founded on denying blacks access to their own historic lands in 1913, and partly because of Robert Mugabe’s confiscatory land policies next door in Zimbabwe. Yet, paradoxically, it is less important. Like BEE, the land-reform programme has been conceived in a thoroughly pragmatic way. But as with BEE, the process has been slow, too slow for many activists. According to Jeffrey McCarthy, a land expert for CDE, a think-tank, “government has the right policies, but they are not being executed with sufficient vigour or refinement.” The government has probably not set aside enough money for its land bank, which helps black would-be farmers to buy land from whites. But then land is not as big an issue in South Africa as it is in Zimbabwe, where farming still dominates the economy. In South Africa agriculture now accounts for only 3% of GDP, and the pressure on land is all in the cities.

Land redistribution can work well, sometimes with the former white owners helping to manage the farm. But as with BEE, there is pressure from within the ANC to speed things up. There were worries when the government said it would re-examine the current mechanism for redistribution, based on agreement between a willing seller and a willing buyer, which raised comparisons with Zimbabwe. But all the government has to do is to put more money into its existing schemes to meet the limited demand. As Mr McCarthy says, “the government is unequivocally upholding property rights,” and most people expect it to go on doing so.