A blueprint to end poverty

iesu Institute for Economic and Social Upliftment

A Blueprint and Call to Action to end Poverty and to ensure more equitable distribution of wealth in South Africa to all its citizens by means of the Concept of Community Economic Empowerment.

1 COMMUNITY ECONOMIC EMPOWERMENT COOPERATIVE ( CEEC )

A CEEC is a co‐operative in which all citizens irrespective of race and political or other patronage participate as shareholders. We believe that this is the best model to allocate substantial economic benefits to all the citizens of our country. The Institute for Economic and Social Upliftment ( IESU ) has developed the concept of CEE ( Community Economic Empowerment ) and a CEEC ( Community Economic Empowerment Cooperative ) as a means towards meaningful and fair distribution of the economic resources of our country.

A Blueprint and Plan of Action to end Poverty and to ensure equitable distribution of wealth in SA Tel: +27 12 336 6008 Fax: +27 86 652 3515 Mobile: +27 84 786 6870 E-mail: lph@lpii.com 374 Francis Baard Street, Pretoria

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In a National Community Empowerment Co‐operative ( CEEC ) we will have the following beneficiaries of the CEE:

a) Every citizen will have 1 CEE share irrespective of race or political affiliation or class. In existing BEE deals you have to be chosen by the Elite to join the “Elite Club”. Unfortunately there are no objective published criteria on how you get chosen to be the new Black member join the Elite club which can make you a millionaire or a multi‐millionaire and even a billionaire. In CEE every citizen of the country gets 1 CEE share for being a citizen of South Africa. We will for purposes of this article set the target value of 1 CEE share to be R 100 000 ( One Hundred thousand Rand ). I will explain later how it will be possible for 1 CEE share to reach a value of R 1 000 000 ( One Million Rand ) or more over the next 20 years. If we had implemented the concept of CEE as contained in this paper at the beginning of our new democracy we would all have been much more wealthier than we are today and poverty would have been eliminated or had been substantially less.

b) Every poor person will be entitled to 1 or more CEE shares based on the degree of poverty. The definition of poverty will need to be agreed upon but for the purposes of this paper I propose that any person with net assets of less than R 250 000 will qualify for the “Poverty” share.

c) Every person who is disabled will be entitled to 1 or more CEE shares based on the degree of disability.

d) Every person who has contributed to society e.g. being a Mother Theresa type role model will get 1 or more shares for his or her contribution to society.

e) Lastly every person who suffered from apartheid will get 1 or more shares to partially compensate for the economic harm caused by apartheid. Note that I used the word “partially” compensate since we will never be able to fully compensate for the effects of apartheid.

The relative weighting to be applied to the above criteria ( and any others which may be needed ) will need to be objectively and scientifically determined through extensive

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independent research and economic analysis of the criteria and their relative weighting to ensure that that the economic distribution of wealth is fair and equitable.

No matter what system is eventually agreed upon it may not be perceived as being fair to all persons. However it will be degrees of magnitude better than the current BEE system of non‐ transparent and arbitrary allocation of the benefits of BEE to try to achieve the same goal. If indeed it was even the goal of BEE to reallocate economic benefits to compensate for apartheid and to reduce inequality and poverty.

The concept of CEE will as shown later in this paper lead to the following benefits:

a) The average wealth distribution to each citizen will be R 1 million in todays value over a period of 20 to 25 years.

b) An elimination of poverty as each citizen will get a minimum number of shares to ensure that the economic allocation of assets to each person is designed to eliminate poverty.

c) The concept of CEE will substantially reduce economic inequality but will not eliminate it.

d) The concept of CEE per se will not have any impact on reduction of unemployment. Other programs need to be implemented for the reduction of unemployment. However once poverty has been reduced and is in the process of being eliminated over a period of time and each citizen is being gradually and progressively empowered then it is possible for each citizen to procure the necessary skills to improve their prospects for employment.

It is our opinion that based on the above we have the foundation in CEE for a much more just and equitable model for economic redistribution of wealth than the current concept of BEE.

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2 THE MECHANISM OF WEALTH DISTRIBUTION BY CEE. OR SIMPLY PUT, HOW WILL CEE WORK?

A CEE will have 55 million members i.e all the citizens of the country Each member will have one vote.

The members of the CEE will elect the governing bodies of the CEE at National, Provincial and Local regions.

Each asset acquired by the CEE will be managed by a governing body for a specific asset or a portfolio of assets which shall not have a value of less than R 5 billion and an optimal value of not higher than say R 25 Billion. Where a single asset is much larger than say R 25 billion then the shares of that asset will be allocated to more than one portfolio of assets.

3 WHAT IS THE EXPECTED BENEFIT PER PERSON IN THE CEE?

Lets say that you are a disabled poor White person. In this case you would qualify for the following number of CEE shares: a) 1 CEE share for being a citizen of South Africa.

b) Say 1 share for being disabled.

c) Say 1 share for poverty. The definition of poverty needs to be agreed upon. I would suggest that any one who has net assets of less than R 250 000 would qualify.

Thus in total the disabled White poor man or woman would have 3 CEE shares. As will be seen later the 2015 value of 1 CEE share ( excluding debt of R 100k ) will be say R 100k. The 2035 value of the same CEE share will have grown to say R 500k in todays value. By that time the debt

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on the asset would have been fully repaid from the proceeds of dividends from the asset. Thus 20 or 25 years from now this person will have a CEE share portfolio valued at R 1.5 million in today’s terms.

If the same person was Black then he or she would get an additional 2 CEE shares for restitution for apartheid. Thus the total shares for the disabled poor Black man will be 5 CEE shares. The value of this persons CEE share portfolio will be R 2.5 million in todays terms. Thus each citizen in South Africa will obtain an additional R 1.0 million over 20 years to compensate for apartheid.

Each person who is poor and disabled will also get R 1 million over 20 years. Thus a Black poor and disabled person will get R 2 million over 20 years for apartheid and for the additional disabilities of poverty and a disability.

A citizen who has is not poor and suffers no disability will get R 0.5 million over the 20 year period. Thus every citizen benefits.

The CEE Company will need to be supported financially by government to purchase say 50 % of the shares of companies on the JSE who voluntarily agree to sell 50% or more of their issued share capital to the CEE’s ( It is expected that a CEE Holding company at the top will have several subsidiaries each of which will have a portfolio of assets or will target the acquisition of a specific asset valued at R 1 billion or more )

Currently about 50% of the shares of the JSE are held by international investors. If there is a massive campaign explaining the benefits to South Africans at large for the success of the CEE acquisitions then one would hope and expect that many of the listed companies will dispose of their shares at fair market value for cash on a voluntary basis on the principle of willing buyer and willing seller and reinvest the proceeds in other assets or investments which will in all probability have substantially better long term profit potential than in South Africa where our democracy has questionable sustainability due to the current high level of economic inequality.

Let us assume that 50% of the JSE is acquired by the CEE and its subsidiaries. This will mean that a total of R 5.5 trillion of assets will have been acquired by the CEE’s for the benefit of their 55 Million members. The average value per member will then be R 100 000 per CEE Member ( not

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CEE Share ). I am using CEE member i.e. citizen since it is easier to do the math in my head using this premise. One can easily do the math using a spreadsheet to take into account the benefit per CEE share taking into account the estimated number of CEE shares which will be issued in the CEE.

Anyway taking the above into account we see that the CEE will have debt of R 100k per member and assets of R 100k per member. The total assets in the CEE will thus be R 5.5 trillion. We will assume that an attractive rate could be secured for funding these acquistions if the funding is procured from international banks. Local banks will in any event only be able to fund a portion of the acquisitions.

What will be the net value of this asset in 5, 10, 15 and 20 years time?

One can predict that if the assets have capital growth of say 15% then they will double in value every 5 years. If we assume more conservative growth of 10% then we will have doubling of the asset every ten years.

Thus table A below shows the value of 1 CEE share held by the average citizen.

Table A and Graph for Table A

Table B below shows the value of 1 CEE share plus bonus for poverty and apartheid reparations

Table B and Graph for Table B

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Table C shows the value of 1 CEE share for a Poor White Man Table C and Graph for Table C

Table D shows the value of 1 CEE for a Poor Black Man Table C and Graph for Table C

Etc. etc.

4 IF WE HAVE CEE WHO NEEDS BEE?

Good question. CEE will only create passive wealth to all citizens to eliminate poverty. Due to the fact that poverty is eliminated and that each person has ownership of a portfolio of assets of say R 1 million in value, the lack of capital will not be a barrier in future to obtaining education or having access to equity required to start a small business.

BEE which is reformed to be TEE ( “True Economic Empowerment” ) will have an even more meaningful role in future and there will be an increasing need for True BEE Transactions or TEE Transactions.

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5 WHAT IS WRONG WITH BEE CURRENTLY?

Economic Inequality in South Africa has become progressively worse over the past 20 years. The objective measure of economic inequality is the Gini Co‐efficient. Over 20 years ago South Africa was rated behind Brazil as the most unequal society in the world. Today 20 years after achieving our “Freedom” we find that we the most unequal society in the World.

We were promised by politicians that BEE was supposed to reduce the economic inequality for all the people of our country but in fact BEE as a policy has failed to equitably redistribute the economic resources of the country and in fact has perpetuated the legacy of apartheid and replaced Apartheids negative impact on our economic potential by a system which can be called economic apartheid.

On the one hand ordinary White South Africans perceive BEE to be a form of reverse discrimination. On the other hand ordinary Black South Africans also do not get any benefit at all from BEE and they are also just as effectively discriminated against from participating in BEE than in the days of apartheid. We can justifiably argue that we are suffering from Economic Apartheid in South Africa.

It is clear that fine tuning the policy of BEE will not lead to any economic benefits for the population at large. What is proposed is a fundamental change in the way that future BEE transactions get done.

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6 FACT: THE TYPICAL BEE DEAL CREATES MORE WEALTH FOR ITS WHITE SHAREHOLDERS THAN FOR ITS BLACK SHAREHOLDERS

BEE or “Black Economic Empowerment” or more recently BBBEE as a recent improvement in BEE to make BEE more broad based has thus far failed to achieve its original objectives of more equitable economic distribution of the economic resources of our country.

The fact is that BEE ( which I will use to refer to BEE and BBBEE ) has had the following results:

a) BEE transactions have only lead to wealth creation for the Black and White elites ( the “Elites” ) who participate in these transactions and does not benefit the 99% of ordinary Black and White citizens.

b) In fact a typical BEE deal creates 4 x to 10 x more wealth for its White Elite shareholders than the Black elite shareholders. The reason for this is simple. Take a Billion Rand company.

a. The company sells say 10% to a Black consortium ( the “Black Elite” )

b. After the sale or a few years later the company eventually becomes a R 2 billion company thanks to its politically or otherwise influential or connected Black Elite.

c. How much wealth is created in this so called BEE deal for the White elite and how much for the Black elite?

d. The Black elite makes R 100 million and the White elite makes R 900 million out of the R 1 billion in value created in this BEE deal. Thus 9x more wealth gets created for White elites than for the Black elites. Note that we are talking here only of the White elite ( 1% of Whites and the Black elite less than 0.25% of Blacks ). The ordinary White and Black

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citizen gets ZERO benefit from this deal. In fact the average Black and White citizen is relatively impoverished by each typical deal since it creates more economic inequality which is bad for the economic prosperity of our nation. In essence the average Black and White citizen is worse off in the long run due to the inequality created by the current BEE deals.

e. This applies to almost all transactions in which Black shareholders are in the minority.

Only in transactions where the Black shareholders are in the majority e.g. say 51% and preferably closer to 75% can we say that it is “Black Empowerment” In all other cases the correct classification of the so called BEE deal is that it is a “White Empowerment” transaction. However even in transactions which are True BEE we still have to ensure that they are analyzed as explained elsewhere in this paper.

f.

Due to the above factors we find over the past 20 years as a result of all the “Black Empowerment” deals that we actually had more “White Empowerment” for their White Elites than Black Empowerment for the Black Elites.

g. It is clear that what is regarded as a BEE transaction needs to be substantially changed.

In fact one could not be faulted if one says that a massive fraud has taken place in which South African society has been misled into thinking that BEE will lead to a redistribution of wealth and a more equitable distribution of wealth to reduce the effect of apartheid.

h. We find in fact that the current structure of BEE should be called WEEE ( “White Economic Empowerment” ) for the benefit of their White elites and their chosen Black elites under the guise of masquerading as BBBEE or BEE and which has been detrimental to the 99% majority of ordinary Black and White citizens.

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7 CAN BEE BE FIXED?

What can be done to BEE to ensure that it achieves the objective for which it was originally intended i.e. to compensate for the decades of apartheid which caused an unjust and inequitable distribution of wealth?

We need to remember that the BEE deals which are occurring now do not only deny the vast majority of the Black and White population a fair share of the wealth of our country but also pose a serious threat to the sustainability of our democracy. This affects all of us both Black and White.

The answer to improving the policy does not require rocket science. All it needs is a policy maker who cares for the interests of all South Africans rather than caring for the interests of the Elites ( both Black and White ). The following policy changes are needed to existing policy to improve the situation: a) First. You can only regard a deal as a true BEE if the Black shareholding is 51% or higher or in which the eventual Black shareholding is clearly designed to reach that within a predetermined timeframe.

b) The closer that the percentage of Black Ownership ( “BO” ) represents the demographics of our country the higher the points it should get on future Revised BEE Scorecards. So for example 51% Black Ownership ( “BO” ) should have a scorecard of 5 and 90% should have an overall scorecard of 9 and 100% BO should have a score of 10. There should be no dilution of this essential point and the BO scorecard should be the dominant score in future revised BEE scorecard.

c) A true BEE deal should strive to match the ownership of the asset with the demographics of the country. So there should be benefit to all citizens proportional to the demographics of the nation.

d) Second we need to track, monitor and analyze all BEE deals.

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e) Once a person benefited by say R 10 million from a BEE deal then he must be regarded as “Empowered” or “Advantaged” and can no longer be regarded as “Historically disadvantaged”.

The next person on the queue who is an HDI ( Historically Disadvantaged Individual ) must then be in line for a “BEE Deal”

f)

All future BEE deals should limit the maximum benefit to a single HDI to no more than R 5 million per deal with a maximum of say R 10 million overall per person. The current situation where the same person gets repeated doses of empowerment and the rest of the population is left disempowered is simply unfair and unjust to the rest of South Africa.

8 WHAT IS THE SOLUTION AND THE WAY FORWARD?

We propose a reform of the concept of BEE so that it is true BEE and in which a BEE transaction should only be called BEE if over 51% of the economic benefits of the transaction goes to Black citizens on a very broad based basis.

Any transaction which does not meet this criteria should not be called a “BEE” transaction.

Those transactions which do not meet this criteria are really a form of fronting which is illegal.

9 A PROPOSED SOLUTION IS THE FOLLOWING:

a) BEE should be reformed to maximize the benefit for society and to compensate on a broad basis those who have suffered from decades of apartheid.

b) CEE which is the natural successor to BEE should become the preferred model and that CEE transactions should have a much higher score on BEE Scorecards than the current BEE deals.

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c) There needs to be implementation of Hybrid BEE and CEE deals as will be explained in a future article.

d) Each EE ( Economic Empowerment ) deal whether in the form of true BEE and CEE should have a transparent and objective economic analysis and should provide the following information in its summary page:

a. How many new persons benefited from the EE deal. b. What was the economic benefit to each person and what objective criteria was used. c. What is the net benefit to society. d. How did the transaction reduce economic inequality? What monitoring and compliance mechanisms are in place? e. What percentage of the deal is True BEE and what percentage is CEE? f.

What is the long term outcome on progressive improvement of Black ownership in the deal for society?

10 SUMMARY AND CONCLUSIONS South Africa is blessed with the highest concentration of wealth and the highest value of wealth in its mineral reserves which currently stand at a value of R 36 trillion. In addition the value of the JSE is approximately R 12 trillion.

IESU is presenting the ideas and concepts in this article to stimulate discussion and debate amongst the various stake holders such as Business, Labour, political parties, academics and economic experts. We do not claim to have a final solution but we do believe that we need to debate these issues so that we can refine and improve the concepts presented in this paper. We call for input and a critique on the concepts presented so we can find a solution which will be of benefit to all the citizens of our country.

Our goal at IESU is to ensure that each citizen who was previously disadvantaged gets at least R 1 million of economic benefit from the application of the principles outlined in this document.

It is also clear that it is our duty to engage in and explore these ideas with the view of debating if they will lead to a better economic outcome for us as citizens.

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

Our proposal does not call for a nationalization of banks and mines.



Our call does not call for any land grab.



Our call does not call for any sale of assets except at fair market value on the basis of a willing buyer and willing seller valuation.



Our call is for social justice and a fair and equitable distribution of wealth

The Call to Action and Need to Mobilise to ensure that meaningful change takes place IESU’s sister organization which has been formed to mobilise people to support the principles of IESU is People Engaged in Action for Change ( PEAC ). If you agree with the Economic Manifesto of IESU ( the “EM” ) we ask you to join PEAC to ensure that you can take the necessary actions to ensure that the EM is implemented.

If you support our call and want to form a discussion group or chapter of PEAC ( People Engaged in Action for Change ) in your area to debate these ideas and concepts further and to help us to improve and refine our ideas and concepts for the purposes above then please join us by completing the enclosed membership form.

Membership of PEAC is open to all citizens of our beautiful nation Black and White and all shades of color.

Signed on this the 15th day of March 2015

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"Overcoming poverty is not a gesture of charity. It is an act of justice. It is the protection of a fundamental human right, the right to dignity and a decent life. While poverty persists, there is no true freedom." Nelson Mandela

Petition to support the Economic Manifesto of IESU ( "EMI" ) to end Poverty and to apply for membership of PEAC and CEEC based on the model by IESU. I, the undersigned support the Economic Manifesto of IESU ( "EMI" ). I also apply for membership of PEAC and CEEC based on the model of IESU. I support the Principles of Economic Justice as contained in the EMI and hereby pledge my support for PEAC, IESU and CEEC to end Poverty and to ensure equitable economic distribution of wealth. www.iesu.com/emi Surname First Name Middle Name Phone

Cell Phone Email Address

Post Code Gender

Male

Female

Previously Disadvantaged ?

Yes

ID Number Dependent No

Receive email or sms?

Name of Dependent ( only first name if the Surname is the same. )

No Yes

No

Date of Birth of Dependent

1 2 3 4 5 6 7

Assets Less than R 250 000?

I, hereby apply for

Free

Yes Paid

No

Race ( Optional )

membership of PEAC and a CEEC to be established by PEAC in accordance with the model developed by IESU.

I also support the Economic Manifesto of IESU ( "EMI" ) as documented and available online at

http://www.iesu.com/emi

To enable PEAC to achieve the objectives contained in the EMI will need 10 million eligible voters and substantial resources.

We therefore appeal to you to donate to this worthy cause if you have the means to do so. See overleaf.

http://www.iesu.com/donate

Even a monthly donation of R 5 makes a big difference if a large number of people contribute.

http://www.iesu.com/R5

I am willing to volunteer some of my time to support PEAC and to spread the message of PEAC.

Yes

No

http://www.iesu.com/support

Spreading the message and volunteering your time is much more valuable than donations. Thank for your support towards enabling a better future for us all.

_________________________________________________ Signature

____________________________________________

http://www.iesu.com

Date

"Overcoming poverty is not a gesture of charity. It is an act of justice. It is the protection of a fundamental human right, the right to dignity and a decent life. While poverty persists, there is no true freedom." Nelson Mandela

Petition to support the Economic Manifesto of IESU ( "EMI" ) to end Poverty and to apply for membership of PEAC and CEEC based on the model by IESU. I, the undersigned support the Economic Manifesto of IESU ( "EMI" ). I also apply for membership of PEAC and CEEC based on the model of IESU. I support the Principles of Economic Justice as contained in the EMI and hereby pledge my support for PEAC, IESU and CEEC to end Poverty and to ensure equitable economic distribution of wealth. www.iesu.com/emi Surname First Name Middle Name Phone

Cell Phone Email Address

Post Code Gender

Male

Female

Previously Disadvantaged ?

Yes

ID Number Dependent No

Receive email or sms?

Name of Dependent ( only first name if the Surname is the same. )

No Yes

No

Date of Birth of Dependent

1 2 3 4 5 6 7

Assets Less than R 250 000?

I, hereby apply for

Free

Yes Paid

No

Race ( Optional )

membership of PEAC and a CEEC to be established by PEAC in accordance with the model developed by IESU.

I also support the Economic Manifesto of IESU ( "EMI" ) as documented and available online at

http://www.iesu.com/emi

To enable PEAC to achieve the objectives contained in the EMI will need 10 million eligible voters and substantial resources.

We therefore appeal to you to donate to this worthy cause if you have the means to do so. See overleaf.

http://www.iesu.com/donate

Even a monthly donation of R 5 makes a big difference if a large number of people contribute.

http://www.iesu.com/R5

I am willing to volunteer some of my time to support PEAC and to spread the message of PEAC.

Yes

No

http://www.iesu.com/support

Spreading the message and volunteering your time is much more valuable than donations. Thank for your support towards enabling a better future for us all.

_________________________________________________ Signature

____________________________________________

http://www.iesu.com

Date