a blueprint to end poverty

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Institute for Economicand Social Upliftment

iesu

A Blueprint and Call to Action to end Poverty

and to ensure a more equitable distribution of

wealth in South Africa to all its Citizens by

means of the Concept of Community

Economic Empowerment.

“Massive poverty and obscene inequality are such terrible scourges of our times

- times in which the world boasts breathtaking advances in science, technology,

industry and wealth accumulation - that they have to rank alongside slavery and

apartheid as social evils.”

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.”

“Through your will and passion, you assisted in consigning that evil system ( of

apartheid ) forever to history. But in this new century, millions of people in the

world's poorest countries remain imprisoned, enslaved, and in chains. They are

trapped in the prison of poverty. It is time to set them free.”

Nelson Mandela

Excerpts from a speech Mandela gave in London's Trafalgar Square in 2005 for the

campaign to end poverty in the developing world.

“All the forces in the world are not as powerful as an idea whose time has come”

Victor Hugo

1 COMMUNITY ECONOMIC EMPOWERMENT ( CEE )

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 the

meaningful and fair distribution of the enormous economic resources of our country.

South Africa is blessed with the highest concentration of mineral wealth in the world which is valued at over R 36

Trillion. In addition the value of the JSE is about R 12 Trillion. If the principles of CEE and CEEC as proposed in this

paper are adopted then each citizen will benefit by an amount as indicated in Table A and Table B on pages 4 ‐ 5 after

adjusting for the effect of inflation ( i.e. in today’s money terms ) over a period of 30 years through the acquisition of

income producing assets which will be funded against the security of those assets.

The debt incurred for the acquisition of the assets is expected to be amortised within a period of 15 years from the

income earned from the assets as detailed later in this paper. This is the basis on which BEE transactions create

wealth for their elite Black shareholders except that the main difference here is that in a CEE it is proposed that the

entire community or all the citizens of South Africa benefit from the wealth created by the Economic Empowerment

( “EE” ) transaction.

In a National Community Empowerment Co‐operative ( CEEC ) we will have the following shareholders or

beneficiaries:

a) Every citizen will be allocated 25 CEE Shares 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 to 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 25 CEE

shares for being a citizen of South Africa. We will for purposes of this article set the unit value of 1 CEE share

to be R 1 000 ( One thousand Rand ) in 2015. Table A and B on pages 4 ‐ 5 demonstrates how CEE contributes

towards wealth creation for all the citizens of South Africa. If we had implemented the concept of CEE and

implemented a CEEC at the beginning of our democracy we would all have been much wealthier today and

the nation as a whole would have been much more prosperous than we are today and poverty would have

been eliminated or would have been substantially less than what it is today. However it is not too late to

start and if you join us in building the movement for PEAC we will be able to achieve our objective of ending

Poverty and ensuring that there is more equitable distribution of wealth in South Africa.

b) Every poor person will be entitled to an additional 25 or more CEE shares based on the degree of poverty.

c) Every person who is disabled will be entitled to 25 or more additional CEE shares based on the degree of

disability.

d) Every person who has contributed to society e.g. being a Mother Theresa type or other role model will get

additional CEE shares for his or her contribution to society.

e) Lastly every person who suffered from apartheid will get 50 or more CEE shares as Reparations for Apartheid

depending on the extent of that persons suffering under the system of Apartheid and the current system of

Economic Apartheid 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.

f) The relative weighting to be applied to the above criteria ( and any others which may be needed ) will need to

be determined through extensive economic analysis of the criteria and their relative weighting to ensure that

it is as fair as possible. No matter what system is eventually agreed upon it will never be perceived to be fair

to all persons. However it will be degrees of magnitude better than the current BEE system of non‐

transparent and arbitrary awarding of the benefits of BEE. It is standard practice in any democratic and just

society that any awards especially for compensation for past injustice are supposed to be objectively and

fairly applied and that any criteria for the just allocation of compensation in the form of BEE benefits should

be transparent and made public. However it is clear that our current BEE system which is being implemented

by government, banks, and business and reported on by the media is far removed from being a transparent

or just or fair system. In fact it is grossly unjust.

It is our opinion that in the CEE Concept as described above we have the foundation for a much more just and

equitable model for the economic redistribution of wealth than the current BEE model which is arbitrary and

non‐transparent.

Allocation of CEE Shares

a) Every Citizen of South Africa will be allocated 25 CEE shares.

b) Every Citizen who is poor will get an additional 25 CEE shares.

c) Every Citizen who suffers a disability will get an additional 25 CEE shares.

d) Every Citizen who suffered from Apartheid will get an additional 50 CEE shares.

Thus a poor White person would qualify for 50 CEE shares, in accordance with the above criteria and which will

be fully paid up and worth R 303 000 in 20 years. This applies to each member of the family. See Table A on page

4 and Table B on page 5. Thus a poor White family with 4 members will have a CEE share portfolio worth R 1.2

million in 20 years in today’s money terms. In 25 years the “poor” White family portfolio of CEE shares will be

worth R 2 million and in 30 years the “poor” White families portfolio will be worth over R 3 million.

A poor Black person will qualify for 100 CEE shares in accordance with the above criteria and which will be fully

paid up and worth R 455 000 in 20 years, R 740 000 in 25 years and R 1.17 million in 30 years after adjustment for

inflation. This applies to every member in a family. Thus an average poor Black family with 5 people will have a

CEE Share portfolio in 20 years which will be fully paid up and worth say R 2.2 million in today’s money. In 25

years the poor Black families CEE Portfolio will be worth R 3.75 million and in 30 years the poor Black families CEE

Portfolio will be worth R 5.5 million in 2015 money terms.

In terms of the application of BEE currently and based on the track record of BEE over the past 20 years in South

Africa it is a safe bet that neither the poor White nor poor Black person will have any benefit from existing BEE

Policies in the next 20 to 30 years.

Ask yourself the question what have you benefited from BEE over the past 20 years? The chances are that 99% of

people who answer this question will say it is ZERO. In fact it is less than Zero since each BEE deal is at the

expense of society as a whole and the rest of us actually indirectly pay in one way or another for each so called

“BEE deal” which increases economic inequality and creates more instability for our democracy. This will be

considered further in a future paper on this aspect of BEE.

What is proposed herein is far better than anything even being remotely contemplated in existing government

policy and its practical implementation regarding existing BEE Policy.

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. Each member will be allocated a number of CEE Shares or benefits according to the

criteria to be determined after taking into account detailed and scientific and economic and actuarial analysis of all

relevant factors.

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 1 billion and an optimal value of not higher than say R 5 Billion. Where a single

asset is much larger than say R 5 billion then the shares of that asset will be allocated to more than one portfolio of

assets.

3 HOW WILL THE CEEC BE FUNDED?

The CEEC will need to be supported financially by government to purchase say 50% or more of the shares of

selected Blue Chip companies on the JSE which meet certain strict investment criteria and who voluntarily

agree to sell 30% or preferably much more of their issued share capital to the CEEC’s ( It is expected that the

CEEC at the top will have 1000’s of subsidiaries each of which will have a portfolio of assets or will target the

acquisition of a specific prime income producing asset valued at R 1 billion or more ). I predict that there will

be a scramble by companies to want to either sell 30% of their existing shares or issue new shares of 30% or

more to attract fresh injection of capital. This could lead to a stimulus for the economy as a whole and I

predict that instead of reluctance on the part of companies to participate I think there will actually be a

scramble by companies who will want to be selected as the “chosen Blue Chip companies” who will be

chosen for participation in CEE deals.

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 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.

Assuming that 50% of the JSE is acquired by the CEEC and its subsidiaries. This will mean that a total of R 5.5

trillion of assets will have been acquired by the CEEC for the benefit of their 55 Million members. The initial

unit value per CEE Share will be set at R 1 000 per CEE Share.

Taking the above into account we see that the CEEC will have debt of R 1000 per CEE Share and assets of R

1000 per CEE Share. The total assets in the CEE will thus be R 5.5 trillion in year 1 which we shall assume is

2015. The total debt will also be R 5.5 trillion in 2015.

We will further assume that an attractive rate could be secured for funding these acquisitions if the funding is

procured from international banks and there may be some form of underwriting from government in the

form of legislation to underwrite a portion of the funding to facilitate the CEE transactions. Local banks will in

any event only be able to fund a portion of the acquisitions. I have used the following assumptions for the

purposes of the 30 year projections which led to the projections in Table A and Table B.

a) Capital growth of CEE Share portfolio per annum: 15%. This is based on historical records over the past

25 years.

b) Dividend yield for the CEE Share portfolio per annum: 4.6%. This is based on historical records over the

past 25 years.

c) Cost of finance to fund the transaction in the international market for a size of this transaction and a

prime portfolio of income producing listed assets to be funded with possible government underwriting of

the debt: I assumed a rate of 6% for the cost of finance although a better rate could be obtained.

What will be the value of a CEE Share in 5, 10, 15, 20, 25 and 30 years time?

See Table A and B for the graphs indicating the growth in the net value of the CEE Share Portfolio over the

next 30 years based on the assumptions above.

One can predict that if the CEE Shares have capital growth of 15% per annum then they will double in value

every 5 years. The all share index of the JSE has achieved a capital growth rate of 15% over the past 30 years.

4 IF WE HAVE CEE WHO NEEDS BEE?

Good question. CEE will only create passive wealth for all the citizens to eliminate poverty. As a consequence of the

elimination of poverty and the growth in the CEE Portfolio of assets of each person to say an average of R 1 million

we will find that a lack of capital will not be a barrier to procuring education or having access to the capital or equity

required to start a small business.

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 that BEE was supposed to reduce the economic inequality for all the people of our country but in

fact the BEE as a policy as designed and implemented so far has failed to equitably redistribute the economic

resources of the country and in fact has perpetuated and worsened what we can only refer to as an Economic

Apartheid caused by a perpetuation of the Legacy of 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 have

Economic Apartheid in South Africa.

Thus more than 99% of the population of South Africa comprising ordinary Black and White citizens feel that BEE is

only for the elite Whites and the elite Blacks.

If one looks at the facts that one will realise that in fact it is true. The current policy of BEE is designed to benefit only

the Black and the White elites ( called the “Elites” ) who comprise less than 1% of the population of 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 Economic Empowerment ( “EE” ) transactions get done.

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

SHAREHOLDERS ( THE “WHITE ELITE” ) THAN FOR ITS BLACK SHAREHOLDERS ( THE

“BLACK ELITE” )

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.

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 who participate in these

transactions and which does not benefit the 99% of ordinary Black and White citizens.

b) In fact a typical BEE deal creates 4 x to 10x 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 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.

e. This applies to 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 deal is “White

Empowerment”

f. Due to the above factors we find over the past 20 years as a result of all the so called “Black

Empowerment” deals that we actually had more “White Empowerment” for their White Elites than

“Black Empowerment” for the Black Elites.

7 CAN BEE BE FIXED?

What can be done to BEE to ensure that it is of benefit to all Black and South Africans? We need to remember that

bad BEE deals such as are occurring now do not only deny the vast majority of the Black 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 elite. The following policy changes are needed

to existing policy to improve the situation:

a) First we need to call a spade a spade. You can only regard a deal as “True Economic Empowerment” or TEE if

the Black shareholding is 51%. The closer the percentage of ownership represents the demographics of our

country the higher the points it should get on the Revised BEE Scorecards. So for example 51% should have a

scorecard of 5 and 90% should have an overall scorecard of 9.

b) Second we need to track all BEE deals. 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 must then be in line for a “BEE Deal”

c) 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. 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.

8 WHAT POLICY HAS THE GOVERNMENT IMPLEMENTED TO ADDRESS ANY OF THE

FOLLOWING QUESTIONS?

a) The question of restitution? There appears to be very little if any discussion or debate on this issue. The

blame can be put on the White controlled media. But surely the government had 20 years to ensure that the

White controlled media does not remain White Controlled? It appears not.

b) The question of redress for the crime of Apartheid. Apparently someone in government decided that it was

“too expensive” so they decided to abandon the idea completely. In fact the situation is so bad that not only

did our government refuse to address the issue of restitution or redress for apartheid but at one stage it also

indicated that it was not in support of a case which was brought before the United States Supreme Court to

address this very issue.

c) The policy which government implemented to address the issue of economic inequality has been the concept

of “Black Economic Empowerment” or BEE and more recently the slightly improved concept of “Broad Based

Black Economic Empowerment” or BBBEE.

9 A CRITICAL EVALUATION OF THE SUCCESS OF BEE AND BBBEE IN REDUCING

ECONOMIC INEQUALITY AND THE IMPACT ON SOCIETY OF THESE POLICIES.

The Myth of BEE – That BEE is designed to reduce economic inequality is a sham.

In fact the opposite it true. Only a handful of the Black elite who are generally politically or otherwise

connected benefit from a BEE deal. The average White or Black citizen does not benefit from BEE. It is the

White elite and the Black elite who get richer at the expense of the rest of society. This in my opinion is a

travesty of justice.

It is a myth that BEE is supposed to reduce economic inequality

The typical BEE transaction creates more wealth for its White Shareholders than its Black Shareholders. In

fact that ratio is approximately 4:1 to 10:1 or even as high as 20:1

So the past 20 years of “Black” Economic Empowerment in the Post Apartheid South Africa has actually been

20 years of White Economic Empowerment for the benefit of White elites at the expense of the rest of

society both Black and White. In absolute and on a per capita basis BEE has created more wealth for White

Shareholders as explained previously in this paper.

10 WHAT IS THE SOLUTION AND THE WAY FORWARD

The ideal solution is to call for a halt of BEE in its current form as it is grossly unfair. However the practical

problem is that there are so many in the elite who have benefited and who continue to benefit from BEE that

if one attempts to stop all BEE transactions than there will be massive resistance by the Black and White

elites who benefit from BEE.

11 A PROPOSED SOLUTION IS THE FOLLOWING:

a) BEE should be reformed to maximize the benefit for society.

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 EE Scorecards than pure BEE deals.

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

d) Each EE deal ( i.e. BEE or 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

e. What percentage of the deal is BEE and what percentage is CEE.

f. What is the long term outcome on progressive improvement of Black ownership in the deal for

society.

12 TEN THINGS YOU CAN DO TO HELP TO END POVERTY AND TO ENSURE THE

FUTURE EQUITABLE ECONOMIC DISTRIBUTION OF WEALTH.

The following 10 steps and actions can change your life. They only take a few minutes of your time every day and

once you make it a habit not only will it be fun but you will make new friends and build a sense of comradeship as we

all work together in the common goal of building a better future for us all.

Discuss the concepts and ideas in this paper with friends and family and social media. Share the iesu.com link with

friends and family. Debate critically what can and cannot work. We need this topic to be on the top of your agenda

until it becomes reality. The benefits are enormous but it cannot become a reality if we just sign a petition in support

of the plan and forget about it.

Step 1 Discuss and share the ideas with friends and family and share on social media ( Facebook and

Twitter )

Step 2 Give a copy of this newsletter to as many politicians and members of government you know and ask

them what their plans are to end poverty and how they can justify the high level of poverty in South

Africa when the problem can be solved by the implementation of the correct policy.

Step 3 Read the articles and books reviewed on the website of www.iesu.com Share the articles you like and

discuss with friends and family. Become knowledgeable on the subject so you make meaningful input

on this topic.

Step 4 Ask the politicians why they deserve your vote for another 5 year term of office after failing to end

Poverty and implanting policies which actually have increased economic inequality in South Africa.

Step 5 Form a discussion group to discuss the various solutions to end poverty and to address the problems

of economic inequality and unemployment. Remember there is no single solution.

Step 6 Lets read and debate and consider all the available options to end poverty. It is only if this topic

becomes a matter of national priority and debate can we as a nation find the solutions to end

poverty. The proposal in this paper is but one alternative. There may be much better options. Lets

discuss and debate to find these better options.

Step 7 We can improve on the current proposal. We may also find challenges or potential pitfalls which we

have never considered. If you find any problem in our proposed conceptual framework then please

let us know.

Step 8 Discussion and debate is good for us to get a good understanding of the issues. However all the

discussion and debate will not lead to a change in policy unless it leads to some form of action. The

following are actions which we can take which can make a real difference:

Step 9 Become a member of PEAC – People Engaged in Action for Change. Once you become a member then

encourage your friends and family to join PEAC for real Peace in South Africa based on an end to

Poverty and a fair and equitable economic distribution of wealth in our great nation.

Step 10 Sign the Petition in support of the Economic Manifesto of IESU referred to as the EMI and to achieve

the goals of the EMI. The goals of EMI are simple:

Goal 1 To end poverty.

Goal 2 To ensure equitable economic distribution of wealth by means of the concept of

Community Economic Empowerment ( CEE ) as explained in this paper. The current

economic inequality which originates from the Legacy of Apartheid and its effect on

society is nothing but Economic Apartheid. An Economic Apartheid whose effects on

the poor are no less then Apartheid.

How ? By using the power of mass mobilization to achieve our goals. See www.iesu.com/emi

for more details and what you can do to help to end Poverty.

( Yellow highlight should be in a box )

Summary and concluding remarks

Read more at our website at www.iesu.com and do one thing every day for a better future for you and your family

and for us all. We all deserve to share in the wealth and prosperity of our Nation. We ended Apartheid after many

years of struggle and sacrifices. We can end Economic Apartheid, Poverty and Economic Inequality with much less

effort provided we all play our part and believe it is a goal worth striving towards. Let us honor the memory of the

greatest Leader in the 21st Century or former President Nelson Mandela and strive to make Poverty history.

“…As long as poverty, injustice and gross inequality persist in our world,

none of us can truly rest.”

“Like Slavery and Apartheid, poverty is not natural. It is man‐made and it can be

overcome and eradicated by the actions of human beings. Sometimes it falls on a

generation to be great.

You can be that great generation. Let your greatness blossom.

Of course the task will not be easy. But not to do this would be a crime

against humanity, against which I ask all humanity now to rise up.

Make Poverty history. Then we can all stand with our heads held up high.”

Nelson Mandela

Excerpts from a speech Mandela gave in London's Trafalgar Square in 2005 for

the campaign to end poverty in the developing world.

"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

Surname

First Name

Middle Name

Cell Phone

Email

Address

Post Code

Gender

ID Number Receive email or sms?

Dependent No Name of Dependent ( only first name if the Surname is the same. ) Date of Birth of Dependent

1

2

3

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5

6

7

Assets Less than R 250 000? Race ( Optional )

I, hereby apply for membership of PEAC and a CEEC to be established by PEAC in accordance with the model developed by IESU.

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.

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

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

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