The current system of Black Economic Empowerment (BEE) only benefits a small elite, and will leave the majority of black South Africans out in the cold if an alternative is not found.
This is according to Dr Anthea Jeffery, Head of Policy Research at the Institute of Race Relations (IRR), who has called for an end to the ‘extortion’ of the BEE system.
Last week (20 July), Western Cape Premier Helen Zille spoke out against new Draft Preferential Procurement Regulations, which would see government pay a large premium on all procurement less than R10 million, in favour of BEE companies.
In a column on Politcsweb, Jeffery said that BEE benefits approximately 15% of the black population, with “a small group of beneficiaries having their way at the cost of the many”.
“BEE is a key reason why economic growth in South Africa lags so far behind other emerging countries.”
The remaining 85% have very little prospect of ever gaining BEE ownership deals, management posts, preferential tenders, or new small businesses to run, she said.
“Worse still, BEE does not simply bypass the 85% majority. Instead, it actively harms that 85% by reducing investment, growth, and jobs and making it very much harder for the poor to climb the economic ladder to success.”
The black African population is in the majority (44.23 million) and constitutes approximately 80% of the total South African population, according to StatsSA.
According to Jeffery, the indirect expropriation of existing firms through the 51% BEE deals – which is now increasingly required under empowerment rules – will ultimately do nothing to help unemployment, if no alternative is found.
“The immediate consequence of indirect expropriation under the rubric of BEE will be to deter direct investment, reduce our already meagre growth rate, and make it harder still for some 8.7 million unemployed South Africans (up from 3.7 million in 1994) to find jobs.” Jeffery said.
“The more this indirect expropriation is sanctioned and applauded, the more state powers of this kind will expand.”
“The real challenge is to open up real opportunities for all disadvantaged black South Africans. This cannot be done while BEE puts ever heavier leg irons on the economy.”
BEE: is it working?
BEE was launched in 2003, to redress the inequalities of Apartheid by giving certain previously disadvantaged groups of South African citizens economic privileges previously not available to them.
In October 2014, ANC deputy president Cyril Ramaphosa said that BEE benefits everyone and is necessary to build a prosperous, sustainable and equitable society.
However, data from research groups has shown that, while there has been an increase in wealthy black Africans since 2007 (113% increase to 4,900 individuals with a net worth over $1 million) – the black African population has shown the smallest growth in wealth out of all previously disadvantaged groups.
In March 2015, research found that black South Africans hold at least 23% of the Top 100 companies listed on the Johannesburg Stock Exchange as at the end of 2013.
The shares held by black investors include 10% held directly (largely through BEE schemes) and 13% through mandated investment – mostly through individuals contributing to pension funds, unit trusts and life policies.
An Intellidex study has shown that empowerment deals and schemes done by the JSE’s 100 largest companies have collectively generated R317-billion of value for beneficiaries – R108-billion of which has been generated by BEE deals, alone.