BEE billionaires feasting at the taxpayers’ table

The handful of individuals who benefit from Black Economic Empowerment (BEE) are effectively exploiting the South African taxpayer and businesses. 

This exploitation is so bad that it is difficult to quantify, with almost every government contract or tender requiring middlemen to fulfil. 

Econometrix chief economist Dr Azar Jammine explained how parts of South Africa’s BEE policy have been used to facilitate cronyism and corruption in an interview with Palatable Politics. 

Jammine said BEE exaggerated the mismanagement of South Africa’s economy over the past 15 years, with bad actors having free rein to loot the state. 

This problem is difficult to solve without changing the legislation itself, as BEE inherently enables a handful of individuals to win contracts and do business with the state. 

The dominance of these individuals, estimated at a mere 47 entities receiving R1 trillion in proceeds, comes at the expense of most South Africans. 

Jammine explained that much of this happens inside the state’s procurement processes, with it becoming entrenched in society. 

“The unfortunate thing is that this has virtually become a habit and a mindset of so many South Africans that the only way to get rich is to get yourself in a connected position that can win contracts with the state,” Jammine said. 

“What used to be very effective organisations have fallen into the hands of just those who benefit financially from them.” 

Jammine said this has been turbocharged by the implementation and enforcement of BEE, particularly its later “broad-based” variants. 

“The enforcement of BEE has been in a manner that benefits relatively few people rather than the majority. This has exacerbated the whole trend,” Jammine said. 

“Because of our racial history, the majority of people do not fully recognise how they are being exploited by the minority of connected people in this way.” 

“The result has been the collapse of service delivery and maintenance in South Africa. There has been no new infrastructure built because the money has been diverted elsewhere.”

This has translated into South Africa’s economic growth hovering around 1% per annum for the past 15 years in comparison to the emerging market average of 4.5%. 

The middleman problem

The effect of BEE has been the entrenchment of middlemen throughout the state’s procurement apparatus and in big business. 

These middlemen facilitate transactions and ensure that companies or individuals win contracts and tenders by gaming the system. 

This is a waste of money as there is no need for these middlemen to collect fees from companies and the state. 

It also often results in companies that cannot do the job properly winning contracts and tenders. As a result, they supply subpar services or do not do the work at all. 

“The policy of BEE, as it was laid out, was always going to enrich a few people and not result in wealth trickling down to the majority,” Jammine said.

“This has, unfortunately, been badly abused. The politicians have taken advantage of the situation and enriched themselves enormously.” 

This abuse came in the form of middlemen who were politically connected, facilitating deals and abusing the system. 

“You had the development of a wasteful system whereby there always has to be a middleman with any deal that is done,” Jammine explained. 

“That middleman has to benefit from the situation in some way or another without adding any value or helping anyone.” 

“South Africa’s laws are helping that system develop and created it in the first place. They have enabled the abuse of procurement processes.” 

Jammine explained that it is naive to think that this era has passed, with the laws still in place and middlemen still benefiting. 

“There has been a lot of talk of transformation and the rejuvenation of state-owned enterprises with greater private sector participation,” Jammine said. 

This is a threat to the middlemen and those entities that leached off of state-owned enterprises by abusing procurement processes. 

“There are people now getting in the way of reform, saying that private companies need a middleman to help them and not deal with the state directly,” Jammine said.