BEE destroyed R5 trillion and 4 million jobs in South Africa

A new study by the Free Market Foundation (FMF) and the Solidarity Research Institute (SRI) estimates that BEE has cost South Africa R5 trillion and led to the loss of 4 million jobs.

The study compares South Africa’s model with global affirmative action policies in Malaysia, India, Brazil, the US, and Namibia.

It found that South Africa’s version of black economic empowerment is the most intrusive and economically damaging.

It added that Broad-Based Black Economic Empowerment (B-BBEE) policies result in a loss of between 2% and 4% of the gross domestic product (GDP).

This, in turn, translates into up to 192,000 lost job opportunities annually in South Africa due to slow economic growth.

“Over nearly two decades, the cumulative drag on growth amounts to more than R5 trillion in lost economic activity,” Morné Malan, FMF Senior Associate and co-author of the report, said.

He added that this leaves South Africa far behind its global peers, while destroying nearly 4 million jobs in the process.

“Our findings show that BEE, as currently designed, is enriching a small elite while throttling economic dynamism and deepening unemployment,” he said.

“From the ordinary South African’s perspective, we all are stuck in an enormous negative-sum game.”

He explained that empowerment, in its current form, is not benefiting South Africans and that all citizens, apart from the small group of elite beneficiaries, are paying the price.

The report argues that current policies have become economically unsustainable and increasingly divorced from meaningful grassroots empowerment.

FMF Head of Policy, Martin van Staden, said BEE policies cannot be viewed as a trade-off between economic efficiency and broader inclusion.

“The fact is that these provisions have done significant harm to the South African economy, with little if any benefit on the other end,” he said.

“There are better ways to build a growing and prosperous economy. We urgently need to move from race-based redistribution to opportunity-based economic freedom.”

R5 trillion lost to the South African economy

The Free Market Foundation (FMF) and the Solidarity Research Institute (SRI) report aligns with other research on lost economic activity.

Investec Wealth & Investment International also estimated that South Africa lost out on around R5 trillion due to slow economic growth.

Osagyefo Mazwai, investment strategist at Investec Wealth & Investment International, explained that South Africa has had 15 years of lost growth.

He said that had South Africa followed a more pragmatic approach, focusing on the structural enablers of the economy, the outcomes could have been beneficial for the economy.

South Africa’s economy only grew at around 1% annually over the last 15 years, while the population grew at around 1.3%.

Adding to this strain is the structural break in South Africa’s economic performance relative to the rest of the world, with a stark dislocation in GDP per capita.

“In essence, people are worse off than they were in 2010, suggesting that economic policy has been ineffectual in addressing poverty, unemployment, and inequality,” he said.

Mazwai said that per capita, the rest of the world is 50% richer than the average South African. This should not be the case, considering the country’s resources.

“Growth of 1% will not lead to the envisaged goals of lifting people out of poverty and meaningfully addressing the problems of unemployment and inequality,” he said.

Investec compared nominal GDP over the period with what it would have been had the South African economy been growing at 4.5% per year, in line with emerging market peers.

“Had the economy grown at 4.5%, our nominal GDP would have been just below R12 trillion in 2024, compared with the actual number of R7.5 trillion, around 36.7% smaller,” he said.

R1 trillion moved between 100 politically connected individuals through BEE

Prof. William Gumede of the Wits School of Governance said black economic empowerment (BEE) has led to increased poverty, unemployment, and inequality in South Africa.

He said BEE across Africa failed terribly because it focused on benefiting a small group of connected individuals rather than a large group of people.

Gumede stated that the government had asked him to conduct an assessment of black economic empowerment in South Africa.

He said it was very clear that BEE only benefits a tiny group of politically connected people linked to the African National Congress and trade unions.

In countries where empowerment is effective and has reached its goal, it has been implemented to reach the widest possible group of people.

However, in South Africa, black economic empowerment only benefits a very small group of connected people.

Gumede said he had calculated the amount of money which has been moved through empowerment in South Africa.

“Conservatively, R1 trillion has been moved between under 100 people since 1994. The same people have been empowered and re-empowered over and over,” he said.

“South Africa’s BEE model has created a model of corruption because people set up companies just to get a contract.”

He added that genuine South African entrepreneurs who are not politically connected do not benefit from black economic empowerment funding.

Gumede said that R1 trillion could have been spent more effectively on things other than enriching a small group of connected individuals.

He said companies could have spent the money on housing for black South Africans or sponsoring schools in Soweto. “This would have delivered a much wider impact,” he said.

Tata did that in India, and Mitsubishi did it in Japan. These educational empowerment projects were highly successful.

When Starlink enters South Africa, for example, it can sponsor a group of underprivileged schools to enhance their mathematics and science education.

This will ensure that a large group of children is empowered and better equipped for further education or entering the workforce.

“We want to create millions of black South Africans who have R500,000 each, not a small group of billionaires,” he said.