Andre de Ruyter calls for big BEE changes

South Africa has to transform, and its demographics will naturally result in an economy more reflective of the broader population. 

This will happen without state intervention, as current empowerment policies only benefit a well-connected elite and inhibit investment in South Africa. 

As a result, the country should shift towards a means-based empowerment mechanism, without any racial component, and impose a moratorium on equity empowerment deals as a prerequisite for fixed investment in South Africa. 

This is feedback from former Eskom CEO Andre de Ruyter, who said the vast majority of South Africa’s problems could be solved by faster economic growth.

De Ruyter told the second BizNews Investment Conference that the government needs to remove every possible impediment to growth as the country desperately needs a significant increase in economic activity.

Increased economic activity will ease the state’s financial burden by increasing tax collections, without rate increases, and improve its debt-to-GDP ratio.

Faster growth will also enable the country to begin tackling its unemployment crisis by encouraging businesses to invest in growing their operations rather than merely staying afloat.

“There is a real opportunity to just focus on economic growth. Growth should be the first, second, and third priority for South Africa. Grow, grow, grow,” De Ruyter said.

“That solves almost all of South Africa’s problems. The answer is not more regulation, more racial quotas, more forced ideological interventions in the economy. We have got to remove every impediment imaginable.” 

De Ruyter explained that transformation will naturally follow as more South Africans are employed and demographic trends play out. 

The country needs the best and brightest it has to offer to revive the economy and ensure that South Africa can prosper as a modern state.

As the country’s economy grows, an increasing number of individuals will participate in it and benefit from the creation of wealth. 

De Ruyter said he would reconsider racial quotas for jobs on this basis, as the country will transform regardless of what polices are in place, just because of economic trends. 

“White people are getting older and fewer. We need the best and the brightest to return to South Africa and contribute to its economy, regardless of their race,” he said. 

The former Eskom CEO also called for a means-tested economic empowerment mechanism without any racial component aimed at the poorest of the poor. 

“Instead of the largesse doled out to the politically connected through BEE deals. Let’s address inequality through economic empowerment of those who need it the most,” De Ruyter said. 

“Given our nation’s pervasive inequality, the vast majority of such a policy will be black anyway. We will achieve the objective without racialising the policy.” 

De Ruyter said beneficiaries would get access to empowerment based on their needs rather than their race.

BEE must go for a deal with Trump

For South Africa to strike a deal with the United States and garner sufficient investment to boost its economy, BEE and expropriation without compensation will have to go. 

Frans Cronje Private Clients economist and partner Bheki Mahlobo said South Africa cannot prosper economically without a positive relationship with the United States. 

“South Africa can compete by regulation and by law to attract investment into the country. But, we have actually been doubling down on policies that have inhibited our progress,” Mahlobo told the Free Market Foundation.

Mahlobo has previously called South Africa an “own goal specialist” and said the government acts as though it is a football team trying to lose a game. 

These policies, particularly BEE, make South Africa unattractive to investors who have the capital that it needs to grow. 

Over two-thirds of investable capital sits in the United States, and South Africa desperately needs its share to boost its local economy. 

“Currently, the most topical theme has been the relationship between South Africa and America, which is deteriorating,” Mahlobo said. 

“Fundamentally underpinning that decline in bilateral relations with the United States has been the issue of BEE and expropriation without compensation.”

Mahlobo explained that these policy choices have harmed South Africa on the international and domestic levels, with its economy averaging an annual growth rate of 0.8% for the past decade. 

In particular, the policy of BEE has been particularly damaging for South Africa, with it benefiting a handful of connected individuals. 

“Certain individuals have benefitted from this regime and, at a broader scale, South Africa’s investment levels from other countries have declined,” Mahlobo said. 

“These countries, including the US, which has made the point most explicitly, have said that BEE is a form of taxation on the commitment of capital investment into the country. It is not only the Americans that are saying that.”

Mahlobo said these destructive policies are the main reasons why South Africa’s economy has stagnated over the past decade, as they correspond to a sharp decline in fixed investment in the country.

De Ruyter also flagged this issue, saying there needs to be a moratorium on the need for equity empowerment deals for all investment in gross fixed capital formation.

This would significantly increase investment in South Africa by effectively removing the need to have a roughly 25% carry attributed to non-value-adding shareholders.

Rather than having the average growth rate of emerging markets for the past decade of 4.5%, South Africa has only grown at 0.8% per year. 

It has been effectively left behind by countries that were once its peers in terms of GDP per capita and global economic clout. 

Investec calculated that if South Africa had just matched the average of emerging markets since 2010, its economy would be R4.1 trillion larger and the state would have collected R5 trillion in additional revenue. 

Effectively, the country would not face the financial crisis it does, and the lives of its citizens would have vastly improved.