BEE is broken in South Africa

The government’s policy of Black Economic Empowerment (BEE) has been tainted by corruption and cronyism, with its continued implementation increasingly challenged. 

This requires an overhaul of the policy to ensure it empowers a broader cross-section of South African society, and not a handful of elites. 

It has been estimated that around R1 trillion worth of BEE deals have only circulated among approximately 100 well-connected individuals. 

The call for a review of BEE policy in South Africa was made by Trade Minister Parks Tau and former president Kgalema Motlanthe during a B-BBEE dialogue this week. 

BEE has come under increasing pressure over the past year due to the United States’ Trump administration and the inclusion of parties in the Government of National Unity who oppose the policy. 

Amidst this pressure, the ANC has doubled down on BEE and repeatedly reaffirmed its commitment to implementing the policy regardless of the pushback it faces. 

The call from Tau and Motlanthe to review the policy seeks to remove loopholes that have been exploited by well-connected individuals to ensure they benefit from BEE deals at the expense of others. 

“In fact, we have said in the department that a review of the architecture of the entire transformation programme, policies, and instruments is called for,” Tau said. 

He pointed to the faking of BEE compliance by individuals and businesses as one of the main reasons for the policy’s inability to bring about genuine inclusion in the economy. 

This is one of the ways in which individuals and businesses seek to circumvent legislation to secure beneficial deals and effectively lock out others. 

“Progress has not been enough to equal the post-1994 promise to free the potential of each citizen, as ownership patterns remain skewed and top management representation for black South Africans remains low,” Tau said. 

“Too often, empowerment has been undermined by fronting, tokenism, and financial structures that deny true control.” 

This has also resulted in BEE being closely associated with cronyism and corruption, without much real economic value being created by these transactions. 

A handful of winners

The main issue raised by critics of BEE who do not believe the entire concept should be scrapped is that it only benefits a handful of well-connected elites. 

Despite the addition of ‘Broad-based’ to the front of the new BEE policies, the effect of the policy has been to enrich a few, while the many remain locked out of the economy. 

It should be noted that the main reason why millions of South Africans are locked out of the economy is that they cannot find a job, preventing them from formal participation and sharing in wealth creation. 

Political analyst at the University of the Free State Dr Harlan Cloete explained to Newzroom Afrika that BEE has so far failed to achieve its main goal of increasing participation in the formal economy and wealth creation. 

In this sense, the principle of black economic empowerment has been corrupted by well-connected individuals who have reaped nearly all of the benefits. 

“I think the principle of black economic empowerment is correct, with a majority of people being excluded from the economy,” Cloete said. 

“What we have seen, however, is that the application of BEE has resulted in a small elite benefiting through that in South Africa.” 

Cloete also said BEE should not be used as or seen as a punitive measure, but more so as a way of including more South Africans in the economy. 

“It is not a punitive measure. It should be a way of asking how we can use the economy to make sure that more South Africans can participate and are included in wealth creation,” he said. 

Cloete’s comments echo those of Efficient Group chief economist Dawie Roodt who said BEE has become a tool to redistribute wealth from some South Africans to a select group of individuals without creating new wealth or growing the economy.

This may not have been the intention of BEE, Roodt said, but it is what the policy has enabled in South Africa and it has had a negative impact on growth and development. 

“When you talk about BEE and transformation in South Africa, it means that you take resources from one group of people and give them to another group of people,” Roodt said. 

“Let’s be honest about this: the resources are given to a select group of people. So, actually, what we have in South Africa is the empowerment of a very small group of connected individuals.”

Roodt said the way to truly empower South Africans is to equip them with the right skills to be able to find employment and participate in the local economy 

“If you look at skills development in South Africa, it is not only bad but is sometimes even the worst in the world,” Roodt said. 

“The majority of people who get these skills in South Africa are black. The education in South Africa is horrible, and the people who suffer the most from that are black people.” 

“I would like to see a dramatic improvement in education and skills development in South Africa because that is how you get out of poverty and are empowered.”

This has to be coupled with an environment conducive to conducting business and growing companies that can absorb an expanding workforce. 

“Create an environment of empowerment. Give people a pavement. Give people electricity and water. Most importantly, give people a safe environment,” Roodt said. 

“Those are the things you need to do in order to empower people. The state cannot empower anybody. The best the state can do is to create an environment for people to empower themselves.”