Replacing BEE in South Africa

South Africa’s primary means of economic redistribution should be needs-based rather than race-based to make it easier to administer and clamp down on corruption. 

This is likely to increase the chances that such a policy will improve the lives of ordinary South Africans, as it was originally intended to do. 

This can be done by mimicking the criteria used to administer financial benefits to South Africans through social grants or assistance for tertiary education. 

Solidarity Research Institute head Connie Mulder recently outlined these alternatives to Black Economic Empowerment (BEE) in an interview with BizNews. 

Mulder explained that, as it is currently imposed, BEE has become associated with cronyism and corruption, with little benefit flowing through to poor South Africans. 

This is because well-connected individuals have been able to effectively capture the regulatory framework and repeatedly benefit from it. 

For Mulder, this is not something that can be changed by tinkering with the legislation to close loopholes or try to force wider benefits. 

Such changes are unlikely to benefit a broader cross-section of South Africans, nor are they likely to reduce compliance costs meaningfully. 

Rather, Mulder said the framework needs to become far simpler to implement and explicitly aim at benefiting lower-income South Africans, regardless of race. 

“We have a problem in South Africa where we need to empower poor people. We need to empower unemployed people, and we need to empower young people,” Mulder said. 

To do this would require defining the “Designated Group” in the legislation to address the truly vulnerable in society. 

“The government has already moved towards this in other areas. When you apply for a bursary at NSFAS, they don’t count your race. They look at your household income,” Mulder explained. 

“The government has a database of individuals with household incomes below a certain level. If you meet a particular threshold, then you stand to benefit.” 

Mulder explained that the clear advantage of this is that as richer individuals move out of this database, those who need it can benefit. 

“Then, we will not have to constantly re-empower a millionaire into a billionaire, which is what is currently happening at the moment,” Mulder said. 

Another way to do this would be to use the Social Relief of Distress grant recipient database and define those individuals as the “Designated Group”.

Mulder said this would incentivise companies to hire these individuals and, thus, reduce their reliance on the state for handouts. 

The DA’s plan

Mulder’s alternatives are similar to those proposed by the Democratic Alliance (DA) through its Economic Inclusion for All Bill. 

Through this Bill, the DA plans to repeal all race-based preferences for procurement and create a new system that offers incentives for tangible outcomes. 

Current BEE procurement rules encourage the state and companies to choose suppliers that are Black-owned or have strong Black participation to provide more economic opportunities to people who were marginalised during apartheid.

In contrast, the DA’s points-based system aims to reward companies for doing what South Africa needs most. It has named these areas as jobs, infrastructure investment, skills development, and small business support. 

“Crucially, this approach recognises a simple truth: there is no meaningful empowerment without economic growth,” the DA’s head of policy, Mat Cuthbert, said. 

“By aligning empowerment with investment and job creation, the Bill seeks to drive inclusive growth that expands opportunity, rather than concentrating it in the hands of the few.” 

“The first reading of this Bill marks the beginning of a critical parliamentary process to replace a failing system that works for some with one that works for all.”

This plan is likely to be strongly opposed by the ANC, which remains strongly committed to the BEE framework for transformation. 

While its members have admitted abuse and cronyism, they believe these loopholes can be closed through tweaks to current regulations. 

Political analyst Moeletsi Mbeki explained that this would not have the desired impact of helping those excluded from the formal economy. 

Mbeki pointed to people who are stuck in structural poverty in South Africa’s former Bantustans, the Cape Flats, and those who had their lives upended by migrant labour at mines across the country. 

“Who is redressing what is happening to those people? Who is having redress programmes for them? Nobody. There are no redress programmes benefiting them,” Mbeki said.

In contrast, those who have benefited under the current redress regime are predominantly those who were already successful, well-connected, and highly qualified.