N$1 Trillion for What? South Africa’s BEE Misstep

South Africa must reset its black economic empowerment (BEE) programmes.

The current version has only enriched a handful of people connected to the African National Congress (ANC) – so-called ‘political capitalists’, politicians who have never started a genuine business nor managed one.

BEE should be cancelled in state departments, state-owned and infrastructure state institutions key to public service delivery, economic growth and infrastructure development.

It should also be cancelled in catalytic economic growth industries in the private sector.

Foreign companies which make new investments in South Africa should be excluded from BEE.

South Africa, with a 32% unemployment rate, desperately needs foreign direct investment.

Overall, the current implementation of BEE has come at a significant cost

COUNTING THE COST

With over N$1 trillion in funds transferred in the form of BEE deals since the early 1990s, politically connected BEE and public service cadre deployment has made a small elite close to the ANC, the Congress of South African Trade Unions (Cosatu) and the South African Communist Party fabulously rich.

It does not expand the economy but reinforces the concentration of the South African economy. 

This elite group often sets up companies to secure government tenders, subsequently relying on front companies to deliver the services.

To a large extent, they are responsible for the country’s public service delivery failure.

It has also led to the marginalisation of genuine black entrepreneurs who are deprived of opportunities in both the public and private sector.
In short, it has killed black entrepreneurship. 

It has spawned a culture of corruption and political connectedness rather than one based on merit or ability.

No society can foster economic growth, tackle poverty and unemployment without a merit-based culture, or where hard work and entrepreneurship is valued.

It has encouraged the proliferation of middlemen and women who are connectors to government and private sector deals. 

It has decimated the South African economy’s productive capacity.

It has accelerated deindustrialisation and increased poverty, unemployment and inequality.

In the past there were wide inequalities between whites and non-white South Africans. Now we have large discrepancies between rich non-whites and poor non-whites.

It has also collapsed both legitimate black and white businesses that are not politically connected – who have lost out on new or existing contracts as instant political capitalist companies take their state contracts or licences.

It has reduced economic growth and state revenue. 

WHEN MORE IS LESS

Sadly, instead of government cancelling patronage-based BEE, it is extending it to other areas of the economy.

This is likely to collapse public service delivery even more, further destroying additional private companies and the economy.

This will cause more poverty, more unemployment, more inequality and reduce state revenue. 

Many of the select BEE beneficiaries fanatically support the current version of BEE.

There are well-meaning but naïve people who want it to continue, and wrongly think it can be improved, rather than exploring a multitude of alternative empowerment strategies that target proven entrepreneurs not trading with the state.

This has worked spectacularly in post-Second World countries such as Japan, South Korea and Singapore. 

Historically, effective empowerment strategies in successful countries focused on supporting existing entrepreneurs, creating new industries and developing products to export to foreign markets.

Giving slices of existing traditionally white-owned businesses to a select elite does not grow the economy, create new industries; nor does it create new markets or open up new foreign markets – critical for domestic economic growth, revenue and productive capacity development. 

ALTERNATIVES

As an alternative to BEE, local and foreign companies should be asked to invest in targeted catalytic economic sectors: Technology, science, mathematics education; low-income housing; critical public infrastructure; manufacturing small and medium-size enterprises; sport, cultural and music development, and so on. 

Given the scarce resources in developing countries, backing proven winners reduces the risk of wasting precious resources.

Creating new industries provides catalytic growth which spurs more broad-based development, more inclusive growth, more sustainable transformation, redress, and new opportunities for historically disadvantaged communities.

At the same time, it will grow the economy, and do so more quickly. 

– William Gumede, professor of practice, School of Governance, University of the Witwatersrand, and author of ‘Restless Nation: Making Sense of Troubled Times’.

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