ANTHEA JEFFERY | Scrap draft BEE codes and embrace true transformation - Business Day

Anthea Jeffery

Draft BEE Codes that require compulsory contributions to a new Transformation Fund and reserve many procurement contracts for 100% black-owned firms should be withdrawn.

As we said in our written submission to the department of trade, industry and competition, these BEE Codes are poorly drafted, procedurally defective and constitutionally invalid. They will also harm investment, economic growth and the poor black majority they claim to want to help.

The codes are riddled with clauses that are ambiguous, contradictory and ungrammatical. Key terms are used inconsistently. Entire provisions are so poorly worded that their legal meaning is uncertain. This conflicts with the rule of law, which requires laws be clear enough for those affected to know what is expected of them.

With regards to the Transformation Fund, the department has encouraged businesses to believe they will have a choice between maintaining their existing supplier and enterprise development BEE contributions or directing them to the fund instead. However, the wording of the draft BEE Codes tells a different story.

The language indicates large enterprises will have to obtain subminimum scores on all four components of this element: preferential procurement, supplier development, enterprise development and contributions to the fund, if they want to avoid being penalised.

However, if contributions to the fund are made mandatory this will amount to a new tax on business. Yet a tax cannot be imposed by a minister and needs parliamentary authorisation.

The fund is also based on the flawed assumption that a shortage of capital is the main obstacle to black business development. The evidence says otherwise. Black businesses face more pressing challenges: a poor skills base, a lack of viable business opportunities in a low-growth economy, inadequate infrastructure, excessive regulation and unreliable electricity and water supply. Throwing more capital at black business development will not solve those problems.

In further provisions likely to be even more damaging, the draft BEE Codes dramatically increase the racial procurement requirements to be imposed on businesses and state-owned enterprises (SOEs). Under the current BEE rules large enterprises can earn a significant number of procurement points by buying from suppliers that are 51% black-owned or 30% black women-owned. Under the proposed rules the targets shift sharply towards 100% black ownership and 100% black women-ownership. The subminimum scores needed to avoid penalties also rise.

In practice, this means companies — including SOEs such as Eskom and Transnet, with their already costly and often inefficient delivery — will have to restructure their supply chains to buy more goods and services from 100% black-owned suppliers.

This will not be easy. Poor schooling, low growth, overregulation and state inefficiency have long impeded the development of successful black-owned businesses. Forcing companies to procure from an insufficient, inexperienced and often inefficient supply base risks raising costs, reducing quality and creating new opportunities for fronting and corruption.

The draft BEE codes also conflict with the constitution. Section 1(c), for example, identifies “nonracialism” as a founding value of South Africa’s democracy. Yet the draft BEE codes entrench the need for racial classification and make access to economic opportunity depend on racial identity. This is the opposite of nonracialism.

In addition, section 9 of the constitution prohibits unfair racial discrimination by both the state and private parties. Though section 2 authorises affirmative action in certain circumstances, the Constitutional Court has ruled race-based remedial measures are valid only if they satisfy three tests: they must target the disadvantaged, help advance them and promote equality.

BEE fails all three tests:

It targets people by race rather than disadvantage, which enables a politically connected black elite to siphon off most of its benefits.
It curtails investment, growth and jobs, which greatly harms the great majority.
Far from promoting equality, it widens the gulf between the few who benefit and the millions who are harmed.
Tellingly, the SA Communist Party has acknowledged the “intra-African inequality” fostered by BEE is the main contributor to South Africa’s increasing Gini coefficient, which has risen from 57 in 1994 to 67 in 2025.

In view of all this, the draft BEE Codes should be scrapped. Instead, the department should engage seriously with the Institute of Race Relations’s alternative to BEE, called Economic Empowerment for the Disadvantaged (EED).

EED differs from BEE in three key respects:

It is race-neutral. It targets disadvantage directly, via a means test, rather than by using race as a proxy for it.

It replaces BEE’s damaging racial targets with a simple scorecard that rewards companies for investing, employing and otherwise helping to grow the economy and expand opportunity.

It redirects hundreds of billions of rand being badly spent by bureaucrats into tax-funded schooling, housing and healthcare vouchers for the poor. Families with these vouchers will be able to choose between public and private providers, all of whom will have to compete for their custom. This will improve delivery and tangibly empower the poor in ways that BEE will never do.

Removing the BEE leg iron hobbling the economy is an essential foundation for investment, growth and the generation of millions more jobs. Scrapping the draft codes, terminating all other BEE rules and adopting EED offers South Africa the opportunity to embark on true transformation in place of the fake version the department has peddled for decades.

Dr Jeffery is head of policy research at the SA Institute of Race Relations

https://www.businessday.co.za/opinion/2026-04-09-anthea-jeffery-scrap-draft-bee-codes-and-embrace-true-transformation/