BEE enriches few, harms many and should be scrapped – IRR

That Black Economic Empowerment (BEE) enriches the few and harms the many is becoming ever more apparent.

As yet, however, the African National Congress (ANC) refuses to budge on BEE. Opinion polls by the IRR and the Social Research Foundation (SRF) show strong support for an end to race-based rules, but the ANC is doubling down on them instead.

These are some of the key points in a new report by the IRR, titled Breaking the BEE Barrier to Growth, launched at an online webinar this morning. The report is the latest in the IRR’s Blueprint for Growth series. Here, Dr Anthea Jeffery, Head of Policy Research at the IRR, analyses the heavy costs of BEE, the ANC’s determination to retain it – and the growing wish of most South Africans for major changes to its current rules.

The ANC, adds Jeffery, needs to be reminded of the commitments it made back in April 1994 when it acknowledged the risks inherent in BEE and pledged to prevent them.

According to the ANC, the new state would ensure that BEE did not become “an instrument of racially based extortion and patronage in which friends were favoured, opponents disadvantaged and bribes accepted”.

The ANC also said that BEE would remove “all the obstacles to the development of black entrepreneurial capacity” and unleash “the full potential of all South Africans to contribute to wealth creation”.  

Some 32 years later, this rosy picture has entirely unravelled. As Professor William Gumede of Wits University has pointed out: “BEE…has focused on giving slices of white companies to politically connected non-whites.” It has also “collapsed both black and white legitimate businesses which are not politically connected”. In addition, BEE has strongly promoted the patronage, corruption and extortion the ANC pledged to prevent.

Jeffery’s new report further confirms what many critics of BEE have long pointed out: that almost all the benefits of race-based preferences go to a small and politically connected black elite. Some other black people may notch up limited gains, but the great majority of black South Africans get nothing at all. 

This is evident in mining, for example, where a 2015 report (recently made public by Gumede) shows that some 60% of the net value redistributed by pre-2014 ownership deals went to around 46 BEE companies or participants – each of whom probably gained between R2bn and R3.7bn.

By contrast, most black people are actively harmed by BEE, whether in mining or elsewhere, because it deters investment, limits growth, curtails employment – and has helped to render some 8.5 million South Africans jobless and largely destitute.

Jeffery’s report goes on to explore how the BEE barrier to growth can best be broken. The ANC often claims that BEE has to be retained because there is no other way to provide redress for past injustices. This is not so. 

Says Jeffery: “Beneficial and workable alternatives have been proposed by both the Democratic Alliance (DA) and the IRR. 

“The DA has put forward a private member’s bill that would put an end to costly BEE premiums in procurement, prioritise getting value for money, promote economic inclusion, and remove all BEE laws from the Statute Book. 

“The IRR has long proposed a constructive alternative, called Economic Empowerment for the Disadvantaged (EED), which has three core features. First, EED is race-neutral, which means it targets the poor and its benefits cannot be captured by the black elite. 

“Second, EED promotes investment, growth, employment, innovation and free market competition, all of which are vital to upward mobility. Third, it recognises that many poor South Africans are held back by bad schooling, housing and health care and that these needs must also be addressed in innovative and cost-effective ways.” 

Media contact: Anthea Jeffery, IRR Head of Policy Research Tel: +27 11 482 7221; Email: ajj@irr.org.za

Media enquiries: Michael Morris, Head of Media Tel: +2766 302 1968 Email: michael@irr.org.za