Cut BEE premiums to spend more on service delivery, IRR urges Godongwana

National Treasury should use the Medium-Term Budget Policy Statement (MTBPS) to scrap Black Economic Empowerment (BEE) premiums and give effect to the Zondo Commission's recommendations on value for money in public procurement, says the Institute of Race Relations (IRR).

When the government procures goods and services, everything from medical equipment or materials for building roads to stationery for public schools, the sum it spends includes extra payments, or BEE premiums, intended solely to reward BEE-credentialed businesses that do work for the government.

The quantum of these lawful premiums are unknown but estimates from the IRR suggest the cumulative sum paid in licit and illicit premiums is in the region of R100 billion a year.

Says Makone Maja, IRR Strategic Engagements Manager: “The MTBPS provides Finance Minister Enoch Godongwana with the opportunity to come clean with South Africans about how much BEE premiums are costing them. These premiums have no benefit to taxpayers and divert funds away from services simply so that certain tenderers for government business get richer. Meanwhile, communities are poorer, as budgets meant to fund development and public services are spent on gratuitous BEE premiums instead.”

According to Investec, government spending in the first five months of this fiscal year has risen by 1 percentage point from 41% to 42% of the total budget compared to the first five months of last year. This rise in expenditure tempers the positive change in revenue from 37% to 39% over the same period, thus minimising the net positive impact that could otherwise be realised. 

Maja argues that eliminating BEE premiums would assist the government in lowering inefficient spending. “By adopting the proposal from the Zondo Commission to apply value for money in government procurement contracts the finance ministry would have access to R17 billion per annum in licit premiums alone that could go towards actual public goods. 

“Cutting government expenditure without compromising services is achievable if non-value-adding spending is targeted. Taxpayers cannot afford to be spending such sums without goods and services ever being rendered in exchange. The condition of our law enforcement institutions, roads, public hospitals and schools attest to this grave problem,” Maja concludes.

Media contact: Makone Maja, IRR Strategic Engagements Manager Tel: 079 418 6676 Email: makone@irr.org.za

Media enquiries: Michael Morris IRR Head of Media Tel: 066 302 1968 Email: michael@irr.org.za