Gabriel Crouse | Why it is time to let the sun set on BEE - News24

Gabriel Crouse 

It is time to let the sun set on BEE. The first authority to consider in this regard is Volume 1 of the Zondo Report, which deals with BEE premiums in public procurement.

"Ultimately, in the view of the commission, the primary national interest is best served when the government derives the maximum value-for-money in the procurement process and procurement officials should be so advised," the report states.

The message is clear. It "is unhelpful", according to the report, to fail "to identify the primary intention of the Constitution" when it comes to spending public funds. This pits BEE against "maximum value-for-money".

There is an "inevitable tension" whenever tender officials aim "simultaneously to achieve different aspirational objectives". Again, this pits BEE against "maximum value-for-money".

It is rare, but when the "maximum value-for-money" option is not the same as the highest-scoring BEE option, a choice has to be made.

Maximum value-for-money is the people's choice. The reasons for this extend far beyond the scope of the Zondo Report and can be gathered into two main categories – material considerations and political considerations.

The following analysis will focus predominantly on the interests of black South Africans under these considerations since that group is supposed to be the primary beneficiary of BEE.

Material

The first reason for letting the sun set on BEE is to help poor black people find jobs. The argument for that proposition has three main premises.

First, more investment produces more jobs.

Second, more jobs mean fewer poor black unemployed people.

Third, ending BEE will lead to increased investment.

If true, the premises entail that ending BEE will increase the number of jobs for poor black work seekers specifically, but are the premises all true?

The first and second premise are beyond serious doubt. The third, however, was a matter of some serious debate among experts in the mid-2010s - but, more recently, the disinvestment concern has grown clearer.

For example, a 2020 report on the EU Investors' Responses to BEE, put it simply like this: "Does B-BBEE affect foreign investment?" it asked.

"The simple answer to this question is a definitive 'YES'" [caps in original]. See more on those investor worries here.

The second reason to sunset BEE is that it will expand the black middle class, and the third is that ending BEE will likely increase the number of super-rich black people – centimillionaires (earning a hundred million rand or more) and billionaires.

I will come back to the argument on those claims later on. For now, notice that at the top of the income ladder the BEE debate is very different from what it is at the bottom.

At the top, the number of black centimillionaires and billionaires has increased dramatically in the last couple of decades, but at the bottom, black unemployment swelled from 23% in 2007 to 37.6% at the latest count. On the expanded definition, black unemployment has risen to 47%.

Poor, black unemployed people are the most clearly stuck in the shadow of apartheid, a shadow that has grown under BEE. Removing obstacles to investment is the best way to remove the shadow.

Political

BEE should be pulled back as it has lost political legitimacy. The most extreme form of legal racial preference is in the South African Legal Practice Council (LPC), which is having another election next week, run on strict racial quotas. These quotas have, as a matter of public record, disqualified people based on race and gender, even though they won more votes. Individuals from the following groups have been disqualified: black female, white female, coloured female, Indian female, coloured male.

Not everybody wants to call that "BEE" since the LPC elections are for posts without a salary. But the minority opinion of this Constitutional Court judgment dealt with state employment and showed that racial hiring/promotion policies in a government department excluded individuals from every race-gender pair in some job or another in order to fit "targets".

In another example, the Labour Appeals Court ruled that a "zero" target for Indian females is okay at station commander level in Gauteng.

None of this is legitimate "transformation". It only reflects BEE gone mad.

Another major problem with BEE legitimacy is that no one knows how much it costs. BEE premiums are paid every year out of the more than R1 trillion procurement budget, but despite the constitutional requirement for "transparency" and "cost management", BEE premiums have never appeared on the budget.

To make matters worse, the new Public Procurement Act makes it even harder to calculate the cost of BEE in the annual budget.

A third major problem is the drain on highly specialised resources in procurement oversight, accounting, auditing and legal brainpower. There is a bandwidth problem in South Africa, and not just with the Starlink BEE delay.

Labour Minister Nomakhosazana Meth's announcement of 20 000 new BEE compliance officers will cost more than R2.8 billion just for the new interns. How much is spent every year on lawyers, accountants and BEE certificate officers across the country? No one knows.

But if every legal eagle, accountant, auditor and consultant paid to fill out BEE paperwork was paid the same to root out corruption (including workplace discrimination) and maximise value-for-money, that would boost economic growth powerfully.

Understand that potential redirection of human capital and you are well positioned to understand this unforgettable News24 headline from the end of last year: "BEE-focused tenders and cadre deployment causing state collapse - Harvard economists"

The final aspect of legitimacy is the question of popular opinion. Although pollsters never reasonably ask the policy question in an ideal way, a recent survey by the Social Research Foundation showed majority support for scrapping BEE in appointments, state procurement and private enterprise, given a black-only alternative.

This brings back the argument for why ending BEE will expand the black middle class, centimillionaire class, and even billionaire class: fundamentally, the primary challenge at this stage is not overcoming white racists, who exist, but as a shrinking economic minority.

The primary challenge is good governance through common sense and a government of national unity rainbow spirit of working hard together.

In short, black middle- and upper-class problems are basically just middle- and upper-class problems across all racial groups.

Gabriel Crouse is a Fellow at the Institute of Race Relations

https://www.news24.com/news24/opinions/fridaybriefing/gabriel-crouse-why-it-is-time-to-let-the-sun-set-on-bee-20241010