IRR publishes third ‘Blueprint for Growth’ paper, ‘Breaking the BEE barrier to growth’

The IRR has published the third paper in its Blueprint for Growth publication series, a comprehensive set of policy solutions that charts a viable path to economic growth in South Africa.

The latest report, Breaking the BEE barrier to growth, first sets out the case for urgent economic growth, before turning to the policy failures that have saddled South Africa with enormous socio-economic challenges, and offering a non-racial alternative capable of helping those genuinely in need of empowerment while stimulating economic growth.

Writes author of the report, IRR Head of Policy Research Dr Anthea Jeffery: “Many poor policies and bad laws have contributed to these dismal outcomes, including cadre deployment, coercive labour laws, and a steady whittling away of property rights. But South Africa’s Employment Equity (EE) and wider Black Economic Empowerment (BEE) policies have been particularly damaging in eroding state efficiency, promoting corruption, deterring direct investment, increasing unemployment, restricting growth, and worsening poverty.

“These outcomes contradict the government’s stated goal of using BEE to help provide redress for apartheid wrongs. Since BEE is clearly not succeeding in meeting this objective, alternative policies are needed to stimulate growth and help empower the poor in meaningful ways.”

The paper was launched at a public webinar hosted by the IRR yesterday, which can be viewed here.

Jeffery goes on to show how race-based policies like BEE pursue a flawed objective of racial representativity that has sacrificed skills and effectiveness in the public sector, exacerbated the costs of public procurement, and flies in the face of the non-racial requirements of the South African Constitution.

In the place of failed BEE policies, Jeffery presents the IRR’s alternative: Economic Empowerment for the Disadvantaged (EED).

Writes Jeffery: “The BEE scorecards developed under the BEE Act and its accompanying codes of good practice overlook all that the private sector contributes to investment, employment, and tax revenues, among other things. Yet these are the most valuable contributions that business can make to growth and upward mobility – making it all the more surprising that the current BEE scorecard ignores them all.”

Where BEE policies are based on expensive, wasteful, and ineffective criteria, EED offers a sure pathway to incentivising real upward social mobility by relying on a scorecard that rewards businesses for

• maintaining and expanding production and/or sales;
• sustaining and increasing operating profits;
• retaining and expanding jobs;
• sustaining and increasing gross fixed capital formation;
• helping to attract inflows of foreign investment, both direct and indirect;
• contributing to tax revenues via their own tax payments and the taxes paid by their employees;
• helping to generate export earnings and domestic spending by foreign tourists;
• allocating resources to research and development (R&D) or otherwise contributing to innovation;
• providing skills training for all staff; and
• employing and promoting people on an expanded concept of merit, which takes account of how people have countered adversity.

Says Hermann Pretorius, IRR head of strategic communications: “Empowerment, however, must go beyond merely good corporate citizenship. The surest way to empower any individual within an economy is to allow them to go from state dependent to consumer, customer, and client – especially in the areas of education, housing, and healthcare. The second component of IRR’s EED policy solution, beyond substituting BEE for a policy that rewards real empowerment in business, makes this practical through the introduction of means-tested vouchers that empower parents, patients, and aspiring homeowners.”

Jeffery further writes: “[T]he voucher element in EED would offer a swift and effective solution to three particularly vital unmet needs. All South Africans – and especially the disadvantaged – require sound schooling to help them get ahead. They also need much better housing and good quality healthcare.”

“For 30 years, the government has promised these benefits while signally failing to deliver them. More than 6% of GDP is spent on education every year, but the schooling system remains one of the worst in the world. Roughly 1% of GDP regularly goes to housing delivery and related infrastructure provision, but shack settlements have nevertheless mushroomed, from the 300 evident in 1994 to the 3 200 (or perhaps 4 300) reported in 2022. Annual allocations to public healthcare have long stood at some 4% of GDP, but only 20% of poorly managed public hospitals and clinics are able to comply with basic norms and standards.”

“EED could swiftly overcome these problems through tax-funded vouchers for schooling, housing, and healthcare. The voucher system would redirect much of the tax revenues now being badly spent – and often looted – by a vast and remote bureaucracy into the hands of disadvantaged South Africans.”

The published report can be accessed here.

Media Contact: Hermann Pretorius IRR Head of Strategic Communications Tel: 079 875 4290 Email: hermann@irr.org.za

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