IRR welcomes World Bank call to relax BEE premiums

The World Bank report titled “Driving inclusive growth in South Africa” is a welcome addition to the body of expert advice in favour of reducing BEE premiums in public procurement, says the Institute of Race Relations (IRR).

Policies that once had good intentions, like BEE, have backfired, according to the report. “Today, these interventions have become so cumbersome that they smother the implementation capacity of the public administration, especially local officials, and open spaces for corruption.”

Directly thereafter the report links these harms to “state capture”.

This is no surprise, as the IRR has repeatedly pointed out that the systemic analysis of the State Capture report found a problem in the “legislative design” that facilitated state capture. That problem is confusion created by the tension between BEE premiums and “value-for-money” procurement in a non-transparent system.

The Zondo report offered the following advice:

“Ultimately in the view of the [State Capture] 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 World Bank effectively repeats that advice, with its first concrete proposal being to “Improve the efficiency of public spending”.

When inefficient BEE premiums are spent, this benefits connected elites (of all races), but reduces value for money. The City of Cape Town, for example, found that it was spending 7% on BEE premiums on traffic light controller parts, meaning less money was left over to make other things work.

In order to address this problem both the State Capture report and the World Bank emphasize the importance of introducing transparency to procurement. The World Bank states that procuring entities should have to “share data with the National Treasury”.

That is an important call, as Treasury has never reported on the cost of BEE premiums, a violation of its constitutional duty. Following the World Bank’s advice would begin to allow Treasury to remedy that fault.

The IRR previously requested that Treasury be transparent about BEE premiums by putting in place new mechanisms in preparation for the 12 March budget presentation.

The World Bank’s advice to relax BEE is in line not only with the State Capture report, but also with a report from Harvard University and the IMF.

Perhaps most importantly, the majority of South Africans want to end BEE premiums too.

A poll commissioned by the IRR in 2024 asked survey respondents whether BEE premiums should be eliminated or not. 64% of black respondents and 70% of all respondents preferred reducing BEE premiums to R0.

Put another way, as South Africa has not grown in real terms since 2007, a singular failure among open democracies around the world, most people would like to shift from race preferences to a bet on economic growth.

The World Bank advises “a development bargain, whereby the country’s elites shifted from protecting their own positions to gambling on a growth-based future.”

Media contact: Gabriel Crouse, IRR Legal Executive Director Tel: 082 510 0360 Email: gabriel@irrlegal.org.za

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