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How real BEE can help ordinary folk

- William Gumede

BEE has only benefited a handful of politically connected black political capitalists, a select group of white-owned big business, financiers and law firms.

Black economic empowerment, arguably one of the most wasteful, costly, and ineffective redistribution strategies, devised in any post-colonial society since the end of the Second World War, should be immediately scrapped.

With over R1trillion funds transferred in the form of BEE deals since the strategy was formulated in the early 1990s, the strategy has benefited only a handful of politically connected black political capitalists, a select group of white-owned big business and the assortment of white-owned transaction brokers, financiers and law firms.

It has also created and empowered a select group of political fixers, frontmen and women, and go-betweens posing as genuine entrepreneurs, who get paid to link political capitalists and white-owned big businesses to access government contracts or commodity licences.

These BEE beneficiaries, beyond overnight becoming fabulously rich, have injected very little value into the economy, nor created new businesses or new markets. No country, certainly not South Africa, can afford this kind of wastage of resources.

Covid-19, the biggest financial crisis of our generation, which has slashed public and private resources, forces us to confront policy realities, and abandon policies that has not serve the economy, society or contributed to inclusive growth. BEE is one of those wasteful policies that must go.

BEE has taken mostly two forms: white companies giving slices of their businesses to blacks – to secure government contracts or commodity licences; and black businesses getting preferential state contracts. In whatever guises or iterations, the BEE strategy since 1994 has been focused in fostering an elite group of black big business tycoons.

Sandile Zungu, a beneficiary of BEE, a few years ago accurately described the objective of BEE when he said: “We want to create our own GT Ferreiras and Christo Wieses. You are not going to create those through broad-based ownership”.  

Successful empowerment strategies elsewhere, historically has focused on supporting existing entrepreneurs, creating new industries a country did not have before, and promoting export growth, to create new markets for products.

Giving the scarce resources in developing countries embarking on empowerment programs, supporting new entrepreneurs already with business experience, reduce risks of wastage.

Creating new industries that a country did not have before, provide catalytic growth which in turn spur more broad-based development. Focusing on export growth, compels businesses to seek new unknown markets, produce world-class competitive products which can compete in these new markets.

BEE in South Africa has focused wrongly on giving slices of existing traditional white-owned businesses to selected blacks, not creating new industries. This does not grow the economy, create new industries, neither does it create new markets.

In the South African context it would have been more catalytic to the economy, if the BEE had focused on the 5million real, black entrepreneurs, who have been running their own micro, small and medium-sized businesses since the apartheid era, whether it is taverns, spaza shops, butcheries or taxi companies.

In the new South Africa, this group, not connected to the ANC, has been excluded from influencing economic policy making, BEE, and state finance and training supposedly now available to blacks.

These existing black entrepreneurs, with the business experience and skills, should have been provided with access to finance, helped to transition up the value chain, to manufacture, and produce new products and services the country do not have and the world needs.

By focusing on empowering political capitalists, BEE has killed off legitimate black and white small and medium-sized businesses; and discouraged existing and potentially black entrepreneurship.

A new revised empowerment policy must be centred on at least five new pillars. It must be based on employee economic empowerment (EEE), where employees are empowered with company shareholding and profit-sharing.

Companies must provide housing, funding for education and health insurance to their employees.

Companies must provide industrially relevant vocational and technical training to employees and their families. Established big businesses in the same sectors could pool together and establish vocational and technical training colleges open to non-employees.

Companies could give local communities surrounding mines and factories shares in these companies, rather than giving these BEE shares to politically connected individuals. Local communities could form companies in which each community member has shares. These community-based would then become the BEE shareholders in established companies.

In the post-Covid-19 economic reconstruction, established companies can in a different form of BEE contribute a percentage of their output to developing public infrastructure.

Established companies could also bring in former employees or their surviving relations who lost out on company benefits during the apartheid-era should be considered for shareholding as BEE beneficiaries. Companies should do more to compensate former employees or their surviving families’ outstanding employee contributions, not given during apartheid.

As a case in point, there are over R50bn in unclaimed pension fund benefits owned to 4million people. Companies must do more to get such benefits to destitute beneficiaries. 

Lastly, both the private and public companies must bring genuine black small and medium-sized businesses into their supply chains, to provide goods and services.

William Gumede is Associate Professor, School of Governance, University of the Witwatersrand; and author of Restless Nation: Making Sense of Troubled Times (Tafelberg). This article first appeared in the Sunday Times.