The deep dark hole that BEE has helped to dig
DAILY FRIEND / 16 APRIL 2020 - 05.00 / ANTHEA JEFFERY
The purpose of Black Economic Empower (BEE), said the ANC in 1994, is to remove ‘all the obstacles to the development of black entrepreneurial capacity’ and ‘unleash the full potential of all South Africans to contribute to wealth creation’. In practice, however, BEE has had precisely the opposite effects.
‘Close to R1 trillion has been transferred in BEE share deals’, said Professor William Gumede of Wits University late last year, but these deals have gone to ‘a handful of politically connected politicians, trade unionists, and public servants’.
The favoured few have done little to expand the economy. Instead, adds Professor Gumede, they have ‘crowded out genuine black entrepreneurs and killed the development of a mass entrepreneurial spirit in black society because all you need to secure a BEE deal…is the right political connections’.
BEE preferential procurement in the public sector and state-owned enterprises (SOEs) has also been inordinately damaging. By abrogating normal procurement rules, it helped pave the way for the ‘Zupta’-linked ‘state capture’, estimated to have cost between R500bn and R1.5 trillion.
But Zupta corruption has at least been exposed and ended. Not so the broader problem of BEE ‘tenderpreneurship’, which continues from one year to the next – bringing with it inflated prices, fraud, and the further enrichment of the few at the expense of the many.
How big is the tenderpreneurship problem? In August 2018 the Treasury’s acting chief procurement officer, Willie Mathebula, told the Zondo commission of inquiry into state capture that ‘the government’s procurement system is deliberately not followed in at least 50% of all tenders’.
Moreover, once the usual tendering rules have been suspended on some spurious basis (a claimed emergency, for instance), ‘a contract which starts at R4m is soon sitting at R200m’. These abuses have enormous negative impact on service delivery because the government is ‘the biggest procurer of goods and services, spending an estimated R800bn a year’, says Mr Mathebula.
The extent of the price inflation is staggering, as Mr Mathebula notes – and as Gwede Mantashe, for one, has also acknowledged.
Said Mr Mantashe (then ANC secretary general) in 2012: ‘It is unacceptable for contractors to charge taxpayers R20m for a public school when the private sector spends between R5m and R10m on a similar project.’
Mr Mantashe criticised officials for ‘prioritising the enrichment of BEE companies through public contracts at the expense of quality services at affordable prices’. He also urged ‘BEE companies [to] stop using the state as their cash cow by providing poor quality services at inflated prices.’
Why are prices so inflated? According to one BEE contractor (who understandably preferred to remain anonymous), businessmen seeking state contracts have little choice but to charge inflated prices to ‘recoup the costs of paying mandatory kickbacks’ to corrupt officials and ‘regularly donating huge sums’ to the ANC and its allied organisations.
Who then (apart from the ANC) benefits from BEE? Only about 15% of black South Africans, as IRR opinion polls show. Who suffers from it? The remaining 85% of black people, who have little chance of participating in ownership deals or preferential tenders – but bear the full brunt of reduced investment, economic stagnation, high unemployment, and the filching of tax revenues badly needed for clinics, water, sanitation, and schools.
So great is the gap between the few who gain and the many who suffer that even the SACP has identified BEE as the primary reason for mounting inequality since 1994.
In 2017 the party warned that the ‘intra-African inequality’ which BEE has fostered is ‘the main contributor to South Africa’s extraordinarily high Gini coefficient’ of income inequality.
THE 15% WHO BENEFIT HAVE ENTRENCHED INTERESTS IN ITS RETENTION AND EXPANSION AND WILL STRONGLY RESIST ANY CHANGE
Added the SACP: ‘Enriching a select BEE few via share deals…or (worse still) looting public property…in the name of broad-based black empowerment is resulting in….increasing poverty for the majority, increasing racial inequality, and persisting mass unemployment.’
Why then is BEE not quietly abandoned? The 15% who benefit have entrenched interests in its retention and expansion and will strongly resist any change.
But there is a deeper reason too. The ANC has long undermined black achievement by claiming that black upward mobility has nothing to do with individual skills, acumen, or hard work, but is solely the product of BEE and would never have happened without it.
This message is deeply debilitating, encouraging even the born-free generation to see itself as BEE-dependent. Yet, even under apartheid restrictions, black entrepreneurship flourished in various spheres – the multi-billion rand minibus taxi industry being one prominent example and the growth of black business under Nafcoc (the National African Federated Chamber of Commerce and Industry, established in 1964) being another.
Tellingly, the white minority has also been too small to meet the needs of the economy for a good 60 years. As the skills shortage worsened in the 1960s, business repeatedly urged the National Party (NP) government to ease restrictions on black employment and advancement.
In 1973 prime minister John Vorster finally yielded to this pressure, saying his government would no longer stand in the way of blacks moving into higher jobs. This resulted in considerable advances for black South Africans and began to narrow racial inequality.
Spurred on by the skills shortage, from the early 1970s the NP government also started reforming ‘Bantu’ education, expanding black trade union rights, allowing black home ownership in townships, and embarking on other reforms. All these policy shifts reflected the increasing economic interdependence of blacks and whites – and made the political exclusion of blacks all the more impossible to sustain.
BEE ignores all these considerations. Far from helping ‘all’ South Africans to ‘contribute to wealth creation’, as the ANC promised in 1994, it has hobbled the economy and cemented inequality between the relatively few who benefit and the 9.3 million black people who find themselves locked out of jobs, income, and any prospect of a better life.
The Covid-19 lockdown is now likely to throw at least another million people out of work. It will also push the economy into a deep depression, with GDP contracting by 6.1%, as the South African Reserve Bank estimates.
At this time of unprecedented crisis, it is unconscionable for the government even to consider making state support for small businesses dependent on their BEE status. If BEE is supposed to be about the contributions of ‘all’, why count white-owned SMEs largely out? Especially when allowing these small enterprises to collapse will simply make unemployment that much worse.
Even before the Covid-19 pandemic, the economy was in recession – mired in a deep dark hole that BEE had done much to dig. When you’re in a hole of your own making, the remedy is very clear. Stop digging!
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER