South Africa must reset BEE by cancelling the current version, which has only enriched a handful of people politically connected to the ANC. The so-called “political capitalists” never started a genuine business or managed one, and often set up “companies” simply to secure state contracts or resource licences and BEE shares in the private sector.
BEE should be cancelled in state departments and state institutions key to public service delivery, economic growth and infrastructure development. It should also be cancelled in catalytic economic growth industries in the private sector. Foreign companies that make new investments in South Africa should be excluded from BEE. With a 32% unemployment rate the country desperately needs foreign direct investment.
[BEE political capitalists] also led to the marginalisation of genuine black entrepreneurs who are deprived of opportunities in both the public and private sectors. It has killed black entrepreneurship
With more than R1-trillion transferred in the form of BEE deals since the strategy was formulated in the early 1990s, it has benefited only black political capitalists, white big business and transaction brokers, financiers and law firms.
As an alternative to BEE, local and foreign companies could be asked to provide investments in targeted catalytic economic sectors such as technology and science; mathematics education; low-income housing; critical public infrastructure; small and medium-size manufacturing enterprises; sport and cultural development.
BEE political capitalists often set up companies to get a specific government tender, even if they have no relevant experience, capacity or finances. They then find front companies to deliver the services. They are responsible to a large extent for the failure of public service delivery. This has also led to the marginalisation of genuine black entrepreneurs who are deprived of opportunities in both the public and private sectors. It has killed black entrepreneurship.
A small black political elite, close to the ANC, Cosatu and the SACP, has become fabulously rich through BEE and public service cadre deployment. This has fostered a culture of corruption, using political connectedness rather than merit to generate wealth. It has encouraged the proliferation of middlemen and women in deals connecting the government to the private sector.
It has nurtured a culture where hard work and entrepreneurship are not valued, because all one needs is connectedness to ANC leaders to secure government contracts or BEE shareholdings in private companies. No society can foster economic growth and tackle poverty and unemployment without a merit-based culture where hard work and entrepreneurship are valued. It has decimated the productive capacity of the South African economy and accelerated deindustrialisation.
BEE has caused more poverty, unemployment and inequality. It has collapsed both black and white legitimate businesses that are not politically connected and therefore lose out on state contracts or licences. It has reduced economic growth and state revenue.
Sadly, instead of the government cancelling this patronage-based BEE, it is extending it to other areas of the economy, which is likely to collapse public service delivery even further. More private companies will go out of business, causing more poverty, more unemployment and more inequality, and reducing state revenue.
The coterie of beneficiaries of BEE fanatically support the current failed version. There are other — well-meaning but naïve — people who also want it to continue. Instead, South Africa should explore the multitude of different empowerment strategies that have worked spectacularly since World War 2 in countries such as Japan, South Korea and Singapore.
Effective empowerment strategies in successful countries have focused on supporting real entrepreneurs, creating new industries and developing products fostering export-led growth. BEE has focused wrongly on giving slices of existing traditional white-owned businesses to selected, politically connected blacks. This does not grow the economy, create new industries or open up new foreign markets.
Given the scarce resources in developing countries embarking on empowerment programmes, supporting new entrepreneurs with proven business experience reduces the risk of wasting those precious resources. Creating new industries providing catalytic growth spurs more broad-based development, more inclusive growth, more sustainable transformation and new opportunities for historically disadvantaged communities.
• William Gumede is professor of practice, School of Governance, University of the Witwatersrand and author of Restless Nation: Making Sense of Troubled Times (Tafelberg)
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