A critical examination of the social and economic impacts of the South African Black Economic Empowerment program, an affirmative action aimed at restoring equality to the country’s citizens.
Written by Scott Stephen Smith, August 2009
Since the end of Apartheid, the South African government has taken significant measures to restore a balance to society by promoting the previously disadvantaged people through legislation and government aid. The most significant attempt to eliminate inequality is the Black Economic Empowerment, and the mass of legislation that backs it. Known commonly as BEE, these laws aim to promote advantages for Blacks, Coloreds, Indians, and now Asians by awarding government contracts to companies who achieve the highest scores in regards to their BEE compliance and encouraging employment, procurement, skill development, and ownership for the previously disadvantaged. Companies can improve their scores by hiring and promoting people of these races, and by fulfilling the quotas set forth by the ANC led government. There are critics, however, that will argue against BEE on the account that it is a policy based purely on race, and therefore racist, that does not appropriately or effectively address the issues facing the country. There are also complaints of corruption and misallocating funds that further hinder the proper execution of the programs. While the Black Economic Empowerment program may aid in addressing immediate short term issues, continued use of the policy will lead to an unmotivated and inefficient enterprise structure that benefits the select few, and will be further crippled by degrading social relations caused by a reinvigorated racial divide.
The program was initiated by the South African government following the first free election in 1994 (Wikipedia) to undo the inequalities that had been forced upon the country during apartheid, and to unlock the country's economic potential by involving the majority of the population in its growth strategy. It does this primarily through the preferential awarding of government tenders, or contracts, which constitutes an enormous portion of the domestic economy. While there is still an aspect of merit involved in every award, to be eligible for consideration of many contracts a company must be BEE compliant. While the government does not require compliance from any corporations by law, not doing so would immediately eliminate the chance of winning the lucrative government contracts that many businesses rely on, and even indirectly impacts who a compliant company can do business with outside of the government. The compliance standards are most strict for large corporations making R35 million in revenue per year, or 4.4 million USD using a rough conversion of eight Rand to every Dollar. For these businesses, they can receive a score out of 100 based on ownership, management, employment equity, skills development, preferential procurement, enterprise development, and socioeconomic development (Wikipedia). Of these, the most heavily weighted categories are ownership and preferential procurement. Ownership is fairly obvious, as a company qualifies based on the race and gender of its major stakeholders. Preferential procurement is slightly more difficult, however. This measure implies that in order to be fully compliant and receive government contracts, you must purchase, outsource, and contract with companies that have a certain level of compliance, even on projects unrelated to the government. Because of this one stipulation, BEE has become one of the farthest reaching affirmative action programs in the world, affecting nearly every area of South African business. There is also a helping hand given to small and medium sized businesses in order to better promote their growth and development.
Medium sized enterprises have an easier job as they only need to comply with four categories of their choice, and micro enterprises making under R5 million are automatically considered 100% compliant. These measures aim to lend a helping hand to less developed enterprises and struggling entrepreneurs, but the effectiveness has been heavily debated and argued since the policy's inception. The debate has gotten even heavier as of late, and has prompted a few position changes within the African National Congress, the party that has controlled the South African government since the first free election.
Although the ANC has received a wealth of criticism regarding the implementation of BEE policies, they remain steadfast in its necessity and continue the same arguments to justify its use. The origin for everything, according to their official website, lies within the Freedom Charter written in 1955. It states “The national wealth of our country, the heritage of South Africans, shall be restored to the people; The mineral wealth beneath the soil, the banks and monopoly industry shall be transferred to the ownership of the people as a whole; All other industry and trade shall be controlled to assist the well being of the people; All people shall have equal rights to trade where they choose, to manufacture and to enter all trades, crafts and professions.” (Umrabulo) The Freedom Charter was written during apartheid, but still had little to no explicit mention of race. Its goal was not a role reversal, but rather a balance among all people. It was also written before the ANC broke away from other minorities to focus on the black population and received the name that it now holds. Since its split from the Freedom Congress, the tone has changed to emphasize race as an issue, building on emotional support. However, using race as a determining political factor is seen to be justified by many given the country's past. Under apartheid race was essentially the only thing that mattered in determining your day to day life. The black population was the most heavily disadvantaged out of all race classifications, makes up the largest portion of the population, and still remains the poorest. The idea now is to seek economic justice and redistribute the wealth until ratios are restored.
The ANC states that the policy will not last forever, but must be aggressively implemented until a proper balance is reached, or until blacks hold a percentage of wealth appropriate to their percentage of the population (Umrabulo).While some groups believe that the program is no longer needed, Bheki Sibiya, chairman of the Eastern Cape Development Corporation, predicts that the policies will need to be in place for another 30 to 40 years (Spies).This is primarily to fix the wrongs of the past and set the country in the direction that it should have been all along. President Jacob Zuma stated in a press conference earlier this year that “While the number of black middle class has increased over the past years, affirmative action and broad based economic empowerment have not changed the structural imbalances in the economy of the country.” (Khumalo) And, while Zuma still remains a staunch supporter, he does not seem to place as much emphasis on the program as Thabo Mbeki, the previous president, had (Mbanga). His aim seems to be less corporate and more towards the development of the rural areas, a potentially more pressing and far reaching issue.
The policy relies completely on the ability of the South African government to continue to develop and pay for public projects. If there is an economic slow down and lack of tax revenue, as there is currently, the government needs to either decrease spending or increase debt. Neither of these options allows for sustainability. An ulterior method could be a more market focused approach that doesn't hand out funds, but rather encourages funds to be available for small business development. This should include easing regulations on foreign investment and allowing credit to flow more freely throughout the economy. Offering opportunity and giving citizens the education and skill needed to grab it could be much more effective, low-income focused, and sustainable.
While the ANC holds the strongest position for BEE, there are a wealth of minority parties and foreign critics that argue against it. Granted, the political factions may be speaking on the matter just to get attention or fuel emotional support for their own causes, but they are arguments that still must be heard and analyzed. One of the most noticeable criticisms, at least from an American perspective, is racism. It is difficult to justify the rectification of years of oppressive policies based on race by implementing new policies based on race. It strikes many as hypocritical when the ANC rhetoric focuses so much on race and yet they believe in creating a society where all are thought of as equal regardless of race. Equality is reached with pride when everyone can uplift themselves to a higher level, but reached with bitterness when brought down to be equal with others.
One of the more outspoken critics of BEE is Trevor Tutu, the son of the archbishop and former ANC member. He argues against the use of race and discrimination, “15 years into democracy South Africa could have created equal opportunities for all,” and continued to say “people should not be judged according to the mistakes of their forefathers.” He finished by summing up with “race is not useful for anything.” (Sapa) Tutu's sentiment express a more widespread concern over the social tensions that BEE has started to create, not only among whites, but among Coloreds, Indians, and Asians as well. As it is often argued in the United States with regards to affirmative action in universities, the disadvantage is not necessarily based on race, even though it appears to run along those lines, as there are poor and uneducated people of every race that have not been given an equal chance. One may argue that a policy based on socioeconomic status would better address the poorest segments of the population, still effectively empower disadvantaged blacks, and cause fewer tensions among races without creating artificial divides between groups. This may also aid in the execution of BEE policies, as the now elite members would not be legally eligible for the benefits they no longer need.
Helen Zille, the mayor of Cape Town and staunch critic of the ANC's BEE implementation argued that continued misuse of the policy by the ANC would result in a loss of human capital due to bitterness. (Pickworth) If the economy continues to move away from merit and towards entitlement efficiency will corrode, skilled workers will be encouraged to leave the country, and investment will shy away from the increasing corruption. This will not only affect large corporations, but the millions of unemployed workers who are counting on economic growth to create job opportunities. As many critics have warned, the situation could spiral downward at a rapid pace given continued negligence.
While there are arguments that white South Africans still have distinct advantages in society, it is not necessarily the case among the middle class work place. One native South Africans that was interviewed, Scotch Ngoma, explained that he discovered that his employer was specifically looking for a black male to fill the position when he was hired . He told me that because of the employment equity act, “there was probably some white guy who tried to get the same job but couldn't because he was white. That's not right and that's not freedom. And here I am, being hired just because I'm black, not because I'm the best or because I know how to do the job. That is just reversing what happened under apartheid, its reverse racism.” (Personal Interview) Mr. Ngoma went on to agree with Trevor Tutu in his concerns over racial tensions. He expressed empathy for their disadvantage and stated his belief that the government has done its job and that there are legitimate opportunities for blacks to take advantage of now. He cited his education and employment as an example, and felt that there was no longer any need for BEE. He did note that Blacks still need to work twice as hard to get somewhere, but that the opportunity was there and people need to become motivated to seize it. There are differing views, however, and other issues that upset people within the BEE.
Scotch's cousin, Lawrence Ngoma, explained a different sentiment that is also widely heard throughout the country, “I'm not a part of BEE, so it hasn't really helped me at all.” After being questioned he explained, “legally I qualify as a black man, but because I don't know anyone or have family in the government it doesn't help me.”(Personal Interview) Lawrence, unlike Scotch, was more concerned about the execution of the program rather than the principle. He believed that it promote economic prosperity in South Africa, but the last administration made him reverse that opinion, as it was his perception that most of the money went to individuals with political connections that had no intention of using it to uplift their communities but rather uplift their personal bank accounts. This perception was felt by many in the country, and is a distinct part of the service delivery riots experienced this year. The riots have yet to reach the level of the race based riots during the apartheid, or the May 13 riots that occurred in Malaysia in 1969 (Sapa) that was caused by comparable circumstances, but the potential is certainly still there.
Service delivery is the issue within popular South African politics. Within the BEE program, it is the number one complaint. Some complain about how the program is implemented, others about who is getting the money, and others question whether or not it is sustainable. The complaints come from all provinces, political parties, and races. Narend Singh of the IFP said recently that “BEE has not worked; it is a great idea but in its current form it has been about eight to ten percent successful.” (Pickworth) Mr. Singh is echoing the same concerns that Lawrence Ngoma is feeling when he added “A few are getting much and the effect is not being felt by the poor.” Many feel that the allocation of funds is this manner is directly caused by corruption, and its no wonder. According to an article published in The Economist, Sbu Ndebele, the newly appointed transport minister, accepted a gift from a group of road-building contractors consisting of a Mercedes-Benz, petrol vouchers, two cows, a flat screen television, and a set of wine glasses. When questioned, Ndebele responded by saying that the gifts were out of appreciation of an black economic empowerment program to teach road-building he set up while premier of KwaZulu-Natal and that there was no conflict of interest. Seeing that he is the minister of transport and the gift givers are contractors that rely on his project grants for money, there was enough public scrutiny to encourage Ndebele to sell the gifts and donate the proceeds to charity. The most interesting part about this story was that it came right after President Zuma's promise to fight against corruption and be strict with his ministers. One must question how strict he is really being as Ndebele ended up keeping the television and wine glasses. It is this sort of behavior within the government that leads to dissatisfaction and mistrust.
The poorest of the poor have not been helped or empowered in any way, and they hear about the new transport minister accepting extravagant gifts from contractors. If the ANC could develop a clear and transparent plan to improving the implementation of BEE policies, they still have time to salvage support and improve the country's economic outlook for all. Unfortunately, they may fail this test too. According to Philisiwe Buthelezi, the CEO of the National Empowerment Fund, "There is a vacuum in leadership now, both politically and technically, to engage with the [BEE] codes. Government may feel that after eight years of talking about BEE and setting up its framework, it is time to talk about something else." (Mbanga) The newly appointed minister most responsible for BEE implementation is Rob Davies, a white member of the SACP, or South African Communist Party. The problem with this is not that Davies is white, or that he is a member of a party that does not list the BEE as a priority what so ever, but that after only a short time in office he is already deflecting responsibility. He has already stated in a published interview that BEE is an issue that cuts across many departments and is not his sole responsibility (Mbanga). Without proper leadership within the program, it is unlikely that any real changes will be able to get a foot hold. This leaves the prospect for an effective, corruption free BEE grim, and the likelihood of future complaints certain.
Moving away from claims and criticisms, the most relevant question now would be does it work? Can affirmative action programs correct the wrongs of the past? Can they uplift a targeted demographic and create equality? The trouble with answering this questions, specifically concerning South Africa, is that the data is not yet complete or at all reliable. We may not be able to answer that question for many years, until the current generation of graduates is established in the corporate world. What we can do is examine other countries that have used similar programs to address similar issues. One that is quite obvious from the American perspective is affirmative action in universities. It has been long debated and implemented, and many independent studies have been done on its effectiveness. Legally, the Supreme Court declared in 2003 that affirmative action can be used in universities to promote diversity and create a better learning environment. However, this prompted several states like Nebraska and California to create their own laws banning the practice (Brunner). A study published by the Cato Institute in 2004 examined the success of affirmative action beneficiaries during their studies and beyond. First, they found that only 20-30% of colleges in the U.S. are competitive while the rest accept nearly all applicants who have completed high school. Second, they found that there is no real difference in long term financial benefit between the selective and non-selective institutions. Still, even with these circumstances, there is still an enormous racial divide in wealth, home ownership, and education within the United States. The study found that the problem was based in lower level education. Although anyone with a high school diploma can get into school, only 20 percent of Black students and 16 percent of Hispanic students leave high school with the basic requirements to enter college (Gryphon). The problem is not getting minorities into college, but begins much earlier. Affirmative action will never fix the problem unless schools are improved and more students actually become eligible to attend college. The same can be said about economic empowerment in South Africa. The issue can never be fully resolved until schools are improved, college attendance increases, and the black majority becomes the educated black majority. BEE can place a band-aid on the wound, but it won't make it heal until the underlying causes are fixed. Handouts discourage motivation and determination, creating the crutch affect upon which people become dependent on what is free rather than striving for a better life. Empowerment will only be achieved when citizens are educated and enabled to empower themselves rather than entitled to live off social grants.
Black Economic Empowerment can be, and is, justified to the world based on the country's need to overcome its past and economically advance the majority of its population. However, the way it is framed and executed is not only ineffective but detrimental to the South African society and economic potential. The policy aims to give economic advantages solely on the basis of race, and is therefore a continuation of the same racial classification that South Africa has been attempting to overcome. These policies do little to uplift the majority of the population, as few have seen benefits from the program, and do much to further divide citizens based on the color of their skin. The corruption that exists within the government has been exploited and funds dedicated to compliant companies have been misallocated. This, combined with a deteriorating merit scale that places less importance on competence and greater significance on BEE scorecards has created an inefficient government and corporate atmosphere that will not be able to compete globally if the trend continues. Additionally, the South African government cannot continue to support this inefficiency in a sustainable nature, particularly during times of limited economic growth. In order to create a sustainable job market and encourage foreign investment, the South African government must abandon its crutch-giving policies and opt for a market based approach that frees up monetary capital and increases the influx of skilled human capital. This will eliminate the mass dependence on government funding and help alleviate the increasing debt and poverty that exists within South Africa.
Works Cited
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