BEE should be scrapped, not ‘reformed'

"Already, far too much scarce capital, skill, entrepreneurial effort, and bureaucratic oversight have been ploughed into trying to make black economic empowerment (BEE) succeed. But BEE cannot be made to work and should be scrapped, not ‘reformed'," says the South African Institute of Race Relations in a submission made last month to the Department of Trade and Industry (DTI) on its proposed BEE codes of good practice.

The DTI says it is trying to reform BEE by putting more emphasis on ‘broad--‐based elements' such as procurement, skills development, and promoting new black businesses. This is intended to counter widespread criticisms that BEE has done little but enrich a small elite, ‘without making South Africa a fairer and more prosperous place', as the minister of finance, Pravin Gordhan, has noted.

The Institute's submission to the DTI on the draft codes, as summarised in this press release, urges an end to BEE rather than further futile attempts to improve it. "The Government assumes that tightening up the BEE codes will help solve deep-rooted problems of poverty, inequality, and unemployment," says Dr Anthea Jeffery, head of special research and Gawith Fellow at the Institute. "In fact, no such quick fix is feasible."

After more than a decade of BEE policies covering the elements set out below, it is more than ever apparent that:

• preferential ownership transfers do not build entrepreneurship or the ‘visible black industrialists' whose absence President Jacob Zuma laments;
• appointing people to board and management positions without the necessary experience undermines efficiency;
• preferential procurement frequently inflates costs while eroding performance;
• enterprise development is unlikely to succeed without adequate skills, infrastructure, and markets;
• skills development is crucial to South Africa's success but is best achieved via tax incentives for on--‐ the--‐job training of a kind decided by business, not bureaucrats; while
• ‘socio--‐economic development' (in the form of the state--‐directed corporate social responsibility required by the codes) can do relatively little to meet social needs or counter the negative consequences of widespread and persistent unemployment.

In addition, a vast amount of scarce capital has now been spent on BEE deals. The value of these transactions is hard to quantify, as those involving private companies are not made public. However, figures in the public domain put the value of such deals as between R550bn and R600bn in the decade from 1998 to 2008 alone. This investment has primarily been non--‐productive and its benefits have gone largely to a limited elite.

"Already, far too much scarce capital, skill, entrepreneurial effort and bureaucratic oversight have been ploughed into trying to make BEE work. It is time to call a halt," Dr Jeffery says. "BEE is fatally flawed and it cannot be reformed. Instead, the Government must identify the real barriers to the advancement of the poor and set about removing them.

Hence, the ruling African National Congress (ANC) must now embrace the much harder tasks of:

• fixing education,
• freeing the labour market from excessive regulation,
• ending other damaging dirigiste invention,
• building up international competitiveness, and
• making South Africa much more attractive to direct investors, both local and foreign.

"The Government also needs to shift its ‘big idea'. For 18 years, the ANC has put its emphasis on redistribution, rather than on rapid economic growth. But a different way of dividing up the existing economic pie - without expanding it as well - will never be enough to meet the needs of a growing population.

"By contrast, as Gill Marcus, governor of the South African Reserve Bank, put it at a recent conference: ‘Growth matters. With growth of 7%, you double you income every ten years. With growth of 3%, it takes 24 years to double your income.' "A big shift from redistribution to growth - while taking effective steps to educate and liberate the poor - is the only sound way forward."

(The full text of the Institute's submission to the Department of Trade and Industry on the draft BEE codes of good practice is available on the Institute's website.

Statement issued by Anthea Jeffery, South African Institute of Race Relations, January 15 2013

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