Black Economic Empowerment

Black Economic Empowerment (BEE) is a racially selective programme launched by the South African government to redress the inequalities of Apartheid by giving black (African, Coloureds, Indians and Chinese) South African citizens economic privileges that are not available to White South Africans, in essence wealth redistribution. It is a form of Affirmative action. Although race is the overriding factor, it includes measures such as Employment Preference, skills development, ownership, management, socioeconomic development, and preferential procurement. By 2015 around R350 billion (equivalent to US$24 billion) worth BEE deals had been done by the top 100 companies on the JSE with an additional R50 billion by private South African companies indicating that 10 percent of South Africa's GDP had been transferred to 20 percent of the population in the 15 years since 2000.[1]

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Rationale

After the transition from Apartheid in (1994), it was decided by the African National Congress government that direct intervention in the redistribution of assets and opportunities was needed to resolve the economic disparities created by Apartheid policies which had favoured white business owners. BEE intended to transform the economy to be representative of the demographics, specifically race demographics of the country. BEE was defined in the 2001 Commission Report as follows,

"It is an integrated and coherent socio-economic process. It is located within the context of the country’s national transformation programme, namely the RDP. It is aimed at redressing the imbalances of the past by seeking to substantially and equitably transfer and confer the ownership, management and control of South Africa’s financial and economic resources to the majority of its citizens. It seeks to ensure broader and meaningful participation in the economy by black people to achieve sustainable development and prosperity."

— BEE Commission Report, pg. 2

The BEE programme was implemented starting from 2003. It was criticised for benefiting only a narrow stratum of previously disadvantaged groups, and this led in 2007 to the introduction of a modified programme called Broad-Based Black Economic Empowerment or B-BEE.

In 2019 BEE is still positioned as a means to assist those that were previously disadvantaged under Apartheid however it excludes Indians and Coloureds and only provides for Black beneficiaries. Liberal South Africans and groups such as the IRR (Institute of Race Relations) have suggested that BEE should focus on disadvantaged people regardless of race and with limitations that prevent wealthy individuals from repeatably benefiting. This approach would focus on poor and disadvantaged South Africas regardless of their race although this group will still be majority black.

Legislation

On 9 February 2007, the new Codes of Good Practice of the Broad-Based Black Economic Empowerment were gazetted by the South African Government.

This included the following Codes:

  • Code 100: Ownership
  • Code 200: Management & Control
  • Code 300: Employment Equity
  • Code 400: Skills Development
  • Code 500: Preferential Procurement
  • Code 600: Enterprise Development
  • Code 700: Socioeconomic development
  • Codes 800 – 807: Qualifying Small Enterprises

The following sector scorecards have also been gazetted (in terms of section 12):

  • Financial Sector Scorecard[2]
  • Construction Sector Scorecard[3]
  • Tourism Sector Code[4]

Also gazetted were general guidelines and definitions, among which, the definition of the beneficiaries of BEE. The definition is the same as that of the Black Economic Empowerment Act of 2003 which states that "black people" is a generic term which means Black Africans, Coloureds and Indians and included provisions to ensure that they must have been South African citizens prior to 1994.[5] The fact that Chinese individuals (some of whom were classified as Coloureds under Apartheid, others as honorary white), who were also submitted to legal discrimination prior to 1990 (but exempt from the Group Areas Act as of 1984 when the Group Areas Amendment Act was promulgated), have been excluded as beneficiaries of black empowerment, has led to a renewed media debate regarding the definition of "black" in current legislation.[6] As of 2008, Chinese people have been reclassified as "black" after the Chinese Association of South Africa took the South African government to court and won.[7]

The BEE legislation is supported and functions in conjunction with various other forms of Legislation, including the Employment Equity Act, Skills Development Act, Preferential Procurement Framework and others.

The legislation was developed through numerous task teams and have taken more than 3 years to be gazetted since the first Act (December 2003) and the first Codes of Good Practice released in November 2005 which addressed Statement 100 and 200. Subsequent Codes were released in December 2006 addressing Codes 300 to 700. Based on public and stakeholder comments, the final codes were adjusted and gazetted.[8]

On 11 October 2013 updates to the Codes of Good Practice of the Broad-Based Black Economic Empowerment were gazetted by the South African Government. These new Codes provided for a transitional period of 1 year 6 months. The changes include the consolidation of duplicate elements such as Employment Equity and Management Control and Preferential Procurement and Enterprise Development. The new Codes have increased the effort of compliance, by introducing priority elements; Ownership, Skills Development and Enterprise Development. The points allocation system includes sub-minimum targets thresholds of 40% for these priority elements, failing to achieve the thresholds result in penalties of dropping the compliance level.

The updated Codes were as follows:

  • Code 000: Framework for Measuring Broad-Based Black Economic Empowerment
  • Code 100: Measurement of the Ownership Element of Broad-Based Black Economic Empowerment
  • Code 200: Measurement of the Management Control Element of Broad-Based Black Economic Empowerment
  • Code 300: Measurement of the Skills Development Element of Broad-Based Black Economic Empowerment
  • Code 400: Measurement of the Enterprise and Supplier Development Element of Broad-Based Black Economic Empowerment
  • Code 500: Measurement of the Socio-Economic Development Elements of Broad-Based Black Economic Empowerment

Sector scorecards were given until March 2015 to submit sector charters.

Scorecards
An advert for a company specialising in making South African companies compliant with Black Economic Empowerment (BBE) regulations and government procurement policies.

Enterprises may be rated based on various scorecards, however only the following have been gazetted as of February 2007:[9]

The last two, Financial Sector scorecard and Construction Sector scorecard, have not been passed into law. They were gazetted under section 12 of the act, which is for comment only. They will need to be gazetted in terms of section 9 of the act to become an official sector code. Until that happens all enterprises falling in these two industries are required to use the codes of good practice in producing a scorecard.

Significant leniency for Small Enterprises has been built into the gazetted codes. Based on the Qualifying Small Enterprises Codes, any company with a turnover under R5 million p.a. is completely exempt from BEE and automatically qualifies as a level 4 contributor or achieves 100% BEE Contribution Recognition.

The generic broad based scorecard. All seven pillars must be addressed totalling 100 points

Note: This table is outdated and will be replaced by the revised BEE Codes of October 2013

Element Weighting Compliance targets
Ownership20 points25%+1
Management Control10 points(40% to 50%)
Employment Equity15 points(43% to 80%)
Skills Development15 points3% of payroll
Preferential Procurement20 points70%
Enterprise Development15 points3% (NPAT)
Socio-Economic Development5 points1% (NPAT)

Qualifying Small Enterprises (those with an annual turnover from R5 and 300 thousand and 40 and 20 – 35 and 50 and 300 and 1 million) are rated on the following scorecard and may choose any four of the pillars to address, totalling 100 points

Element Weighting Compliance targets
Ownership25 points25%+1
Management25 points50.1%
Employment Equity25 points(40% to 70%)
Skills Development25 points2% of payroll
Preferential Procurement25 points50%
Enterprise Development25 points2% (NPAT)
Socio-Economic Development25 points1% (NPAT)

Exemption

Small businesses, generally with a turnover of less than R10m, are considered to be Exempted Micro Enterprises and do not need to be measured against the BEE scorecards as stated above.

Criticism

Racial discrimination

Critics argue that BEE's aim was to attempt to create equality in the workforce of South Africa as a whole by enforcing the advantaging of the previously disadvantaged and the disadvantaging the previously advantaged. This results in businesses having to consider the race and social background of any potential applicant instead of making decisions purely based on qualifications and experience,[10] resulting in a system in which one's race is often the determining factor in finding employment.

Instead of using this type of policy, critics suggest that a policy of qualification equality should be used. This would allow businesses to focus on employing the person with the highest qualifications, the most experience and the best recommendations. To allow previously disadvantaged individuals to achieve these qualifications and experience, critics of BEE say that the government should place more emphasis on secondary and tertiary education, as well as subsidising companies wishing to employ entry level applicants, or fund tertiary education for students from previously disadvantaged communities.

Economic impact

BEE has also been criticised for creating a brain drain, where the qualified white expertise is emigrating to countries where they would not be discriminated against. Inkatha Freedom Party leader Mangosuthu Buthelezi is a strong critic of BEE and supports this view. He has stated that "the government's reckless implementation of the affirmative action policy is forcing many white people to leave the country in search of work, creating a skills shortage crisis".[11] Additional criticism has been made that the codes increase the cost of doing business in South Africa due to its complexity thereby often necessitating the hiring of consultants to navigate BBE related regulations.[12]

State owned enterprises such as Eskom (Power generation and distribution) were the first to implement aggressive BEE programs with the sole purpose of changing their employee racial content and little regard for the loss of the current skills that existed. In many cases, non-black employees were given six months to train their replacements, but in most cases they simply resigned for greener pastures or contributed to the "brain drain". The results have been catastrophic and in 2019 SOEs like Eskom, South African Airlines, Public Rail Agency, and Transnet are all faced with leadership, corruption, poor productivity and bankruptcy. The impact to Eskom has resulted in load-shedding, blackouts and large price increases that have in turn crippled the economy, leaving South Africa in 2019 with the largest unemployment figures to date. Eskom has on a number of occasions recognised that they do not have the engineering skills required, the very same skills that were forced to exit over the last 30 years because of BEE policies.

Income inequality
See also: Broad-Based Black Economic Empowerment

The way the law is implemented has also been criticized for exacerbating South Africa's income inequality by unintentionally prioritizing wealthy politically connected members of the black elite over poorer black South Africans. Warning that South Africa is sitting on a "powder keg," Archbishop Desmond Tutu argued that Black Economic Empowerment only serves a few black elite (thus BEE sometimes referred to as 'Black Elite Enrichment') leaving millions in "dehumanising poverty".[13] In response to criticism, the South African Government launched Broad Based Black Economic Empowerment which is the current gazetted framework for addressing Black Empowerment beyond enriching a few, but with little effect.

Corruption

More recent criticism of BEE has focused on the policy's role in enabling corruption by providing a mechanism to improperly award inflated tenders to preferred bidders, thereby inflating costs and negatively impacting on service delivery.[14][15][16] Testimony given at the Zondo Commission by former Bosasa executive Angelo Agrizzi implicated notable BEE verification agency Empowerdex, contributing to concerns around BEE and corruption.[17][18] Media reports of BEE company Estina's involvement in the Vrede Dairy Project scandal[19][20] is another example that has also increased concerns.[21]

References
  1. Schussler, Mike (7 May 2018). "The great BEE con". www.themessenger.global. Retrieved 14 August 2018.
  2. "Codes of Good Practice on Broad-Based Black Economic Empowerment – Financial Sector Charter" (PDF). Department of Trade and Industry. Archived from the original (PDF) on 27 September 2007. Retrieved 23 August 2007.
  3. "Codes of Good Practice on Broad-Based Black Economic Empowerment – Construction Sector Charter" (PDF). Department of Trade and Industry. Archived from the original (PDF) on 27 September 2007. Retrieved 23 August 2007.
  4. "Codes of Good Practice on Broad-Based Black Economic Empowerment – Tourism Sector Codes" (PDF). Department of Trade and Industry.
  5. "Codes of Good Practice on Broad-Based Black Economic Empowerment – Schedule 1, Interpretation and Definitions" (PDF). Department of Trade and Industry. Retrieved 23 August 2007.
  6. Vuyo Jack (29 April 2007). "Chinese people fall in grey area of BEE scorecard". Business Report. Archived from the original on 27 September 2007. Retrieved 23 August 2007.
  7. "S Africa Chinese 'become black'". BBC News. 18 June 2008. Retrieved 27 June 2011.
  8. "The BEE Codes of Good Practice". Department of Trade and Industry. Archived from the original on 27 September 2007. Retrieved 23 August 2007.
  9. "BB-BEE Codes of Good Practice" (PDF). Department of Trade and Industry. Archived from the original (PDF) on 27 September 2007. Retrieved 23 August 2007.
  10. News Daily, 24 May 2004
  11. "Buthelezi slams affirmative action". Mail & Guardian. 1 February 2007. Archived from the original on 27 September 2007. Retrieved 23 August 2007.
  12. Ryan, Ciaran (16 September 2019). "A government unhinged". Moneyweb. Retrieved 17 September 2019.
  13. "Tutu warns of poverty 'powder keg'". BBC. 23 November 2004. Retrieved 12 November 2009.
  14. Angela Pike, Juliet Puchert, Willie T. Chinyamurindi (2018). "Analysing the future of Broad-Based Black Economic Empowerment through the lens of small and medium enterprises" (PDF). Acta Commercii. 18 (1): 566. ISSN 1684-1999.CS1 maint: multiple names: authors list (link)
  15. Mantell, Simon. "OPINIONISTA: BEE inadvertently became 'prime enabler of State Capture and corruption' in South Africa". Daily Maverick. Retrieved 17 October 2019.
  16. Zibi, Songezo (8 July 2019). "Recover 'blackness' butchered during Zuma years". News24. Retrieved 21 October 2019.
  17. "Agrizzi's testimony loses SA's biggest BEE agency its accreditation". citizen.co.za. Retrieved 17 October 2019.
  18. "B-BBEE verification company has certificate suspended following Agrizzi testimony". Fin24. 11 April 2019. Retrieved 17 October 2019.
  19. "Estina 'pocketed R160m without delivering services' at Vrede dairy project". citizen.co.za. Retrieved 16 February 2020.
  20. ""Beneficiaries" of Vrede dairy project make demands". SABC News. 19 August 2018. Retrieved 16 February 2020.
  21. Onishi, Norimitsu; Gebrekidan, Selam (16 April 2018). "'They Eat Money': How Mandela's Political Heirs Grow Rich Off Corruption". The New York Times. ISSN 0362-4331. Retrieved 16 February 2020.
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