South Africa’s Future Depends on Ditching BEE
BEE has failed. It has enriched the few, impoverished the many, and corrupted the very fabric of the state. The DA’s new bill is the first real challenge to this entrenched system of cronyism.
Racialised economic policies is South Africa’s original sin. By continuing to abide policies like Broad-Based Black Economic Empowerment (BEE), all we accomplish is furthering the rot in this country – exacerbating poverty and moral decay.
After years of dithering over paying lip service to the need for racial equity and race-based procurement, the Democratic Alliance (DA) has finally taken the right step towards being the opposition party that this country truly needs.
Last month the DA introduced the Economic Inclusion for All Bill to replace BEE. The proposed bill aims to replace race based procurement with a “needs-based” approach to prioritising beneficiaries.
That means that instead of using race as a proxy for disadvantage, the new legislation will focus on actual substantial disadvantage – such as economic poverty. An approach that cuts to the core of the issue and should have been the consideration in the first place.
In practice, the bill proposes an alternative scorecard system to BEE that evaluates applicants to a state tender by inclusive development goals, poverty alleviation and skill training, rather than the racial makeup of its management.
The bill is still very much in its planning stage, but any step towards de-racialising South Africa’s economic policies is a step in the right direction.
This, of course, means that the African National Congress (ANC), COSATU and the gaggles of corrupt elites who benefit from BEE policies have opposed the move wholeheartedly.
ANC spokesperson Mahlengi Bhengu opposed the DA’s bill entirely:
“There will not be a day in South Africa where black economic empowerment is scrapped as legislation.”
She further said:
“It’s quite disappointing that in 2025, we are still dealing with a party that wants to take us back to racism and to apartheid and discrimination.”
Only elites benefit
Of course the ANC would defend BEE. Its rich elites became rich through BEE procurement and the corruption that the policy enables.
While 44 million South Africans are trapped in poverty, and unemployment has increased dramatically since the introduction of BEE in its many forms, the policy has only served to enrich a small selection of well-connected elites.
The beneficiaries of BEE are not poor, disadvantaged people in need of a leg-up. They’re already wealthy individuals with connections in the ANC.
Professor William Gumede has identified that at least R1 trillion has been moved between under 100 people since 1994. The same elites benefit again and again, without any new, truly disadvantaged people benefiting.
Corruption
As Former DA Leader Helen Zille says, BEE is a “license to loot”. The labyrinth of regulations, red-tape, and the overcomplication of the procurement process has allowed for corrupt opportunists to milk the process for bribes, back-hand deals and contracts that cost taxpayers a fortune while delivering nothing.
BEE credentials are used as a smokescreen by corrupt and incompetent opportunists who use front companies to provide overly inflated services to the government – delivering nothing and costing a fortune.
This cost of procurement is estimated to cost at least R290 billion a year in lost economic activity. R5 trillion since BEE’s inception. The South African Institute of Race Relations (IRR) has estimated that by merely removing the extra charge that BEE-compliant contracts are allowed to charge the state, VAT could be lowered to 11.5% from 15% without costing the fiscus an additional cent.
Chasing away investors
BEE requires companies to give portions of their company to people based on the colour of their skin. In practice, this is only the first criteria. Behind closed doors, skin colour is just the excuse, as BEE enables criminal mafias and corrupt politicians to wrangle their way onto the boards of major companies.
No foreign or even local investor wants to put money into a country where their investment could be divided amongst people who had no hand in building that wealth.
South Africa already is considered one of the worst countries in the world to run a mine due to BEE and other regulations. People don’t want to start or grow their businesses as they don’t want to have to give ownership away.
One of the proposed criteria for South Africa not being hit by 30% tariffs from the United States was to exempt US firms from BEE requirements. Not only is BEE chasing away potential foreign investors. It is imposing tariffs on our exports to the world’s most lucrative market.
Slowing growth
BEE has tangibly slowed South Africa’s growth rate, having a clear negative impact on unemployment and poverty alleviation.
Without BEE, South Africa’s GDP could have grown by 2 – 4% per annum, creating 4 million additional jobs. These jobs would have led to increased consumption, tax revenue, and a drop in poverty – further leading to less health issues from malnutrition and lack of access to healthcare.
Economic growth isn’t just some soulless metric. It represents how much there is to be had in a country. BEE doesn’t grow this value. It doesn’t produce resources. It just shifts around a continually shrinking amount of money while holding back attempts to grow the overall wealth of the country for all.
Racialism
But BEE’s ultimate sin is its racialism. The driving ideology of the new South Africa was to end racialism, to reject the sins of Apartheid, and to create a new dispensation based on merit and equity, rather than resentment and race.
This has been betrayed. Rather, BEE has made race the fundamental component of doing business and procurement. It has sacrificed merit, leading to incompetent service delivery, and has ignored true disadvantage, at the expense of the truly poor people of this country.
South Africans, including black South Africans and ANC voters, don’t want racial preferences in business. A survey conducted by the Social Research Foundation found that 87% of respondents preferred a merit-based system, with 64% of ANC voters wanting to do away with race-based appointments entirely.
How the DA’s bill is better
Any move away from forcing South Africans to conduct business based on race is a step in the right direction. BEE clearly does not benefit the genuinely poor, deserving or needy.
Replacing race as a proxy for disadvantage with a focus on socio-economic development does sound like a far better alternative.
I am looking forward to the substantive bill, but I do have reservations with any form of preferential procurement.
The market should be merit-based in its entirety. The purpose of every enterprise should be to perform the function in which its owners, board, and shareholders have set for it. Most of the time, this is profit. But it is fine if a business sets socio-economic goals for itself. What is not fine is to impose these goals on businesses.
When it comes to government procurement, and spending taxpayer money on outfitting the state to deliver public services, the focus should be entirely on competence and cost-saving. Race definitely should not play any part in it, but I am also tentative to formulate any sort of scorecard that goes beyond competence and cost.
The stakes are high
But politics is about compromise. Even if the Economic Inclusion for All Bill is imperfect and still includes market distorting policies, it is still a far cry better than BEE. So much so, that I believe that the DA should make the passing of this bill its fundamental priority.
The fate of the government of national unity (GNU) should be staked on the abolition of BEE. It is the glue holding together swathes of corrupt networks and stifling billions in productivity.
Analyst Moeletsi Mbeki believes that the DA’s presence in the GNU helps to hold up BEE, and that if the DA left the GNU, the government and BEE would collapse.
Free Market Foundation (FMF) CEO David Ansara further proposes that the DA should be ignoring BEE where it governs.
The DA needs to leverage all its power to force as good a compromise as possible. And failing abolishing BEE under ANC dominance, the DA must use this campaign as a marketing tool to win in the upcoming local and national elections.
It must be made clear to voters that BEE does not exist to help the poor. It exists to enrich corrupt elites at the expense of the poor. Most of whom are black. Under the DA’s proposed bill, the main beneficiaries would be far more black people than ever under BEE.
So, despite accusations of being anti-black, the DA is proposing a bill that truly empowers black people and businesses.
BEE has failed. It has enriched the few, impoverished the many, and corrupted the very fabric of the state. The DA’s new bill is the first real challenge to this entrenched system of cronyism. But promises will mean nothing without political courage. The DA must make this its line in the sand: either South Africa chooses inclusion through merit, or it continues its slide into racial patronage and economic decay.
Nicholas Woode-Smith is the managing editor of the Rational Standard and a senior associate of the Free Market Foundation. He writes in his personal capacity.