>BEE was conceived by South Africa’s largest conglomerates, six of which in the early 1990s accounted for 86% of the value of the Johannesburg Stock Exchange (JSE). To convince the ANC, hitherto committed to nationalising the economy, of the merits of capitalism, they needed black capitalists. So they sold cheap shares or units to ANC bigwigs such as Cyril Ramaphosa, now South Africa’s president. The ANC’s response to criticism of the policy as an elite stitch-up was the Broad Based Black Economic Empowerment Act, passed in 2003. The law turned ad hoc corporate atonement into a vast regulatory system.
>Today BEE is a form of gamified affirmative action. Firms are awarded points based on five aspects. These are ownership (having black shareholders), management (having senior black staff), skills development, socio-economic development (charity) and enterprise and supplier development (buying from black-owned firms). Firms with a low score will struggle to get state contracts and licences or to attract commercial partners. “Your BEE rating will determine your success in business in 90% of cases,” says Deirdre Mitchell of Honeycomb, a BEE ratings firm.
>To supporters BEE is a source of harmony. “If we had kept the pre-democratic status quo then South Africa would have imploded at some point,” says Tshediso Matona, who heads the BEE regulator. He argues that the policy has also grown the black middle class.
>The first claim is based on an unproveable counter-factual. South Africa, with one of the highest murder rates in the world and periodic unrest, is hardly tranquil. Inequality, measured by the benchmark Gini coefficient, is higher today than in 1994, partly because of rising inequality among black South Africans. One study suggests the gross income of the top 10% of black earners tripled between 1993 and 2019, while that of the bottom 50% fell. This reflects persistently high joblessness—less than 40% of black South Africans of working age are in formal employment—caused by slow economic growth.
>“Very, very conservative” estimates by William Gumede, an academic who in the 2000s worked on a review of BEE, are that more than 1trn rand ($56bn) in assets may have been transferred to fewer than 100 people since BEE began. The main beneficiaries were a mostly politically connected elite and the (mostly white) facilitators who took large cuts. One banker says that a “paper transfer” of 25% of a firm’s equity typically ends up being worth 8%, after transaction costs and loans to buy the assets are paid off. Mr Gumede calls BEE “one of the most wasteful, costly and ineffective redistribution strategies devised in any post-colonial society”.
>Has BEE fostered a black middle class? The number of black-owned firms doubled between 2002 and 2019, but that might have happened anyway. The growth of black employment in the public sector has been more important. Today 75% of senior managers in state employment are black (roughly akin to the 82% of the population that is black), versus 15% in the private sector. The latter could be proof of enduring racism or the lingering effects of apartheid-era schooling on the skill levels of black South Africans.
ShelterOk1535 on
Interesting article. Reminds me of how, in the U.S., affirmative action in college admissions did extremely little to change the school’s class compositions.
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>BEE was conceived by South Africa’s largest conglomerates, six of which in the early 1990s accounted for 86% of the value of the Johannesburg Stock Exchange (JSE). To convince the ANC, hitherto committed to nationalising the economy, of the merits of capitalism, they needed black capitalists. So they sold cheap shares or units to ANC bigwigs such as Cyril Ramaphosa, now South Africa’s president. The ANC’s response to criticism of the policy as an elite stitch-up was the Broad Based Black Economic Empowerment Act, passed in 2003. The law turned ad hoc corporate atonement into a vast regulatory system.
>Today BEE is a form of gamified affirmative action. Firms are awarded points based on five aspects. These are ownership (having black shareholders), management (having senior black staff), skills development, socio-economic development (charity) and enterprise and supplier development (buying from black-owned firms). Firms with a low score will struggle to get state contracts and licences or to attract commercial partners. “Your BEE rating will determine your success in business in 90% of cases,” says Deirdre Mitchell of Honeycomb, a BEE ratings firm.
>To supporters BEE is a source of harmony. “If we had kept the pre-democratic status quo then South Africa would have imploded at some point,” says Tshediso Matona, who heads the BEE regulator. He argues that the policy has also grown the black middle class.
>The first claim is based on an unproveable counter-factual. South Africa, with one of the highest murder rates in the world and periodic unrest, is hardly tranquil. Inequality, measured by the benchmark Gini coefficient, is higher today than in 1994, partly because of rising inequality among black South Africans. One study suggests the gross income of the top 10% of black earners tripled between 1993 and 2019, while that of the bottom 50% fell. This reflects persistently high joblessness—less than 40% of black South Africans of working age are in formal employment—caused by slow economic growth.
>“Very, very conservative” estimates by William Gumede, an academic who in the 2000s worked on a review of BEE, are that more than 1trn rand ($56bn) in assets may have been transferred to fewer than 100 people since BEE began. The main beneficiaries were a mostly politically connected elite and the (mostly white) facilitators who took large cuts. One banker says that a “paper transfer” of 25% of a firm’s equity typically ends up being worth 8%, after transaction costs and loans to buy the assets are paid off. Mr Gumede calls BEE “one of the most wasteful, costly and ineffective redistribution strategies devised in any post-colonial society”.
>Has BEE fostered a black middle class? The number of black-owned firms doubled between 2002 and 2019, but that might have happened anyway. The growth of black employment in the public sector has been more important. Today 75% of senior managers in state employment are black (roughly akin to the 82% of the population that is black), versus 15% in the private sector. The latter could be proof of enduring racism or the lingering effects of apartheid-era schooling on the skill levels of black South Africans.
Interesting article. Reminds me of how, in the U.S., affirmative action in college admissions did extremely little to change the school’s class compositions.
huh that one guy didn’t post this