Since the 1990s, broad-based black economic empowerment (BEE) has been a major policy initiative so as to redress the imbalances created by apartheid.

 

Some 30 years on, the debate has now shifted.  Politicians are questioning whether BEE has worked, whether it should enter a new phase and whether our focus should move from race to economics.

 

There is a frustration that our economy has not grown over the last 10 years.  Our unemployment rate, whether measured by our Department of Statistics or whether by the CEO of Capitec, Gerrie Fourie, remains unacceptably high.  There appears to be a broad consensus that achieving equity and equality requires the economy to grow, and the concern is that BEE is frustrating this objective.  

 

The DA, the Government of National Unity’s second largest player, has always maintained that BEE “has proven to be a deeply flawed approach to economic inclusion”.  They have argued that BEE implementation has fostered corruption and has not benefited the majority of the population.

 

The major law firms in South Africa have challenged the Legal Sector Codes on the basis that they are irrational and destructive of empowerment.  The legal challenge is still to be determined.

 

On the other hand, President Ramaphosa, on 9 June 2025, reaffirmed a commitment to the Broad Based Black Economic Empowerment Act and the Employment Equity Act, citing significant progress since 1993, and concluding that “broad-based black economic empowerment is not a cost to the economy. It is actually an investment in the economy”.  “The transformation we seek is not about ticking boxes, it is about building a resilient, just economy for generations to come”.

 

Where does this leave businesses?  How important is it to continue with driving black economic empowerment and to what extent should the focus of these policies be shifted?

 

Black economic empowerment has a long history.

 

As far back as the Freedom Charter in 1955, the policy was “the national wealth of our country, the heritage of South Africans, shall be restored to the people; the mineral wealth beneath her 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;”.

 

This goal was also confirmed by Nelson Mandela after his release from prison.  In his first public address to South Africa, in May 1990, he stated:

 

 

 

The first phase of BEE was between 1993 and 1999.  It was the private sector which created the first wave of initiatives.  Between 1993 and 1999, as much as 10% of the equity on the JSE was transferred to black businesses.  This first phase involved white companies selling a proportion of their equity to a few pre-identified black purchasers.  The sales were financed by loans, often provided by the vendor, and usually secured by future earnings.  In many instances, the purchaser was a consortium assembled by one or two black individuals, usually with a high political profile but with limited experience in business.

 

The first wave of BEE came unstuck with the stock market decline in 1998.  This led to many of the financial deals unravelling.  Facing pressure that BEE needed to be expanded, the ANC Government created the BEE Commission under the chairmanship of Cyril Ramaphosa.  The BEE Commission issued a report in 2001 which included a recommendation for a much more active and interventionalist role for the State in promoting black empowerment.

 

One of the key aspects identified by the BEE Commission was the leverage of equity transactions.  A company shouldn’t be considered as black until its owners had paid off the debts incurred in buying assets.  The BEE Commission proposed a series of specific criteria to measure the degree of ownership of BEE companies, which was:

 

1. Black company - more than 50.1% owned and managed by black people;

2. Black empowered company - at least 25.1% owned and managed by black people;

3. Black influence company – 5% – 25% owned and managed by black people.

 

 

In 2003, the BEE commission published “a strategy for broad-based black economic empowerment”.  This strategy included a scorecard to clarify exactly what it takes for a company to be compliant with BEE.

 

In 2004, the Broad-Based Black Economic Empowerment Act was passed, and this included the Minister of Trade and Industry issuing Codes of Good Practice with respect to BEE.  The Codes were gazetted in February 2007.

 

In August 2007, the National Treasury published a paper on the economic performance of BEE in South Africa.  The paper sought to answer the question as to whether BEE was good for economic growth or bad for growth. 

 

The paper concluded that it was difficult to determine whether BEE was contributing towards the growth in the economy or whether it was an impediment.  The conclusion was that it was probably easiest to look at individual firms.

 

There appeared to be a correlation between BEE and the extent to which firms were dependent on government contracts for their business. The paper referred to the first BEE deal, done by Sanlam, one of the largest Afrikaner-controlled companies, which needed to transfer its allegiance from a nationalist government to an ANC-controlled government.  Being able to conclude a BEE deal was beneficial to its share price.

 

Another factor determining the leverage of government over firms was the extent to which institutions such as the Public Investment Commission held equity in the firm.

 

The paper concluded that, from empirical evidence, there did not seem to be a significant effect of BEE on firm investment, labour productivity or profitability.  If anything, it found that there was weak evidence that BEE had a negative effect on investment and labour productivity.

 

It seems that BEE had little effect on firm performance, possibility because firms had found strategies for maintaining the status quo.  The paper did however conclude that the weights in the BEE Codes should be changed to downgrade ownership and increase the importance of enterprise development and skills development.  The research showed a direct correlation between ownership of BEE companies and prominent ANC politicians.  BEE was benefiting an elite few.  Although basic economic analysis suggested that BEE ought to be only a transitory plan, it was felt that it may not be desirable for the Government to announce a terminal date.  It was suggested that an appropriate response would be for the Government to create an institution that could properly evaluate the policy by 2014 when many of the targets (set by the Commission in 2001) were supposed to be met and at that stage, Government would be in a position to make a rational decision about the future of the policy.  It was recommended that a second BEE Commission ought to be formed and that credible data collection commence so that a proper assessment could be made by 2014.

 

 

Unfortunately, there does not appear to be any further empirical research as to the economic performance of BEE and whether the work set by the BEE Commission in 2001 has been achieved.  A paper by Dr. Eddie Matikiti of the University of Cape Town, and published on 23 May 2025, indicates that BEE has brought about significant change.  Black people now own some 30% of the equity of South Africa’s companies.  More than R350 billion has been transferred to black shareholders.  Black management has grown to 40% with black women emerging from 8% to 25% for the period 2015 – 2025.  Almost R500 billion has been directed towards black owned suppliers and over R30 billion has been invested in skills development programmes since 2015.

 

The concern, however, remains that elite capture and limited broad based impact have persisted and over 80% of the BEE equity deals have disproportionately benefited a small politically connected elite.

 

Unemployment remains a major concern, and there are stark geographic imbalances in BEE benefits.  Rural Entrepreneurs receive just 15% of employment opportunities.

 

The advocates of relaxing BEE requirements state that it would unlock substantial foreign direct investment.  They point to the R100 billion influx to renewable energy projects following the 2023 policy amendments, showing South Africa’s potential to attract capital when regulatory constraints are eased.  Simplifying BEE compliance would also provide critical relief to small and medium enterprises, many of which are black owned.  Matikiti argues that a balance needs to be struck between maintaining the integrity of South Africa’s transformation agenda and enhancing regulatory efficiency and economic competitiveness.  BEE needs to be evolved so as to foster inclusive growth, enhance resilience and meet the realities of a dynamic global economy.  The ownership structures need to be broadened so that they shift from elite-driven transactions to inclusive worker and community shareholding.

 

Corruption needs to be tackled with a transparent government and fair procurement.

 

Skills development schemes and partnerships with large companies need to be established.  Alternatives to traditional ownership models need to be created.  Instead of ownership models, companies can commit to transferring benefits to communities, infrastructure or education.  Matikiti argues that there should be a shift from ownership-based targets to employment quota targets.  He states that the government’s recent decision to ease BEE requirements signals an inevitable recalibration of South Africa’s transformation policy.  While the move may intensify underlying policy tensions, the country must find a way to balance the urgent need for accelerated economic growth with the equally vital pursuit of inclusive and equitable transformation.  The BEE framework must devolve into a more inclusive, transparent and skills-oriented model, one that expands access to economic opportunities and ensures empowerment efforts to deliver tangible, broad-based benefits.

 

Sakeliga is more strident in its criticism of what it terms “the third wave” of BEE.  They argue that BEE has cost the economy around R2 trillion in foregone GDP value per year. They see BEE being turned into the prerequisite for participating in economic activity and that this amounts to targeted domestic economic sanctions against white people and white owned businesses.  

 

The South African Institute of Race Relations (IRR) looks at the matter differently but is equally critical of BEE. 

 

The IRR is one of the oldest liberal institutions in the country.  Since 1929, the IRR has been a go to reference for anyone seeking to understand and explain South Africa, calling for better race relations in South Africa in the classic liberal tradition.

 

In a paper, published in February 2025, the IRR points to the fact that the South African government has one of the worst records in the world for effective government and tax efficiency.  This measures the extent to which government spending constitutes value for money or is effective in achieving government policy.

 

The conclusion is reached that cutting the State back to size is a rational choice for people with both moderate left- and right-wing political preferences.

 

BEE premiums (paying a premium to BEE suppliers of services to the government) are ineffective.  The report cites the Zondo Commission.  The Zondo Commission found that procurement activities that do not maximise value for money created a situation ripe for exploitation by corrupt actors.  The Zondo report found that “this uncoordinated approach … leaves a critical question unanswered: is it the primary intention of the Constitution to procure goods at least cost or is the procurement system to prioritise the transformative potential identified in Section 217(2)?  There is an inevitable tension when a single process is simultaneously to achieve different aspirational objectives.”

 

The Zondo Commission concluded: 

 

“Ultimately, in the view of the Commission, the primary national interest is best served when the government derives the maximum value for money in the procurement process and procurement officials should be so advised”.

 

A survey conducted by the IRR showed that 63% of respondents preferred value for money and only 24.6% preferred a “black owned only” system.

 

The conclusion is reached that cutting the BEE premium would boost black business, black employment and economic growth for all.

 

Finally, the IRR states:

 

“The most underutilised resource in the Rainbow Republic is the brainpower of millions of people who think more clearly when buying for themselves than government officials do when buying for others.  This argument transcends ideological gridlock; its focus is value for money, which everyone from minarchists to communists agree is key to economic growth”.

 

 

The debate is clearly not over.  It is likely to rage for many years to come.

 

How can we achieve economic transformation and growth?  Is it through state intervention or is it through the collective actions of the people of South Africa?  Clearly, we need to transform.  The question is how to achieve this.

 

The early motives for BEE have changed.

 

There has been a significant transformation since the early 1990s.  Focus has moved to how to achieve growth and whether BEE promotes or hinders growth.  Government intervention has proven to be ineffective.  Measures to encourage the private sector, as opposed to punishing the private sector, appear to be more effective.

 

The focus on ownership seems to have moved to employment creation and social development.

 

We have not yet reached a stage where BEE has served its purpose.  Rather, it needs to be refined.  Above all, corruption needs to be eradicated.

 

As Treasury identified in 2007, we perhaps need a proper study on how the objective of transformation can best be achieved.