Black Economic Empowerment (BEE): The President of South Africa Says It Has Failed

President Jacob Zuma of the Republic of South Africa is directly addressing the problems in municipal delivery services plaguing the country. These issues have lead to mass strikes and social unrest.
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Black Economic Empowerment( BEE): The president of South Africa says it has failed

Mar 31st 2010 | JOHANNESBURG
From The Economist print edition

To give more economic clout to the black majority has proved hard

IT IS now widely agreed that “black economic empowerment” (BEE) and affirmative-action laws brought in after apartheid as the star policies of the ruling African National Congress (ANC) have failed. Even President Jacob Zuma seems to agree. Instead of redistributing wealth and positions to the black majority, they have resulted mainly in “a few individuals benefiting a lot,” he says, while leaving the leadership of most big companies in white hands. The black masses, the intended beneficiaries, have hardly gained.

Largely as a result of the emergence of this new BEE elite, post-apartheid South Africa is still one of the most unequal countries in the world. Although poverty has been alleviated by providing welfare benefits to more than one in four of South Africa’s 49m inhabitants, the gulf between rich and poor has widened. The richest 4% of South Africans—a quarter of whom are black—now earn more than $80,000 a year, 100 times what most of their compatriots live on.

Under apartheid, blacks were given an inferior education and on the whole restricted to much worse jobs. The Employment Equity Act in 1998 tried to make the workforce “more broadly representative of our people” across the board. But more than a decade later, whites still hold three-quarters of senior jobs in private business whereas blacks have 12%, the exact reverse of their share in the working population.

Among the 295 companies listed on the Johannesburg Stock Exchange (JSE), blacks account for just 4% of chief executive officers, 2% of chief financial officers and 15% of other senior posts. In non-executive ones, they do a bit better, accounting for just over a quarter of board chairmen and 36% of directors, but still nowhere near their share of the workforce. Even so, many whites grumble sotto voce that incompetent blacks are being promoted beyond their abilities.

As whites account for 40% of university graduates, a 12% quota for whites in skilled or top managerial positions is absurd, the South African Institute of Race Relations, a think-tank, says. Its head, John Kane-Berman, argues that BEE, in the way it has so far been implemented, has actually harmed blacks by discouraging self-reliance and an entrepreneurial spirit. Instead it has fostered a debilitating sense of entitlement.

The idea of legislating for black economic empowerment was originally promoted by big white businessmen to ward off post-apartheid calls for nationalisation. If a few well-connected black people were given chunks of the action, big business would, they hoped, be left alone. In that sense, BEE has been a roaring success, as whites still own the bulk of the country’s wealth. Although renewed calls for the nationalisation of the mines and banks have recently been heard within ANC ranks, Mr Zuma, urged on by the new black capitalists, has repeatedly said that this is not on the government’s agenda.

Under BEE laws, white-owned companies with an annual revenue of at least 5m rand are given ratings for enabling blacks to own shares, improve their skills within the company, move up the managerial ranks, and so on. The higher the company’s score, the more likely it is to win lucrative public contracts. Everyone is supposed to win. Black individuals or companies could buy large holdings in white companies in the hope of paying off their debts through dividend payments and rising share prices.

For as long as buoyant stock markets were rising, this worked nicely. But when the global financial crisis caused shares to plummet, many BEE companies crashed, making new investors wary. In 2007 there were a record 111 BEE deals, worth 105 billion rand, involving companies listed on the JSE. In 2008 this fell to 84 deals, worth 61 billion rand. Last year, however, there were just 13 deals, worth 20 billion rand.

Moeletsi Mbeki, an analyst and entrepreneur who is a brother of the former president, Thabo Mbeki, claims that BEE has struck a “fatal blow against the emergence of black entrepreneurship by creating a small class of unproductive but wealthy black crony capitalists.” Yet most leading businessmen, white and black, still regard the policy as vital for the country’s future, though they admit it has been badly implemented. All seem to agree that the policy should be made to benefit a wider range of blacks, not just business people.

President Zuma promises a review. He complains that the country’s economic “transformation”, meaning the redistribution of power and wealth to the black majority, has been “disappointingly slow”. Last month he launched a new council to advise on a much “broader-based” BEE. Meanwhile, worried whites, whose skills are still sorely needed, are continuing to emigrate in droves.