Beyond the balance sheet: Costs and benefits of broad-based BEE

Mail & Guardian

7 hours ago

Any discussion about black economic empowerment must weigh up its benefits, addressing historical injustices and the costs of not transforming the economy. Photo: File
The current media debate around broad-based black economic empowerment (broad-based BEE) has brought fresh attention to the policy's effect on the economy — raising important questions about its effectiveness, costs and outcomes. As this conversation grows louder, it's worth taking a closer look at some of the arguments being made.
An example from the debate is a recent study released by Solidarity and the Free Market Foundation (FMF), which arguably overlooks certain key economic implications of B-BBEE. Titled The Costs of B-BBEE Compliance, the report estimates that broad-based BEE may reduce South Africa's GDP growth by as much as 1.5 to 3% annually, potentially resulting in 96,000 to 192,000 fewer jobs each year. It further contends that the policy disproportionately benefits a narrow elite while imposing undue compliance costs on the broader economy.
While such figures demand scrutiny, they also warrant a critical examination of the underlying assumptions, methodology and, crucially, the broader socio-economic context in which broad-based BEE operates.
One of the most significant concerns with the report is its presentation of correlation as causation. The paper attributes specific percentages of GDP loss and job losses directly to broad-based BEE but does not demonstrate how these effects were isolated from South Africa's myriad economic problems.
South Africa's macroeconomic environment remains deeply constrained by structural impediments such as:
Chronic electricity and water shortages, including load shedding;
Global economic headwinds;
Endemic corruption; and
Policy uncertainty and governance deficits.
Attributing complex macroeconomic trends solely to broad-based BEE risks simplifies a nuanced reality and underestimates the multifactorial nature of South Africa's growth constraints.
Equally important is the report's limited treatment of the potential benefits of broad-based BEE. Many of which manifest over the medium to long term and are difficult to quantify through conventional compliance cost frameworks alone.
Equity equivalent programmes (EEPs) enable multinational corporations, constrained by global ownership structures, to achieve ownership points through local investments in enterprise development, skills transfer and innovation. Far from being passive mechanisms, EEPs represent substantial, targeted injections into the domestic economy.
IBM, for example, committed R700 million over 10 years to enterprise development, research and education. This included support for 74 black-owned businesses and fully funded bursaries for dozens of students from disadvantaged backgrounds in critical fields of information and communication technology.
Samsung also made a substantial commitment, launching a R280 million equity equivalent investment programme (EEIP) in May 2019, projected to contribute nearly R1 billion to the South African economy over its 10-year duration. This programme aimed for a measurable effect on job creation, specifically targeting the creation of 262 direct jobs and supporting 13 black-owned and women-owned businesses. A notable focus of Samsung's investment is on industrialisation by black people through e-Waste recycling and beneficiation research and development, including the establishment of the first black-owned and operated e-waste beneficiation plant in Africa.
These company-specific statistics, alongside broader programmes such as JP Morgan's Abadali EEIP, which aims for an additional 1,000 permanent jobs and R2 billion in financing transactions, underscore the crucial role of EEPs in boosting small and medium enterprises (SMEs), particularly black-owned businesses, by providing essential funding, business support and mentorship. Furthermore, these programmes significantly advance skills development, with more than 2,500 beneficiaries receiving critical skills training, and facilitating technology transfer, aligning with South Africa's national development goals and fostering a more inclusive and skilled workforce.
The YES programme directly targets South Africa's intractable youth unemployment crisis. Since its inception in 2018, YES has facilitated more than 186,000 quality work experiences for young people, injecting nearly R11 billion in salaries into the economy.
About 45% of participants secure permanent employment after placement, and 17% establish their own businesses, multiplying the long-term economic benefit. The initiative also encourages private sector participation by offering measurable broad-based BEE recognition for companies that create these opportunities.
Enterprise and supplier development (ESD) remains a cornerstone of the broad-based BEE framework, driving significant investment into the SMME sector. South African corporates reportedly channel R20 billion to R30 billion annually into ESD programmes, helping integrate black-owned businesses into supply chains and enabling sustainable growth.
For instance, the Shoprite Group's CredX programme has provided R10 billion in working capital to suppliers, while its Next Capital initiative has invested R20 million to support new black-owned enterprises. Collectively, such interventions empower black entrepreneurs, expand the tax base and generate employment in communities historically excluded from meaningful economic participation.
Why broad-based BEE still matters
Perhaps the most profound omission in the Solidarity and FMF report is its decontextualised approach to broad-based BEE's rationale. Apartheid was not merely a political system; it was an economic design that systematically dispossessed black South Africans of land, capital, skills and opportunities. This entrenched economic disenfranchisement cannot be dismantled simply by repealing discriminatory laws.
Broad-based BEE emerged as a policy instrument to facilitate redress, promote equitable economic participation and mitigate the persistent structural inequality that threatens social cohesion and long-term stability. Any analysis that fails to account for this historical imperative and the potential socio-economic cost of neglecting it, is incomplete.
There is little doubt that broad-based BEE can and should be improved. Calls for greater transparency, genuine empowerment outcomes, and tighter controls to prevent fronting and inefficiency are well-founded. But presenting a one-sided narrative that focuses exclusively on compliance costs while disregarding significant economic and social returns undermines the opportunity for a more balanced, evidence-based debate.
As South Africa grapples with the problems of inclusive growth, any meaningful conversation about the future of broad-based BEE must extend beyond a narrow cost-benefit calculus. It must weigh the policy's role in addressing historical injustices, its measurable and often intangible benefits, and the opportunity costs of not transforming the economy.
A policy of this nature should not be romanticised or demonised without context. Instead, it demands honest, nuanced discussion, one that prioritises national development, social cohesion and sustainable, broad-based participation in the economy.
The question should not be whether broad-based BEE has costs but rather whether we are collectively doing enough to ensure that its benefits are fully realised and that it continues to evolve to serve the South Africa we aspire to build.
Safiyya Patel is a managing partner at Webber Wentzel.