In a bid to address persistent economic disparities, South Africa’s leader of the Black economic empowerment initiative has announced plans for significant reforms aimed at increasing corporate engagement and curtailing abuses of the system. This move comes as the African National Congress (ANC), which recently lost its parliamentary majority, faces mounting pressure to improve the living conditions of Black South Africans who have been disadvantaged for decades.
Since its inception in 2003, the Black Economic Empowerment (BEE) program has sought to encourage businesses to hire and promote Black individuals through a scorecard system that offers tax incentives and access to government contracts. However, nearly two decades later, unemployment among Black individuals remains five times higher than that of white individuals, and South Africa is reported to have one of the highest income inequality rates globally, as per the World Bank. Critics argue that the BEE policy has largely failed to deliver meaningful results.
“There cannot be a viable society with such high levels of inequality,” stated Tshediso Matona, head of the Broad-Based Black Economic Empowerment Commission. Under the current framework, companies can earn points based on factors such as Black ownership and management roles. However, practices like “fronting,” where companies falsely represent Black individuals as managers, have emerged, raising concerns about the integrity of the program.
Since 2017, the commission has received 1,348 complaints regarding fronting, yet prosecutions remain rare. This lack of accountability is attributed to complexities within the criminal justice system related to B-BBEE regulations. Furthermore, compliance with the requirement to disclose empowerment status in annual reports has declined, with only 141 out of about 400 listed companies submitting reports in 2022.
Matona is pushing for new compliance incentives, including potential penalties for non-compliance and a strategy to “name and shame” companies that fail to report. President Cyril Ramaphosa has echoed these sentiments, emphasizing the importance of demonstrating the benefits of Black empowerment to businesses. “We are committed to this issue,” he stated, framing the fight against racial inequality as a crucial challenge for the nation’s future.
While specific details of the proposed reforms are still in discussion, Matona has indicated a potential shift in focus toward recognizing companies that invest in skills development and enterprise growth, rather than solely emphasizing ownership metrics. Amendments to the BEE law are expected to be introduced within the year, although punitive measures could create friction with the ANC’s coalition partner, the Democratic Alliance.
Critics have noted that the affirmative action system has disproportionately benefited a small number of political insiders, particularly in its early years. Research by economist Duma Gqubule revealed that actual Black ownership among the top 50 firms on the Johannesburg Stock Exchange is less than 1%, significantly below the official average of around 30%. This discrepancy has been attributed to legal loopholes that enable firms to count Black shareholders even after they have sold their shares.
Matona called for improved oversight of the independent agencies issuing Black empowerment scorecards, advocating for stricter regulation to ensure accountability. However, some consultants argue that current loopholes in the focus on skills development allow companies to earn points for training Black individuals without the obligation to hire them.
Giles Von Broembsen, CEO of the Pretor Group, highlighted the challenges of navigating the existing system, noting that while his company conducts training for its predominantly Black workforce, it can only earn points by sending employees to external training programs. This illustrates the disconnect between policy intentions and practical implementation.
While many analysts support Matona’s push for increased compliance, there are also calls for the complete repeal of the BEE law, which critics argue adds unnecessary bureaucracy and raises costs for businesses. Political analyst Moeletsi Mbeki suggested that the state should focus on supporting entrepreneurs in establishing businesses regardless of race.
As South Africa continues to confront the challenges posed by deep-seated economic inequality, the proposed reforms to the Black economic empowerment program represent a pivotal step towards fostering genuine change and creating a more equitable society for all citizens.
