‘BEE is real devil, not Jacob Zuma’. Here’s how to fix SA - BizNews, 03 April 2017

By Anthea Jeffery 

Even if the president resigns, the empowerment conundrum will remain.

If President Jacob Zuma were unexpectedly to resign in response to mounting criticisms of last week’s cabinet reshuffle, some important gains could be achieved. The Guptas, shorn of bank accounts, might decamp for Dubai. A nuclear build with Rosatom on dubious terms could be deflected. Damaging ratings downgrades could more easily be ducked.

But the most important problem confronting the country would still remain. Though much has been done to alleviate poverty and increase living standards, millions of black South Africans remain locked out of the economy by poor skills, high joblessness, and anaemic growth. Many also suffer from bad living conditions and a heavy burden of disease.

BEE, together with employment equity and land reform, is supposed to be empowering the poor. But BEE, like other affirmative action programmes all around the world, helps only a relative elite: the most advantaged within the disadvantaged group.

This situation will not change. No mattter how much BEE rules and their enforcement are stepped up, millions of poor South Africans will never gain access to equity deals, management posts, preferential tenders, or new small businesses to run.

The ANC is well aware of this. As former finance minister Pravin Gordhan said in 2010: ‘BEE policies have not worked and have not made South Africa a fairer and more prosperous country. They have led to a small elite group benefiting and that is not good enough.’

Ordinary South Africans know the truth of this as well. This emerges once again from a comprehensive opinion poll commissioned by the IRR and carried out in September 2016, as a follow-up to a similar one conducted the previous year.

As the IRR’s 2016 field survey shows, only 14% of black South Africans have benefited personally from BEE in its various aspects, while 86% have not. Not surprisingly, only 3% of black people (down from 5% in 2015) think that ‘more BEE or affirmative action in employment’ offers the ‘best way to improve lives’. A mere 1% of black people (down from 2% in 2015) think ‘more land reform’ can help achieve this.

What then is to be done? The ANC’s allies have long been using the unavoidable failures of BEE to push for ever more state ownership. The SACP, Cosatu, and the ANC Youth League have all said that BEE’s failure to generate ‘more egalitarian outcomes’ means the government must start nationalising land and ‘strategic’ sectors.

Now that ever-shifting BEE requirements have helped reduce growth to a scant 0.3% of GDP and destitution is growing, the ANC itself is also overtly endorsing this demand. In doing so, it is putting great emphasis on the historical land injustice, which it is milking to the full.

Land expropriation with little or no compensation is now emerging as a key ANC objective. Many in the party think this can be done within the Constitution by giving market value little weight. Others think the state could escape having to pay at all by taking custodianship, rather than ownership (as the Constitutional Court has previously ruled that the ‘assumption of custodianship’ is different from expropriation and does not warrant compensation). Others no doubt stand behind Mr Zuma and land reform minister Gugile Nkwinti in calling for a constitutional amendment that would clearly authorise expropriation without compensation.

The ANC/SACP alliance claims to be responding to a popular clamour for the return of the land ‘to the people’. But its real aim is nationalisation, rather than redress. Is this what ordinary South Africans want?

The IRR’s 2016 field survey provides important insights here. Only 0.5% of blacks regard slow progress with land reform as an important unresolved problem. A mere 0.1% identify skewed land ownership as a key cause of inequality. And only 1% (as earlier described) think ‘more land reform’ would best help them get ahead.

Respondents were also asked if they would ‘prefer a political party which focuses on faster growth and more jobs, or one which focuses on land expropriation to redress past wrongs’. In reply, 84% of blacks opted for the former and a mere 7% for the latter.

Most black South Africans (73%) identify ‘more jobs and better education’ as the best way to get ahead. But the millions of jobs required cannot be generated without stronger business confidence and much faster economic growth. In addition, schooling will not improve so long as its provision remains in the hands of an incompetent state. Poor people also need much better housing and health care to help them get ahead.

The government already spends enormous sums – R680bn in the present financial year – on education, health care, and housing (plus community development). However, outcomes are dismal. Some 80% of public schools are dysfunctional, at least 84% of public hospitals and clinics do not comply with basic standards, and the state’s ‘RDP’ houses are generally small, badly located, and poorly built.

People have long been urging the government to transfer its housing subsidies directly to households, saying they could build better houses for themselves with this money. This demand could be met by giving people tax-funded housing vouchers, redeemable solely for housing-related needs. But why stop at housing when the state’s provision of schooling and health care is also so flawed? And when education vouchers, in particular, are already being used in many countries to give parents a real choice, promote competition, and drive up the quality of schooling?

The IRR’s 2016 field survey asked respondents if they would like to have tax-funded education, health care and housing vouchers to help them meet their needs in these key spheres. Some 85% of black people supported the idea of education vouchers. Support for housing and health care vouchers was similar at 83% on each. In addition, 74% of blacks said these vouchers would be more effective in helping them to get ahead than current BEE policies.

These results point to what South Africa needs to overcome the empowerment conundrum. BEE does not work, while nationalisation will wreck the economy. But a shift from BEE to a new system of ‘economic empowerment for the disadvantaged’ or ‘EED’ would quickly bring real and sustainable benefits.

EED would put its emphasis on growth and jobs. Business would thus earn voluntary EED points primarily for its vital economic contributions to investment, jobs, tax revenues, and the like. EED would also empower people through tax-funded vouchers for schooling, housing, and health care, while business would earn further EED points by topping up vouchers or finding ways to improve delivery.

EED would free the economy from the leg-iron of ever more damaging BEE rules. It would also help the poor in a way that BEE can never do. Since BEE has so clearly failed, it is time to kick-start the economy – and reignite real hopes of upward mobility – by shifting to EED instead.

*By Anthea Jeffery, Head of Policy Research, IRR, a think-tank that promotes political and economic freedom.

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