BEE doesn’t work, but EED would – BizNews, 7 April 2016

In a speech last month the deputy president, Cyril Ramaphosa, said the government was ‘obsessed with empowering black South Africans’ and was sometimes ‘fanatical’ about it. It now planned to ‘intensify’ black economic empowerment (BEE), for it was ‘hell-bent on ensuring that blacks owned and managed the economy’. Added Mr Ramaphosa: ‘Those who don’t like this idea – tough for you. That is how we are proceeding.’

By Anthea Jeffery

In a speech last month the deputy president, Cyril Ramaphosa, said the government was ‘obsessed with empowering black South Africans’ and was sometimes ‘fanatical’ about it. It now planned to ‘intensify’ black economic empowerment (BEE), for it was ‘hell-bent on ensuring that blacks owned and managed the economy’. Added Mr Ramaphosa: ‘Those who don’t like this idea – tough for you. That is how we are proceeding.’

Mr Ramaphosa’s speech clearly assumes that ‘sharpening the teeth’ of transformation policies will help to counter unemployment and speed up economic growth. The ruling African National Congress (ANC) has often voiced similar assumptions. It has also often claimed mass popular support for the employment equity, BEE, and land reform policies it introduced many years ago and has been steadily tightening up since 2013.

However, ordinary South Africans have very different views, as an IRR field survey of public opinion now shows. In fact, only:

  • 6% think people’s lives can best be improved through ‘more BEE and affirmative action in employment policies’;
  • 2% think this outcome can be achieved via ‘more land reform’;
  • 1% say that affirmative action in employment has helped them personally;
  • 8% say they have benefited from BEE ownership deals;
  • 5% say they have been awarded BEE tenders; and
  • 3% say they have benefited from land reform (many of whom are likely to have chosen to receive cash instead of land).

 

The field survey was carried out in September 2015 by MarkData and canvassed the views of a carefully balanced sample of 2 245 people, all of whom were interviewed in their languages of choice by experienced field teams.

As the field survey further shows, there is also little support for many key aspects of current transformation policies. Among other things:

  • a mere 6% of South Africans think that ‘only black people should be appointed until those in employment are demographically representative’;
  • by contrast, 70% think job appointments should be made on merit, but with special training for the disadvantaged;
  • 74% are critical of preferential BEE procurement that leads to inflated prices; and
  • 64% think that such procurement should be stopped.

 

The survey also shows how strongly persistent government messaging in support of employment equity, BEE, and land reform has influenced perceptions. When South Africans are asked, in the abstract, if employment equity, BEE, or land reform ‘help poor black people’, some 55% agree that this is so. The level of agreement among black people is higher still, at around 60%. However, when people are asked to consider the practical impact of these policies, only about 12% of South Africans – and roughly 15% of blacks – say they have benefitted personally from them. There is thus a sharp divergence between the theoretical help these policies are supposed to provide and the practical benefits they in fact make available.

This may be one of the most important findings of the field study, for it helps explain why politicians and other commentators are so reluctant to reform these policies, despite their evident failings. Like the ordinary man and woman in the street, politicians and others seem to be so conditioned by the rhetoric that transformation helps provide redress that they find it difficult to question this claim. When confronted by evidence that these policies help only 15% of blacks, their instinct is to say that existing policies must be tightened up and loopholes closed – and that stricter implementation will then start to deliver on what the rhetoric promises.

Thus far, however, the poor have not been helped by the ratcheting up of these policies. Instead, they have been further harmed, for the main effect of these policy shifts has been to help crush the remaining life out of the economy and make it harder still for poor people to gain jobs and get ahead

At the same time, however, it remains vitally important to find effective ways to increase opportunities for the disadvantaged. This cannot be done without overcoming key barriers to upward mobility, which include a meagre economic growth rate, one of the worst public education systems in the world, stubbornly high unemployment, and a limited and struggling small business sector.

‘Intensifying’ BEE and other transformation policies, as the ANC urges, will not help to overcome these problems. On the contrary, any further erosion of property rights and business autonomy will raise these barriers still higher. So too will any further exclusion of white skills, experience, and entrepreneurship from the floundering economy.

What, then, is to be done? The answer lies in shifting away from BEE and other race-based policies and embracing a new system of ‘economic empowerment for the disadvantaged’ or ‘EED’.

EED differs from BEE in two key ways. First, it no longer uses race as a proxy for disadvantage. Instead, it cuts to the heart of the matter by focusing directly on disadvantage and using income and other indicators of socio-economic status to identify those most in need of help. This allows racial classification and racial preferences to fall away, instead of becoming permanent features of policy.

Second, EED focuses not on outputs in the form of numerical quotas, but rather on providing the inputs necessary to empower poor people. Far from overlooking the key barriers to upward mobility, it seeks to overcome these by focusing on all the right ‘Es’. In essence, it aims at rapid economic growth, excellent education, very much more employment, and the promotion of vibrant and successful entrepreneurship.

EED policies aimed at achieving these crucial objectives should be accompanied by a new EED scorecard, to replace the current BEE one. Under this revised scorecard, businesses would earn (voluntary) EED points for direct investment, job creation, contributing to tax revenues and export earnings, appointing staff on a ‘wide’ definition of merit which takes account of disadvantage, and entering into effective public-private partnerships to improve education, health care, and housing, and to maintain and expand essential infrastructure.

After decades of damaging employment equity, BEE, and land reform policies, it is time to call a halt. South Africa cannot hope to expand opportunities for the disadvantaged unless it raises the annual growth rate to 6% of GDP or more. A shift to EED will help achieve this. By contrast, ‘intensified’ transformation policies are likely to push the economy into persistent and destructive recession.

If Mr Ramaphosa is right in saying that the Government is ‘obsessed with empowering black South Africans’, it cannot do better than endorse the EED idea. Unlike current policies, EED will be effective in empowering the great majority and opening the way to a better life for all.

Anthea Jeffery is Head of Policy Research at the IRR. Many of the key results of the IRR field survey on race and transformation are published in @Liberty, the IRR’s policy bulletin. This issue can found by clicking here. 

Read the column on BizNews here.