BEE is hard on bosses, but harder on the jobless - Businesslive

5 August 2020 - Safiyya Patel recommends SA’s transformationist legislation as a model for the world (“SA laws offer global firms lessons in tackling racial injustice”, July 26).

Terence Corrrigan

Safiyya Patel recommends SA’s transformationist legislation as a model for the world (“SA laws offer global firms lessons in tackling racial injustice”, July 26).

To the extent that SA has developed laws that emphasise race and “representivity” — which might dovetail with Black Lives Matter (BLM) as a political campaign — she has a point. What these policies have meant for prosperity and economic sustainability, or whether they are a template for “a more equitable distribution of wealth in future”, is another matter.

SA needs both growth and inclusion: an expanding economy that creates business opportunities, creates jobs for the unemployed and provides social mobility for the poor. On that measure, SA is failing. The country entered the pandemic with an unemployment rate of 30.1%, representing about 7.1-million people.

This is a long-running problem, as SA has failed to provide an environment for small entrepreneurs to grow. Research in 2018 by the Small Business Institute and Small Business Project (SBP) found there were only about 250,000 SMEs in the country.

Inequality remains stark. Indeed, post the 2008 financial crisis SA’s per capita GDP growth rate was about half that of the world as a whole, reflecting a decade of underperformance. SA faces dire challenges to its future, affecting none so much as the country’s poor, who are overwhelmingly black. At the most generous interpretation, racial transformation measures have failed to assist the country in addressing these challenges. Indeed, by increasing compliance burdens and uncertainties, they have compounded them.

Over a decade ago an international panel under Harvard professor and former Venezuelan planning minister Ricardo Hausmann, convened to advise the SA government on growth, warned that BEE might come into conflict with growth objectives, for individual firms and the economy as a whole.

There is evidence that this is precisely what has happened. SBP’s SME Growth Index, for example, found that small operators (black and white) were frustrated with BEE regulations, and saw little benefit. A study of European firms in SA listed BEE as the top hindrance.

Even within the governing party, where racialised policy is holy writ, there has been criticism. As former finance minister Pravin Gordhan said: “BEE policies have not worked and have not made SA a fairer or more prosperous country.” The SA Communist Party has criticised BEE for reinforcing inequalities. This is not unexpected, of course. Globally, preferential policies frequently work to the advantage of the elites of targeted groups, while offering little to the members of the group suffering the most acute disadvantage.

Part of this plays out in escalating inequality, driven by the disparate opportunities available to different parts within the group. Hence, according to Stats SA’s Inequality Trends report, in SA “inequality among black Africans was the most unequal compared to other population groups and the contribution of black Africans to overall inequality was the highest and has risen over time”.

And so, as the government moves to tighten up the employment equity laws — pledging to be “very hard on employers” — it might be able to coerce some companies into adjusting their staff profiles in obeisance to its will. Some firms might be driven to bankruptcy by fines; the amendment bill signals a willingness to do so. Other small firms will have yet another reason to keep their staff numbers down, and themselves below the radar.

For the 10-million or so unemployed, both those who entered the pandemic without work and those who lost it during the lockdown, prospects are bleak indeed. The question to ask is whether the ideological satisfaction such a measure will bring is worth the cost in opportunities that it is likely to represent. Most South Africans would say no.

The stated objectives of a policy are a poor basis on which to assess it. What should matter here is not the BEE policy’s intentions but its real-world impact, and SA’s socio-economic malaise demands more than its racial legislation is conceivably able to offer.

It is past time for a rethink, and for a model of empowerment to be developed that encourages entrepreneurs, incentivises employment and — most importantly — assists the swelling ranks of the country’s poorest citizens to have a chance at a better life.

• Corrigan is a project manager at the Institute of Race Relations