I want to start by making it crystal clear that the DA unequivocally supports truly broad-based black empowerment. This is important, because it is a widely held misconception that we do not. A systematic, well-designed mechanism to open up equity, employment, educational and entrepreneurial opportunities to the vast majority of South Africans who were denied these under Apartheid is a moral imperative.
The DA is committed to making South Africa a fairer society. This requires a targeted effort to correct for the inequities that persist in our society as a direct result of Apartheid’s injustices. An explicit BEE mechanism, if well-designed for practical implementation, is in everyone’s best interest – it is the fastest way to unleash the massive untapped black talent and energy in our society, and to unite us all around common interests.
Some maintain that empowerment should be poverty-based rather than race-based. Understandably, they wish to move away from using race in public policy. But combating widespread poverty will not in itself succeed in helping black people to become successful entrepreneurs, or give them a stake in the economy. To normalise our society we must break down race-based structural inequality at every level.
Current BEE system
BEE compliance is currently measured by means of a points system, in which companies earn points based on their performance in 5 areas: ownership, management control, skills development, enterprise and supplier development (through preferential procurement policies – those which favour BEE compliant businesses for government tenders and contracts), and socioeconomic development.
Unintended negative consequences
The system is certainly well-intentioned, but to date, BEE has not delivered meaningful broad-based empowerment – neither in scale nor pace. This is largely because the system has been captured by a well-connected elite within the ANC that abuses it to become extraordinarily wealthy. So the same small group of beneficiaries are ‘re-empowered’ over and over again, amassing incredible fortunes.
Worse still, it has harmed everyone outside of this golden circle by enabling corruption, discouraging investment, retarding economic growth, and squandering skills.
As a result, BEE in its current form is almost universally distrusted and disliked by South Africans. It has come to be seen as nothing more than a venal, corrupt, crony enrichment scheme.
The public’s scorn for crony BEE has severely weakened the social consensus for redress that is so necessary for progress. But it does not mean the underlying moral and economic imperative for real empowerment is no less urgent. Racial inequality is still there, and it still needs to be redressed.
Being overly complex and without sufficient built-in rewards, the system has created a culture of compliance: businesses have tended to box-tick rather than meaningfully engage.
That’s why we need to overhaul the BEE system. It must keep sharp focus on desired outcomes, be based on positive incentives, and must add value to the economy by helping to create black entrepreneurs and expanding the middle class.
Simply put, we need a BEE system that enjoys broad support from the majority of South Africans, black and white. Crucially, it must spur the business community into action. This requires that it is simplified, flexible, and easily measurable on its key objectives.
DA’s approach to broad-based empowerment
From this logic, the DA supports a much-simplified system that measures real empowerment:
Firstly, award significant weight to Employee Share Ownership Schemes (ESOS), so that employees as a group become substantial stakeholders in the business. This would grow black equity while the company would benefit from the increases in productivity that ownership confers.
Employees should be represented at board level to reflect their position as shareholders in the business.
Secondly, recognise all spending on growing the skills and expertise of your workforce, be it schooling, skilling, training, bursaries, mentoring, internships or apprenticeships, whether conducted in-house or not.
Thirdly, reward companies for growing their work-force. This would mitigate against the incentives to mechanise and makes sense – ultimately, if you can’t be an entrepreneur, the best form of real empowerment is to get your foot on the ladder of opportunity through a job.
And finally, reward companies for their development of new black entrepreneurs, whether achieved through direct mentoring of sub-contractors or suppliers, or through donations to organisations whose core competency it is to identify, incubate, finance and nurture black entrepreneurship, such as the National Empowerment Fund.
This would incentivise local procurement from a wider number of diverse suppliers, rather than from a single large, established supplier. Importantly, there must be in-built incentives for businesses to go out and find people who have not yet benefitted from the BEE system, so the metric needs to be based on the number of new successful entrepreneurs.
All businesses in the SMME sector (the definition of which should be reasonably broad) should be automatically classified as having the highest empowerment status. This would effectively accelerate the growth of this sector, which has the combined effect of growing both entrepreneurs, innovation and, mostly important of all, jobs.
The current BEE codes run into hundreds of pages of complex formulae and scores. I’ve outlined here some top-level reforms that could begin to restore public support for the redress project, and for truly broad-based empowerment. I believe that the system I have outlined above would involve enough reward and incentive that it would be a win-win for benefactors and beneficiaries alike. It would establish the virtuous cycle of growth and transformation it needs to achieve real redress and win the support of the majority of South Africans. Converging interests and shared prosperity is what we mean when we speak of “one nation with one future”.