Part 2 – The need for BEE

SA inequality worsened since 1994South Africa is the worlds’ most unequal country:

One of the legacies of South Africa’s history of racial discrimination and policies is that a large portion of the population has been excluded from the economy and denied the opportunities to fully participate and benefit from it.

New analysis by the World Bank has confirmed that South Africa is not only the world’s most unequal country, but that extreme inequality has become a major constraint to higher levels of economic growth because it is undermining policy certainty and depressing investment.

The bank’s latest South Africa Economic Update notes that at 0.63, South Africas’ 2015 Gini coefficient was the highest internationally and that inequality had worsened since 1994, despite a decline in poverty.

The bank found that slow growth and high inequality reinforce each other, with inequality fuelling a contestation for resources, which, in turn, increased policy uncertainty and discouraged investment.

“Growing investor uncertainty in the face of strong political demands for redistribution of wealth has contributed to a private investment slowdown in South  Africa” the report highlighted.

Inclusive growth is the way forward

High levels of inequality combined with high levels of political rights, as is the case in South Africa, result in high demand for fiscal redistribution and larger government expenditure.

The World Bank instead suggests a focus on growth, including an increase in product-market competition, a reduction in policy uncertainty and relaxation of migration rules to help fill the gap between the current demand for skilled labour and supply.

“The message here is really about the quality of growth. To be faster, growth needs to be far more inclusive,” the World Bank concludes.

The purpose of the BEE Act:

The SA Government has sought to address the imbalance in wealth and income in several ways. One of the most significant initiatives came with the passing of the Broad-Based Black Economic Empowerment Act[1] (“the BEE Act”) in 2003.

The BEE Act seeks to achieve economic transformation through addressing issues of ownership, skill levels and access to finance for those formerly denied full access to the economy. Those formerly excluded are the primary beneficiaries of BEE and are identified in the BEE Act as “Black People[2]” which are defined as “Africans, Coloureds and Indians” (without being further defined). The secondary beneficiaries of BEE include every South African as giving all access to the economy will increase its size and reduce economic inequalities (and other inequality).

Unfortunately, the BEE Act has yet to achieve its objectives[3] and has faced many challenges in implementation. Examples exist of non-Black People using engaging in fronting, Black People not behaving in commercially reasonable ways and too few Black People benefitting from BEE. Furthermore, the BEE regulatory framework is unique to South Africa and is still being developed. There is uncertainty that has been created from the constantly evolving landscape and the lack of clarity on the intention and interpretation of the BEE Act, which compounded by dedicated but an under-resourced BEE Commission, tasked with ensuring implementation of this mammoth task.

In summary, South Africa needs inclusive growth – until our economy is less skewed and far less skewed across racial lines, the fundamental need underpinning redistributive legislation (such as the BEE Act) isn’t going away. This need will be with us for a long time to come.

Footnotes:

[1] The Broad-Based Black Economic Empowerment Act 53 of 2003.

[2] See section 1 of the BEE Act. Throughout this document “Black People” has this meaning.

[3] For an analysis of BEE ownership see The official stats on bee ownership vs whats really going on and for JSE listed companies see Bee ratings are often no reflection of real black ownership (BusinessLive.co.za)

Continue to Part 3 – Is BEE going away?

 

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