In an article written on the 18th of November 2020 on the University of the Witwatersrand’s website, William Gumede, an associate professor in the School of Governance at the university writes a scathing critique of Broad-Based Black Economic Empowerment(BEE).
He describes it as:
(A)rguably one of the most wasteful, costly, and ineffective redistribution strategies, devised in any post-colonial society since the end of the Second World War”.
He goes on to say:
With over R1 trillion funds transferred in the form of BEE deals since the strategy was formulated in the early 1990s, the strategy has benefited only a handful of politically connected black political capitalists, a select group of white-owned big business and the assortment of white-owned transaction brokers, financiers and law firms.
It has also created and empowered a select group of political fixers, frontmen and women, and go-betweens posing as genuine entrepreneurs, who get paid to link political capitalists and white-owned big businesses to access government contracts or commodity licences.
Professor Gumede is of course correct and his sentiments are echoed by Anthea Jeffery of the Institute of Race Relations (IRR) who contends that BEE has only benefited about 15% of black people. Perhaps the only disagreement I would have with Professor Gumede is his use of the term ‘political capitalists’, which would more correctly be described as rent seekers, since they extract value out of the economy through obscene overnight riches (which are often flaunted in public) while not adding any value, not creating any new businesses that exist in the real economy without state largesse, nor creating new industries in the country, especially those that promote export growth.
Tenderpreneurs
This can be most brazenly seen in the state procurement programme or tender system which has inspired the term “tenderpreneurs”. In small towns, and cities especially, all over the country tenderpreneurs flush with cash from preferential state procurement programmes – money that has been redistributed from the value gains of the productive sectors of the economy – spend that money on multiple luxury cars, expensive alcohol to entertain young women, and large houses even while the real economy around them disintegrates, the youth remain jobless and schools and public services waste away. They can do this largely because those state contracts will keep rolling in, which means that there is very little need to reinvest in the business or learn any measure of fiscal discipline.
The problem with this is twofold. Firstly, it sends the wrong messages to young black people about what it takes to be successful and wealthy in our society and how hard it is to become those things and the discipline required to be successful and wealthy. Even without mentioning the often-shoddy work done by tenderpreneurs, especially on public infrastructure programmes in mostly black communities, it creates an easy come, easy go mentality to money which is an anathema to building true generational wealth.
These are the people that young black people in deprived towns and cities are seeing getting ahead; people with limited competence, reckless spending habits whose businesses do and will collapse when state contracts dry up because a new faction within the ruling party takes power, or a global pandemic obliterates public finances, and people whose money is spent on unsustainable conspicuous consumption.
The second problem is far more personal to me and relates to the many young black people I know who have done well in school, gotten educated, gained valuable skills in the marketplace, and proven themselves as they have risen in their chosen professions. I cannot help but think of a funeral I attended in the North West a couple of years back when I encountered some young tenderpreneurs who had arrived at the funeral in Ferraris, Porsches and Maseratis, drinking expensive shots of alcohol in between the solemnity, and was told by a kindly old man that these young people were heavily involved in youth politics and owned companies which hoovered up tenders in the area. BEE often incentivizes and rewards mediocrity in the black community by privileging politically connected rent seekers within patronage networks and discouraging capable young black people who do have the education, and who have gained skills and expertise in the marketplace from entering the fray.
Entrepreneurship
William Gumede adds:
(I)n the South African context it would have been more catalytic to the economy, if the BEE had focused on the 5 million real, black entrepreneurs, who have been running their own micro, small and medium-sized businesses since the apartheid era, whether it is taverns, spaza shops, butcheries or taxi companies.
In the new South Africa, this group, not connected to the ANC, has been excluded from influencing economic policy making, BEE, and state finance and training supposedly now available to blacks.
These existing black entrepreneurs, with the business experience and skills, should have been provided with access to finance, helped to transition up the value chain, to manufacture, and produce new products and services the country does not have and the world needs.
By focusing on empowering political capitalists, BEE has killed off legitimate black and white small and medium-sized businesses; and discouraged existing and potentially black entrepreneurship.
There is the fundamental issue; BEE, in the broader scheme of things, is wasteful, unfair, and actually disadvantages both capable white AND black people and does nothing to address the structural issues which prevent capital accumulation and wealth building in the black community. Issues around education where our bifurcated system ensures that half of all (almost all black) children do not graduate from high school, are functionally illiterate and innumerate (78% of Grade 4s cannot read or write for understanding).
When they do exit the schooling system they often face a hopeless situation, but we must be innovative. We must look at issues around how urban land use policy can in combination with a job-intensive and growing economy be used to strengthen land tenure and the property rights of working class, mostly black South Africans in our cities who would benefit from having a proper home as an anchor for building generational wealth and pursuing micro business opportunities such as tuckshops, salons and small internet cafes out of their homes.
Proxy war
BEE is for all intents and purposes a proxy war between black and white elites about who controls resources and power. It has almost nothing to do with most ordinary South Africans and in fact it is insulting to suggest that BEE can bring about inclusive economic growth and transformation in a country where three quarters of people are functionally illiterate and innumerate and half of all people don’t finish high school.
The views of the writer are not necessarily the views of the Daily Friend or the IRR
If you like what you have just read, support the Daily Friend