Don’t be so quick to dismiss Elon Musk’s concerns about introducing Starlink to South Africa due to Black Economic Empowerment (BEE). While Musk is being disingenuous stating that Starlink can’t operate in South Africa because he’s “not black”, there is some basis for his concerns.
BEE, in a nutshell, was meant to be a policy to redress racial inequality brought on by Apartheid. Businesses are given a scorecard, and evaluated by:
- black ownership of the business,
- black representation in management,
- offering skill development to black employees,
- how much of the business’s procurement is from other BEE-compliant businesses,
- the donation of after-tax profit that is given to black-owned businesses, and
- donations of after-tax profit given to socio-economic development.
If a business does not score highly enough on the scorecard, it will be excluded from lucrative government contracts, ostracised from other businesses trying to maintain their BEE-status, and will be denied licences (particularly in mining and telecommunications).
To enter industries that require licences, a business will need to cede part of the ownership of the business to black owners. And due to the prevalence of corruption, not just any black person will do. It is very common for corrupt officials to force businesses into appointing their friends to lucrative managerial positions in exchange for BEE compliance.
The difficulty of adhering to BEE laws has led to many businesses committing a crime called “fronting” – whereby a black individual is given a position of authority but doesn’t actually do anything. The fine for fronting is 10% of a company’s annual turnover.
Foreign businesses have reported not wanting to establish themselves in South Africa, as they understandably don’t want to give a portion of their business away just to conduct the business. This has little to do with race. No company wants to be forced to give a portion of their business away, or be required to appoint managers based on anything other than merit.
The Employment Equity Act, a BEE adjacent legislation, also imposes race quotas on employers. Failure to comply with these stringent quotas will be met with a fine of 10% of annual turnover. These race quotas are nonsensical, as they are based on national demographics that don’t reflect local populations.
A business running in a predominantly Indian neighbourhood may not be legally allowed to hire any Indian workers, as it will tip their mandated allowable Indian workforce over the regulation quota. Coloured people in the Western Cape are denied jobs and promotions, despite being a majority in their home province.
BEE also hikes up the price of government procurement. For every BEE-compliant government contract, the National Treasury is required to pay 25% more for contracts below R50 million, and 11% more for contracts over that amount. This means that taxpayers are footing the bill for overpaying companies based on arbitrary, race-based regulations. This has enabled corruption, and the extraction of public funds to benefit a few elites who don’t even provide a competent service in return.
The Zondo Commission found that by maximising value for money in the procurement process, rather than BEE criteria, R150 billion could be saved. By eliminating BEE, state capture would become even harder to achieve.
Further, the Institute of Race Relations posits that eliminating BEE could allow VAT to be reduced to 11.5%, making goods cheaper for all South Africans and reducing a heavy toll on businesses.
BEE is costly to the taxpayer, costly to businesses, and costly to investors. It imposes a regulatory burden on businesses and builds resentment amongst the hard-working founders of these companies, who feel they are being forced to give away a cut of their hard-work and ambition.
And this is not to mention how affirmative action and BEE drive a wedge between all South Africans and encourage racial discord.
The government is not completely clueless about the fact that BEE is not working as intended. In 2010, then Deputy President Kgalema Motlanthe admitted that BEE had only worked to enrich a few individuals. The genuinely poor and disenfranchised have not benefited from BEE.
If anything, BEE’s heavy costs on society have denied them access to well-funded and well-run education, and frozen economic growth so that they cannot find work.
Regardless of your personal view of Musk, he is not being unreasonable by not wanting to give away a portion of his business, just to abide by some corruption-enabling legislation.
South Africa’s economy would grow without BEE or affirmative action. Investors would flock to our shores. Racial laws that continue to divide us need to be put to an end, so we can truly unite as South Africans, and not as separate race groups with legislative privileges. Without BEE, corruption will become harder, as the procurement process becomes more about merit and cost than connections and scorecards.
We only need to scrap BEE, and so much would be fixed overnight. Hopefully, this government or the next will eventually see the light and embrace sound policies for the betterment of all South Africans.
[Image: https://www.flickr.com/photos/gageskidmore/54350004795/]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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