The Institute of Race Relations (IRR) says National Treasury should use the Medium-Term Budget Policy Statement (MTBPS) today to scrap Black Economic Empowerment (BEE) premiums and give effect to the Zondo Commission’s recommendations on value for money in public procurement.
The IRR points out that when the government procures goods and services, everything from medical equipment or materials for building roads to stationery for public schools, the sum it spends includes extra payments, or BEE premiums, intended solely to reward BEE-credentialed businesses that do work for the government.
Estimates suggest the overall sum paid in licit and illicit premiums is in the region of R100 billion a year.
In a statement, Makone Maja, IRR Strategic Engagements Manager says: “The MTBPS provides Finance Minister Enoch Godongwana with the opportunity to come clean with South Africans about how much BEE premiums are costing them. These premiums have no benefit to taxpayers and divert funds away from services simply so that certain tenderers for government business get richer. Meanwhile, communities are poorer, as budgets meant to fund development and public services are spent on gratuitous BEE premiums instead.”
According to Investec, government spending in the first five months of this fiscal year has risen by 1 percentage point from 41% to 42% of the total budget compared to the first five months of last year. This rise in expenditure tempers the positive change in revenue from 37% to 39% over the same period, thus minimising the net positive impact that could otherwise be realised.
Maja argues that eliminating BEE premiums would assist the government in lowering inefficient spending. “By adopting the proposal from the Zondo Commission to apply value for money in government procurement contracts the finance ministry would have access to R17 billion per annum in licit premiums alone that could go towards actual public goods.
“Cutting government expenditure without compromising services is achievable if non-value-adding spending is targeted. Taxpayers cannot afford to be spending such sums without goods and services ever being rendered in exchange. The condition of our law enforcement institutions, roads, public hospitals and schools attest to this grave problem,” Maja concludes.
Damning attention is focused on the overall costs of BEE in another statement from the IRR on the release yesterday of the latest report in the Institute’s Blueprint for Growth series, titled Breaking the BEE Barrier to Growth, .
Its author, Dr Anthea Jeffery, Head of Policy Research at the IRR, analyses the heavy costs of BEE, the ANC’s determination to retain it – and the growing wish of most South Africans for major changes to its current rules.
The IRR points out that Black Economic Empowerment (BEE) enriches the few and harms the many is becoming ever more apparent.
As yet, however, the African National Congress (ANC) refuses to budge on BEE. Opinion polls by the IRR and the Social Research Foundation (SRF) show strong support for an end to race-based rules, but the ANC is doubling down on them instead.
Jeffery says the ANC “needs to be reminded of the commitments it made back in April 1994 when it acknowledged the risks inherent in BEE and pledged to prevent them”.
According to the ANC, the new state would ensure that BEE did not become “an instrument of racially based extortion and patronage in which friends were favoured, opponents disadvantaged and bribes accepted”.
The ANC also said that BEE would remove “all the obstacles to the development of black entrepreneurial capacity” and unleash “the full potential of all South Africans to contribute to wealth creation”.
Some 32 years later, the IRR notes, “this rosy picture has entirely unravelled”.
“As Professor William Gumede of Wits University has pointed out: ‘BEE…has focused on giving slices of white companies to politically connected non-whites.’ It has also ‘collapsed both black and white legitimate businesses which are not politically connected’. In addition, BEE has strongly promoted the patronage, corruption and extortion the ANC pledged to prevent.”
Jeffery’s new report further confirms what many critics of BEE have long pointed out: that almost all the benefits of race-based preferences go to a small and politically connected black elite. Some other black people may notch up limited gains, but the great majority of black South Africans get nothing at all.
This is evident in mining, for example, where a 2015 report (recently made public by Gumede) shows that some 60% of the net value redistributed by pre-2014 ownership deals went to around 46 BEE companies or participants – each of whom probably gained between R2bn and R3.7bn.
By contrast, most black people are actively harmed by BEE, whether in mining or elsewhere, because it deters investment, limits growth, curtails employment – and has helped to render some 8.5 million South Africans jobless and largely destitute.
Jeffery’s report goes on to explore how the BEE barrier to growth can best be broken. The ANC often claims that BEE has to be retained because there is no other way to provide redress for past injustices. This is not so.
Says Jeffery: “Beneficial and workable alternatives have been proposed by both the Democratic Alliance (DA) and the IRR.
“The DA has put forward a private member’s bill that would put an end to costly BEE premiums in procurement, prioritise getting value for money, promote economic inclusion, and remove all BEE laws from the Statute Book.
“The IRR has long proposed a constructive alternative, called Economic Empowerment for the Disadvantaged (EED), which has three core features. First, EED is race-neutral, which means it targets the poor and its benefits cannot be captured by the black elite.
“Second, EED promotes investment, growth, employment, innovation and free market competition, all of which are vital to upward mobility. Third, it recognises that many poor South Africans are held back by bad schooling, housing and health care and that these needs must also be addressed in innovative and cost-effective ways.”
[Image: by GoldenDayz]