Economic Growth and Transformation Are Intertwined

By Tshediso Matona, Commissioner: B-BBEE Commission

The year 2023 marked 20 years since the law for Broad-based Black Economic Empowerment (B-BBEE Act) Act was passed to enable active measures to redress past economic injustice against black people during Apartheid, and promote inclusive economic growth from the broadest participation of the population.

Naturally, this year has witnessed much public commentary about B-BBEE, which is welcome and will continue, as 20 years of B-BBEE calls for critical reflection on whether the purpose of B-BBEE is being achieved, it being about one of most profound and defining policies of post-apartheid South Africa.

But the BEE debate has to be structured for it to be constructive, because ultimately it is about our collective future as South Africans, and it is about our identity as a nation. An extreme view, representing minority interests but unhelpful, is that BEE has failed and must be discarded, and no credible alternative is offered for addressing continuing economic exclusion of black people.

The truth, on the other hand, is that economic transformation in South Africa is a mixed picture of important inroads in some sectors, and of stagnation in others. But fundamentally, transformation has been extremely slow, viewed from the lens of the B-BBEE Act, the lens of 30 years of democracy, and the lens of the Equality clause of the Constitution.

It cannot be acceptable nor sustainable that white people in South Africa make up 7.3% of the population and own and control anything from 70%-80% of the economy; while black people are more than 90% but own anything from 10%-25% of the economy. Moreover, research by economist Duma Gqubule puts black ownership in 50 JSE-listed top 50 companies at 1.2%, out of total JSE market capitalization of R18-trillion. From annual compliance reports submitted to the B-BBEE Commission over the 6 years since established, black ownership hovers around 30% on average in any given year; and black women ownership hovers around 14% on average.

It cannot be that South Africa has the infamy of being the most unequal country in the world, while the country is so well endowed in resources and opportunities; human capital and youth; in national diversity and resilience; and in international networks. This label jars with a world that is more and more accepting of concepts of empowerment and transformation by governments and business, as represented by for example Sustainable Development Goals (SDGs) under the United Nations, or the emergent Environment, Social and Governance (ESG) movement of business as a force for good, in partnership with governments.

It is important to also appreciate that historical and ongoing barriers to equitable black economic participation, are the self-same factors accounting for the economy’s low growth, high unemployment, and high inequality trap, namely poor education and skills; lack of entrepreneurial skills and experience, lack of access to finance and markets; spatial location far from economic hubs; lack of infrastructure. In turn, these economic factors account for myriad social ills in the country, including crime, because too many citizens, especially youth, are spectators of the economy and have no stake or belonging in the future of the country.

This suggests that economic growth, transformation and B-BBEE are intertwined and interdependent, and must be advanced simultaneously, along with other enabling interventions, e.g. energy, logistics, infrastructure, crimefighting, etc. While growth is necessary for transformation, that growth can only be enhanced and sustainable when it draws on the talents and full potential of all South Africans.

B-BBEE is definitely contributing to economic growth, but more can be achieved if there’s greater compliance and reporting by both private and public entities. For example, entities that reported spending R31-billion on Skills Development initiatives in 2022 (R46-billion, 2021), and R15-billion on Enterprise and Supplier Development benefiting black-owned enterprises (R26-billion, 2021). As at July 2023, the B-BBEE Commission registered 643 BEE transactions, worth a total of R645-billion.

South Africa has a growing black middle class thanks to BEE; thousands of black businesses are suppliers to public and private companies; a class of black industrialists is emerging; and more and more companies are extending shareholding to employees.

The transformation journey, however, has much further to go. B-BBEE succeeds where there is strong commitment to implementation across the board. There are also a host of demons bedevilling BEE that need to be slain, such as fronting; rent-seeking middle-people; declining submissions of score-card reports, and tick-box approaches to compliance. To date, the Commission has received 1273 complaints, 84% of which concern fronting, indicating the ongoing prevalence of the offence which is declared punishable by imprisonment in the Act.

B-BBEE is designed in a manner that offers various pathways and opportunities to black economic participation, from shareholding, to the creation of new enterprises, management appointments, to skills development, among others.

The emerging phase of B-BBEE going forward is assuming an innovative character, based on skin-in-the-game black entrepreneurs, breaking into previously closed value chains and networks, or into new technology-based industries, including energy and logistics, and thereby contributing to solving the country’s critical economic and social challenges. In the next phase, much can be achieved if we focus on where maximum gains can be made in re-orienting the B-BBEE regime, and in strengthening its incentives and enforcement accordingly.

Transformation is a leadership and commitment process at all levels in business and government. It requires conviction and action, if we are to achieve the desired equity and parity in the economy over time.

Debates about B-BBEE must illuminate improved ways forward to how best to advance transformation, and must yield action. We dare not waste time nor fail to achieve shared prosperity in South Africa, which is how we will be a winning nation at peace with itself and the world.