Black Economic Empowerment

South Africa's policy of black economic empowerment (BEE) is not simply a moral initiative to redress the wrongs of the past. It is a pragmatic growth strategy that aims to realise the country's full economic potential.

In the decades before South Africa achieved democracy in 1994, the apartheid government systematically excluded African, Indian and coloured people from meaningful participation in the country's economy.

This inevitably caused much poverty and suffering - and a profoundly sick economy.

The distortions in the economy eventually led to a crisis, started in the 1970s, when gross domestic product (GDP) growth fell to zero, and then hovered at about 3.4% in the 1980s. At a time when other developing economies with similar resources were growing, South Africa was stagnating.

Full potential

"Our country requires an economy that can meet the needs of all our economic citizens - our people and their enterprises - in a sustainable manner," the Department of Trade and Industry (DTI) says in its BEE strategy document.

"This will only be possible if our economy builds on the full potential of all persons and communities across the length and breadth of this country."

Despite the many economic gains made in the country since 1994 – growth has been 4% or higher in every quarter since 2004 – the racial divide between rich and poor remains. As the DTI points out, such inequalities can have a profound effect on political stability:

"Societies characterised by entrenched gender inequality or racially or ethnically defined wealth disparities are not likely to be socially and politically stable, particularly as economic growth can easily exacerbate these inequalities."

Broad-based growth

Black economic empowerment is not affirmative action, although employment equity forms part of it. Nor does it aim to take wealth from white people and give it to blacks. It is essentially a growth strategy, targeting the South African economy's weakest point: inequality.

"No economy can grow by excluding any part of its people, and an economy that is not growing cannot integrate all of its citizens in a meaningful way," the DTI says.

"As such, this strategy stresses a BEE process that is associated with growth, development and enterprise development, and not merely the redistribution of existing wealth."

Black economic empowerment is thus an important policy instrument aimed at broadening the economic base of the country – and through this, at stimulating further economic growth and creating employment.

The strategy is broad-based, as shown in the name of the legislation: the Broad Based Black Economic Empowerment Act of 2003.

This reflects the government's approach, which is to "situate black economic empowerment within the context of a broader national empowerment strategy … focused on historically disadvantaged people, and particularly black people, women, youth, the disabled, and rural communities".

As the DTI notes, discrimination "is at its most severe when race coincides with gender and/or disability".

How to achieve BEE?

Black economic empowerment is driven by legislation and regulation. An integral part of the BEE Act of 2003 is a sector-wide generic scorecard, which measures companies' empowerment progress in four areas:

  • Direct empowerment through ownership and control of enterprises and assets.
  • Management at senior level.
  • Human resource development and employment equity.
  • Indirect empowerment through:
    • preferential procurement,
    • enterprise development, and
    • corporate social investment (a residual and open-ended category).

This scorecard, as well as a scorecard for multinational companies, is defined and elaborated in the BEE codes of good practice.

The codes of good practice, which govern how companies do business in South Africa, allow global and multinational companies some flexibility in how they structure their empowerment deals. For example, representation does not only have to be at ownership level.

The codes are binding on all state bodies and public companies, and the government is required to apply them when making economic decisions on:

  • procurement,
  • licensing and concessions,
  • public-private partnerships, and
  • the sale of state-owned assets or businesses.

Private companies must apply the codes if they want to do business with any government enterprise or organ of state - that is, to tender for business, apply for licences and concessions, enter into public-private partnerships, or buy state-owned assets.

Companies are also encouraged to apply the codes in their interactions with one another, since preferential procurement will affect most private companies throughout the supply chain.

Different industries are required to draw up their own charters on BEE, so that all sectors can adopt a uniform approach to empowerment and how it is measured.

The DTI has all the relevant documents and information on black economic empowerment available online, including: