A report shining the spotlight on the cost of BBBEE policy to the struggling SA economy has dismissed the policy as a substantial economic burden, which has resulted in reduced GDP growth and huge job losses.
Titled “The costs of BBBEE Compliance”, the report was released during a media briefing in Johannesburg on Thursday by the Solidarity Research Institute, in collaboration with the Free Market Foundation.
Its release comes amid fierce debate over the government’s BEE policies, with strong business opposition voiced to the proposed Transformation Fund and the defence of the policies last week by international relations and co-operation minister Ronald Lamola and President Cyril Ramaphosa.
The report noted that BBBEE was introduced as a cornerstone of the government’s economic transformation agenda, ostensibly aimed at addressing the “deep-rooted economic inequalities created by apartheid”.
While other countries such as Malaysia and Namibia also had policies aimed at redress, “unlike SA, these policies are generally to eliminate injustice and discrimination, and do not advance specific groups at the cost of others”.
“This study estimates annual compliance costs with BBBEE at R149bn-R290bn, equivalent to 2%-4% of SA’s GDP of R7.3-trillion. This is based on 2019 compliance scores from the BBBEE Commission’s 2020 report, supplemented by Stats SA, JSE data, and industry reports,” the report said.
“Ownership and enterprise and supplier development contribute to R40bn-R60bn, management control to R20bn-R50bn, and socio-development) to R5bn-R10bn. These costs, particularly in high-intensity sectors like mining and finance, have imposed a substantial economic burden, potentially reducing GDP growth by 1.5%-3% annually and contributing to 96,000-192,000 fewer jobs per year.”
The diminished GDP growth had resulted in the loss of 3.8-million jobs and the country was far behind other economies of similar scale. “This results in reduced quality of life for the overall majority of the population to the benefit of a small politically connected elite.”
According to the report, the focus on small and medium enterprises was promising, but high unemployment and economic slowdown limited its effect. “Fronting persisted due to inconsistent enforcement, and administrative burdens affected smaller firms disproportionately, undermining entrepreneurship goals.”
Since the dawn of democracy in 1994, the black middle class in SA has expanded from less than 1.7-million in 2004 to an estimated 4-million to 6-million by the early 2020s, “propelled by democratic reforms and increased access to education and employment”.
“However, this growth masks persistent inequality: intergroup gaps with whites have narrowed modestly, whereas intragroup disparities within the black population have widened significantly,” the report stated.
“This could be explained by government policies, notably BEE, largely favouring a politically connected elite over broad-based upliftment, with economic stagnation and mismanagement further undermining progress.”
However, Black Business Council president Elias Monage lashed out at the two organisations and accused them of talking “rubbish”.
He said the report was not backed by “empirical evidence, in any form or shape”.
“The economy has not been performing for many years and that has nothing to do with BEE. The decline in the steel industry that has seen over 230,000 people lose their jobs has nothing to do with BEE. The Edcon Group has closed down, and that has nothing to do with BEE,” Monage said.
The property sector and financial institutions were also in a state of decline and that had nothing to do with BEE, he said.
“This [report] is nonsensical; it’s not having a genuine conversation on how to include the historically excluded people. The structure of the economy is still in the hands of the minority,” Monage said.
“We are sitting on a ticking time bomb in the country,” he said, adding the have-nots would not sit by and watch the well-to-do “eating prawns”.
The reported concluded that as SA continued to refine its transformation strategies, accounting for both visible and invisible costs associated with the BBBEE policy would be crucial to sustainable economic development and competitive positioning in global markets.
In May, the Treasury trimmed its projection for SA’s economic growth in 2025 to 1.4% from 1.9%, noting that “global risk and economic weakness reinforce the need for us to put our fiscal house in order”.
The revision aligns closely with those by the Bureau for Economic Research and Moody’s, both of which foresee growth closer to 1.5% in 2025. However, it remains above the IMF’s 1% and the Bank of America’s 1.2%.
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