As the government assesses the performance of BEE, its central transformation policy over the past three decades, voices in business have condemned it for failing to create black industrialists at scale and some say it should be scrapped.
Isaac Shongwe, the founder and chair of Letsema Holdings, a professional services firm founded in 1996, recently told Business Times that the progress of broad-based BEE in addressing the urgent need to create opportunities for black business had been underwhelming.
“Our government has let us down. The government needed to ... set up some funds, as opposed to saying, ‘Go to Barloworld, go and get a 25% stake there.’ Have those kinds of funds to create black entrepreneurs.
“Parks Tau is talking about this transformation fund,” he said, referring to a draft concept document released by the minister of trade, industry & competition in March last year. “Why now and not 20 years ago? Because now, we will be the ones putting the money in, like these entrepreneurs have been doing. So, our leaders haven’t been that great at executing and coming up with strategies.”
Tau’s department, which is conducting a review of BEE, said in its concept document: “Government in partnership with the private sector seeks to establish a R100bn aggregated fund to support the ever-growing funding requirements for businesses owned and managed by black entrepreneurs to propel inclusive growth across various sectors of South Africa’s economy.”
Shongwe said: “To my disappointment, and I get criticised, I think BEE has been bad for black entrepreneurs. Because you are forever, kind of like, wanting a piece of someone else… For me, I’m always saying, where are the black entrepreneurs?”
The policy has produced pockets of success, including the MTN Zakhele Futhi shares scheme and the rise of Seriti CEO Mike Teke.
Shongwe said South Africa needed more entrepreneurs like Melvyn Lubega, the founder of tech platform Go1.
“He’s proper. He did Go1, and now he’s doing another kind of start-up.
“If you look at the economy post-democracy, most of the stuff is happening in Stellenbosch. They produce. Capitec never existed, and...it came out of Stellenbosch, but it is banking us.”
He said South Africa’s black talent was leaving for places that were more attractive in terms of innovation and enterprise, such as London and Silicon Valley.
The Broad-Based BEE Commission’s 2023/24 analysis of major BEE transactions reported there were 51 deals worth R23.85bn in the year, of which 42 were registered by the commission. This compared with 50 deals worth a total of R35.87bn the previous year; 57 transactions worth R29bn in financial 2022; 52 worth R17.55bn in financial 2021; and 106 transactions worth R253.6bn in financial 2020.
“Year-on-year comparisons ... do not necessarily reveal clear trends. Reasons for this include the unique nature of each major transaction and the cyclical nature of negotiation and implementation of transactions,” the report said.
According to the Forbes Real-Time Billionaire Tracker, South Africa has eight dollar billionaires, and Patrice Motsepe is the only black person among them. The others are Johann Rupert, Nicky Oppenheimer, Koos Bekker, Michiel le Roux, Jannie Mouton, Christo Wiese and Paul van Zuydam, owner of French cookware company Le Creuset.
Other South African-born dollar billionaires are Natie Kirsh, who is now primarily based in Eswatini, drug-developer Patrick Soon-Shiong, who lives in California, and the richest person in the world, Elon Musk, who now has dual US-Canadian citizenship.
We don’t need any policy that is based on racial principles. Affirmative action policy in South Africa has proved disastrous
— Themba Nolutshungu, president of the Free Market Foundation
Temba Nolutshungu, president of the Free Market Foundation, said most BEE beneficiaries were connected to the ANC.
“We don’t need any policy that is based on racial principles. Affirmative action policy in South Africa has proved disastrous. It’s been counterproductive in that it promoted and advantaged people who are connected politically.”
He said investors look for markets that offer the best return on their investment.
“We need policies that are going to open up the economic system and make it easier for people to get into business. BEE sends signals to investors, and we are losing out on investment to countries that don’t put up stumbling blocks to business.”
He said South Africa could learn from Estonia, which makes provision for digital economic investments that make it easier for ICT entrepreneurs to invest in the country.
Duma Gqubule, an independent economist, said companies have found ways to game the BEE system to get the required certification and points on their scorecard without driving meaningful transformation.
In a column in Business Day this week, he rubbished statistics cited by President Cyril Ramaphosa in his 2024 state of the nation address that purported to show black ownership in mining surged from 2% in 2004 to 39% in 2024. “The measurement of black ownership has lost all credibility, and this should be the first priority during Tau’s review of BEE policies,” Gqubule wrote.
He told Business Times that Tau “has been quite disappointing” on BEE. “He spent a lot of time abroad dealing with tariffs. This is quite disappointing because black business lobbied for him to get the job… So this review is long overdue, and I think the core issue is that BEE has become an exam that is too easy to pass.”
He said the money raised by the transformation fund would likely be “disappointing” and that the fund would take a long time to mobilise whatever money it does raise.
“If you look at employment equity reports over the years, there’s been very little progress in the employment of black people in middle and top management. I think the issue of quotas must be on the table.”
Gqubule said the National Empowerment Fund and Small Enterprise Development & Finance Agency needed funding and capacity to support transformation, while the Public Investment Corporation should play a greater role in supporting black business.
“There has to be a unity among black business and other progressive formations to fight back against the fake news about BEE … Convene workshops to fight back against fake news that the extreme Right has been peddling around BEE.”
Addressing parliament recently, Tau referred to the issue of equity equivalents, which have been in the headlines due to Musk’s objections to the BEE requirements that he said were blocking Starlink from entering the South African market.
Tau said the mechanism was created to enable multinationals to invest and benefit as empowered companies. While local companies did not qualify at the moment, there was room in the review to revise this regulation, so long as it did not reverse the progress that BEE had made.
“It is part of the discussions that we are pursuing in terms of the transformation fund. One of the things, though, that we should guard against is the dilution of transformation and empowerment by creating multiple schemes that undermine the transformation objectives.”
Musk’s objections to BEE were seen as the reason DA communications minister Solly Malatsi gazetted a provision allowing equity equivalents for ICT companies. His ANC deputy, Mondli Gungubele, quickly tweeted that the proposal did not reflect the policy of the GNU and undermined economic transformation.
The department of trade, industry & competition did not respond to requests for comment.
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