In Duma Gqubule’s recent column, most critics of BEE were made out to be “racists and fringe groups on the right who believe the ANC is a communist organisation” (“BEE misinformation clouds public discourse”, March 24).
Though there may be examples where this is the case, Solidarity does not fall into either category, but since our report was singled out we unfortunately have to engage.
Solidarity wants what is best for South Africans. Our members are hard-working individuals who contribute to the country, but their contribution is increasingly being spurned by government through policies such as broad-based BEE and employment equity laws.
Coming up with an estimate of what BEE costs remains near impossible, but our report came as close to identifying the true cost of compliance as anyone can with the currently available data. However, the estimated loss of 3% GDP growth per annum is likely an underestimate. There is too much we know to be happening that is impossible to quantify.
That is the reality when working with scant data, especially when the economic repercussions of the policy are deliberately shrouded in secrecy. Since any attempt to criticise transformation policy was immediately answered with accusations of racism and apartheid nostalgia, economists steered clear, until recently at least. Ours was the first serious attempt to quantify the damage done by the racialisation of the economy.
Denying that BEE comes at great economic cost requires quite some dishonesty. Previous research by the Solidarity Research Institute clearly showed electricity prices increased by at least 27% when BEE policies such as preferential procurement were adopted by Eskom. BEE requirements forced a consolidation in coal producers, which led to inflated prices.
Other undeniable cost increases are of a more tangible nature. There are countless examples where companies and state-owned entities are forced to use BEE intermediaries to maintain their points. This inflates costs by its very nature, and the extent to which it does so is often unacceptable.
It is time for South Africa to look forwards instead of backwards. Our country is one of great possibility, with great people. Unfortunately, some of the brightest minds in the country are bogged down filling in BEE scorecards.
Eskom paying R280,000 for a broom is one example. Another is staff at technical and vocational education and training (TVET) colleges handing in quotes from a supplier for R20,000, only to have the college hand the quote over to the BEE intermediary. An unacceptable amount of time later, the staff member is asked to sign a receipt for R400,000, with the original supplier’s price tags still on the items.
Though not always this extreme, such events have become common in the economy. Though not all BEE suppliers are unnecessary intermediaries, even the legitimate ones are often forced to use them if they want to retain their BEE scores.
Ownership transfers are also often not as beneficial to beneficiaries as is claimed. How it usually works is a company starts a grandiose BEE scheme and issues shares to some BEE consortium linked to ANC interests. Against these shares the company takes out a loan. This allows it to increase its BEE score while simultaneously hiding debt as equity.
Dividends mostly go to servicing debt. Shares are often non-transferable, so the company and bank cash in while beneficiaries derive few benefits — if any. Banks provide capital that could have grown the economy to schemes that enrich people only on paper without providing true benefit to the country.
It is time for South Africa to look forwards instead of backwards. Our country is one of great possibility, with great people. Unfortunately, some of the brightest minds in the country are bogged down filling in BEE scorecards. The time has come to put them to better use by letting the free market navigate the greatest people to the greatest opportunities.
South Africa’s economic growth is currently suppressed because the same capital is continuously circulated and divided rather than being invested in new ventures that could grow the economy and keep up with worldwide trends.
Denying BEE has a cost is dishonest. The only legitimate question that remains is to quantify it. I am confident annual compliance costs of R145bn to R290bn, as found in our report, are only the tip of the iceberg. The true cost lies in entrenched inefficiencies and lost opportunities.
How many investments have failed to materialise because of BEE? That is even harder to quantify, but we know this cost exceeds compliance costs.
• Du Buisson is an economics researcher at the Solidarity Research Institute.
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