ANN BERNSTEIN | Proposed BBBEE shake-up is reckless and must be stopped

The achievement of the goals of broad-based BEE (BBBEE) is vital to South Africa’s future. We understand these goals to be an economy in which everyone can succeed irrespective of their race or gender, and in which legacies of historical discrimination are actively undone.

While always having reservations about the policy tools used to pursue these goals, we have no doubt transformation of the economy is a necessary condition for South Africa to become a prosperous, nonracial democracy. We have no illusions that these policies are costless, but we have always believed if the costs are managed effectively, the benefits will far outweigh them.

That is why the department of trade, industry & competition’s proposed amendments to the BBBEE codes of good practice are so alarming. These are not cautious, evidence-based refinements to a maturing policy. They are a huge bet on the idea of a Transformation Fund — a proposal whose details have not even been made public — while destabilising the structure of existing empowerment policies, imposing significant new costs on businesses that have already adapted to current rules, and reducing investment by increasing policy uncertainty.

What exactly is the department proposing? The amendments target the enterprise and supplier development (ESD) element of the BBBEE scorecard — the primary mechanism through which empowerment policy is transmitted through the economy.

Two changes are central.

• The points available to companies that procure from suppliers that are not 100% black-owned would be dramatically reduced. Under the current system, doing business with a firm that is 51% black-owned earns 11 points out of 27 for procurement spend. Under the new system, that falls to only three out of 29. By contrast, the points for doing business with a 100% black-owned firm would rise sharply.
• A Transformation Fund would be introduced as an alternative mechanism for securing ESD points. Companies would qualify simply by contributing 3% of net profit after tax, instead of running their own ESD programmes.

The consequences of the first change would be severe. An influential analysis by Tusker, a major BBBEE ratings firm, showed that of nearly 54,000 businesses on its database that have applied for BBBEE certificates, only about 10,000 are 100% black-owned, and about 90% of these are small firms.

This raises serious questions about whether there are sufficient wholly black-owned companies across a wide enough range of sectors for businesses to meet preferential procurement targets under the revised system. The likely result is that many firms will be unable to achieve high BBBEE contributor status through procurement alone — unless they compensate by contributing to the Transformation Fund.

The fact that thousands of firms have moved towards a more racially balanced shareholder mix has undeniably improved racial integration across the business sector, with enormous benefits for society and political stability. They did this because the existing codes reward procurement from firms that are largely or majority black-owned. But this important social benefit will be impaired by the new proposal, which is heavily skewed in favour of 100% black-owned firms. This is likely to increase racial polarisation among business stakeholders, rather than the integration and partnership good empowerment policy should promote.

The Transformation Fund raises an equally serious set of issues. We submitted comments on the department’s Transformation Fund concept document in May 2025. Our concerns — which remain unaddressed — include the absence of clear objectives, governance structures and success metrics; uncertainty about how the fund would be operationalised; implausible funding targets, including the aim of raising R100bn over five years; and the risk — now materialised in the new proposals — that redirecting existing ESD spending will harm black-owned firms already integrated into supply chains.

There is no formal, publicly available statement of what the fund will do, what its targets will be, how it will operationalise its mandate, how it will be governed or how it will define success. It is impossible to assess the merits of these proposals, yet the public is being asked to comment on amendments to the codes that depend critically on their assessment of a fund whose parameters, mandate, governance and institutional architecture have not been disclosed. This is frankly outrageous.

Consider what is happening here. The BBBEE framework has been in place for more than 20 years. The structure of incentives has been relatively stable, and a great deal of costly adaptation has already taken place. Businesses have restructured their ownership, rebuilt their supply chains and invested enormous resources in compliance. When businesses that have invested heavily in complying with existing rules are told those rules are being rescinded, they learn policy commitments cannot be trusted. This introduces risk into every future business transaction and will reduce investment below its already very low levels.

Another concern is reports that the department has entered into a memorandum of understanding with Afreximbank to access up to $3bn in external financing linked to the proposed Transformation Fund. In our view no binding commitments can be lawfully entered into before the fund is properly established and any borrowing it might do is authorised within the national fiscal framework. Any commitments that may already have been made raise serious concerns in relation to the Public Finance Management Act and constitutional requirements governing public expenditure and borrowing.

Officials who enter into unauthorised commitments may expose themselves to adverse audit findings, disciplinary action and potential personal liability. If the department is already entering into agreements without the requisite authority, it makes it very difficult to believe the fund will be managed in a sound and prudent manner.

When we made our submission in response to the first Transformation Fund concept document in May 2025, we issued a call for a comprehensive, independent review of South Africa’s BBBEE policies to assess their effectiveness and costs. This should be led by an independent panel including economists, legal experts, business leaders, civil society representatives and, especially, black-owned enterprises affected by current mechanisms. It should evaluate which aspects of BBBEE have succeeded and which have failed, and at what cost, using 20 years of available data.

The goal of such a review should be to build a new consensus promoting inclusive growth, accountability and tangible benefits for black, and in particular disadvantaged, South Africans. However, this call has not been heeded. Instead, the department has proposed amendments that would narrow the beneficiaries of preferential procurement spending in the private sector to an exceptionally small group of companies in which 100% of the shares are owned by black people, while strongly nudging ESD spending into a Transformation Fund whose parameters, mandate, governance and institutional architecture have not been publicly disclosed.

This is recklessness piled on recklessness. The current proposals should be withdrawn immediately. Any future process for updating and amending BBBEE policies should be contemplated only after a thoroughgoing review of what has and has not been achieved thus far. A proper review of BBBEE should be conducted and its findings subjected to informed public debate. Approaching so serious a matter in this gung-ho style reflects badly on the department and on government as a whole.

• Bernstein is executive director of the Centre for Development and Enterprise. This article is based on the CDE submission on the proposed amendments to the BBBEE codes.