A new study by the Free Market Foundation (FMF) and the Solidarity Research Institute (SRI) indicates the South Africa’s economic trajectory has been undermined by the zealous promulgation of Broad-Based Black Economic Empowerment (B-BBEE).
The report, titled “The Costs of BEE Compliance”, reveals that B-BBEE policies are costing the South African economy up to R290-billion per year — equivalent to 2% to 4% of GDP, or up to 192 000 lost jobs annually.
Over nearly two decades, the cumulative drag on growth amounts to more than R5-trillion in lost economic activity, leaving South Africa far behind its global peers while destroying close to 4-million jobs, according to the report.
“Our findings show that BEE, as currently designed, is enriching a small elite while throttling economic dynamism and deepening unemployment,” says Dr Morné Malan, FMF senior associate and co-author of the report.
“From the ordinary South African’s perspective, we all are stuck in an enormous negative-sum game. The system is not simply benefitting some at the expense of others. In fact, we are all paying the price.”
The report draws on data from the B-BBEE Commission, Stats SA, the Johannesburg Stock Exchange, and international comparisons to assess the real costs of compliance across the key BEE scorecard elements: ownership, skills development, enterprise and supplier development, management control, and socio-economic development.
The report argues that current policies have become economically unsustainable and increasingly divorced from meaningful grassroots empowerment.
“BEE policies cannot simply be viewed as a trade-off between economic efficiency and broader inclusion. The fact is that these provisions have done major harm to the South African economy, with little if any benefit on the other end,” says FMF head of policy, Martin van Staden.
“There are better ways to build a growing and prosperous economy. We urgently need to move from race-based redistribution to opportunity-based economic freedom.”
The study compares South Africa’s model with global “affirmative action” policies in Malaysia, India, Brazil, the US, and Namibia, showing that South Africa’s version is the most intrusive and economically damaging.
Key findings include:
- R145-billion to R290-billion in annual direct compliance costs
- Up to 192 000 jobs lost annually
- GDP growth reduced by 1,5% to 3% per year
- B-BBEE benefits largely captured by politically connected elites
- South Africa now ranks 139th in GDP per capita, down from 87th in 1994.
“Rather than broad-based empowerment, B-BBEE has wrought broad-based economic stagnation. While there are numerous anti-business policies in South Africa that the FMF through its Liberty First initiative recommends reforming, this report shows that BEE and its related laws and policies represent perhaps the largest single threat to economic growth, prosperity, and yes, even inclusion, currently on the books,” concludes Malan.
Click here to read the full report.