Cape Town - The South African Institute for Race Relations (SAIRR, ) has said that black economic empowerment (BEE) should be scrapped altogether, not reformed.
In a submission made to the department of trade and industry (DTI) in December last year on proposed BEE codes, the SAIRR said that too much capital, skill, entrepreneurial spirit and bureaucratic oversight has already been wasted on attempts to make the policy work.
The SAIRR’s submission to the DTI on the draft codes urges an end to BEE rather than further futile attempts to improve it.
The DTI said it is trying to reform BEE by putting more emphasis on broad-based elements such as procurement, skills, development and promoting new black businesses.
The move is intended to counter widespread criticism that BEE has enrich only a small elite group of blacks “without making South Africa a fairer and more prosperous place”, as Finance Minister Pravin Gordhan said.
“The government assumes that tightening BEE codes will help solve deep-rooted problems of poverty, inequality and unemployment,” said SAIRR head of special research Dr Anthea Jeffery.
“In fact, no such quick fix is feasible.”
According to the SAIRR, after more than a decade of BEE policies it is clear that :
• preferential ownership transfers do not build entrepreneurship or the “visible black industrialists”, whose absence is lamented by President Jacob Zuma;
• appointing persons to board and management positions without the necessary experience undermines efficiency;
• preferential procurement often inflates costs and erodes performance;
• enterprise development is unlikely to succeed without adequate skills, infrastructure and markets;
• skills development is crucial to South Africa’s success which is achieved via tax incentives for on-the-job training of a kind decided by business, not bureaucrats; and
• socioeconomic development, in the form of state-directed corporate social responsibility required by the codes, does not address social needs or counter the negative consequences of widespread and perpetual unemployment.
Flawed and beyond reform
A large amount of scarce capital has been spent on BEE deals that have been largely unproductive and only favoured a small elite. While the value of such deals is hard to measure as private companies’ records are not public, figures that are available publicly put these deals at R550bn-R600bn for the period 1998 to 2008 alone.
The institute said that BEE is flawed and is beyond reform, instead suggesting that the ANC-led government should address the following issues:
• solving the education crisis;
• freeing the labour market from excessive regulation;
• ending damaging state intervention;
• strengthening international competitiveness; and
• making South Africa attractive to foreign and domestic investors.
Said Jeffery: “The government also needs to shift its ‘big idea'. For 18 years, the ANC has put its emphasis on redistribution rather than on rapid economic growth.
"But a different way of dividing up the existing economic pie - without expanding it as well - will never be enough to meet the needs of a growing population.
"By contrast, as Gill Marcus, governor of the South African Reserve Bank, put it at a recent conference: ‘Growth matters. With growth of 7%, you double you income every ten years. With growth of 3%, it takes 24 years to double your income'.
"A big shift from redistribution to growth - while taking effective steps to educate and liberate the poor - is the only way forward."
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