Black Economic Empowerment
- 31 Downloads
The South African legislature in 2003 enacted the Broad-Based Black Economic Empowerment Act (BBBEE). The word Black Economic Empowerment (BEE) is often used to refer to the legislation or policies related to the BBBEE. The Act is meant to promote the right to equality as stipulated in the Constitution by increasing the participation of black persons in the economy. The right to equal participation in the economy is essential in South Africa because of the colonial and apartheid-era that disfranchised black persons from benefiting and participating in the economy (Duffett et al. 2009; Ponte et al. 2007). The World Bank report noted that South Africa is one of the most unequal countries in the world (World Bank 2018).
In 1994, the democratic government enacted legislation that was meant to facilitate radical economic transformation (Ponte et al. 2007). For these reasons, the democratic government enacted Restitution of Land Rights Act, National Empowerment Fund Act, Employment Equity Act, Competition Act, Skills Development Levies Act, Preferential Procurement Policy Framework etc. The Black Empowerment was formed in 1998, which released a report in 2001 (Emuze and Adlam 2013). The report noted that the aim of the Commission was the realization that the domination of business activities by white businesses and the exclusion of black people and women from the mainstream economy. The Commission defined black economic empowerment, and the definition was divided into a narrow and broad definition. The report argued that the narrow definition of black economic empowerment focuses on the entry and transaction activities of black people in business, particularly black economic empowerment (BEE) investment policies. The broader definition of BEE argued that the fundamental crisis in South Africa’s economy was the exclusion of black persons from financial and economic resources. In that light, the report recommended, among other things, the stakeholders to steer investments towards areas of national priority, development of human resources, procurement policies, etc. Further it recommended the promulgation of BEE legislation (Black Economic Empowerment Commission 2001).
Broad-Based Black Economic Empowerment Act
The Act has a broad definition of a black person which includes Africans, Coloreds, and Indians. Further, it specifies that such persons must be South African citizens by birth, who became South Africa citizens by naturalization before 27 April 1994 or those who were entitled to citizenship before 27 April 1994. It also emphasizes women, workers, youth, people in rural areas, and people with disability. Notably, the Act takes a broad approach to the concept of economic participation. Economic participation includes control of enterprises, facilitation of ownership, human resources and skills development, preferential procurement, and investment in enterprises that are owned and managed by black people (Broad-Based Black Economic Empowerment Act 2003).
The Minister of the Department of Trade and Industry is responsible for the implementation of the Act and may issue codes of good practice on black economic empowerment. Brun (2014) explained the implementation of the codes of good practice. Codes of good practice may give a further interpretation of BBEE and categories of BEE entries, criteria for preferential treatment, and any other matter necessary to achieve the objectives of the Act. Organizations gain points based on their compliance. The points earned in each element of the scorecard are added together, and the total number translates into recognition levels and B-BEE status achieved. The BBBEE status is the determining factor in obtaining preference points when tendering for government work. Different sectors may have specific sector codes that are aligned to the default codes and published for comment, and the Ministry is responsible for the alignment of the codes. Stakeholders develop sector codes, for example, Financial Sector Charter, Chartered Accountancy Sector, and Construction Sector Code etc.. The verification agency comprised of approved auditors conducts procedures to assess, verify, and validate the scorecards. The purpose of verification is to reduce the risk of misstatements, provide assurance, integrity, and reliability of the statements (Brun 2014).
Companies listed on the regulated market, Johannesburg Stock Exchange are required to disclose the details of their BBBEE compliance and publish on an annual basis their scorecard. The scorecard ought to detail the level of compliance with targets of black ownership, management control, and skills development on their websites (Naidoo 2016).
Literature shows a mixed reaction towards BBBEE. Pike et al. (2018) conducted qualitative research to comprehend the future of BBBEE on small, micro, and medium enterprises. The participants of the research revealed that the BBEE is resulting in economic strain, mixed economic outcomes, and economic progression. The research also showed that the ripple effect of the procurement policies is tender corruption, increased business costs, and incompetence. Further, a few participants expressed that the legislation should remain as is, while the rest were of the view that amendments were needed to equalize the economy and provide equal opportunities for all (Pike et al. 2018). Another qualitative research conducted on construction firms by Emuze and Adlam (2013) showed that the companies face commercial impediments in implementation of BEE.
Ponte et al. (2007) argued that employment outcomes had heavily limited the meaningful participation of blacks in the economy since 1994. Further, employment creation has been limited and failed to keep up with the growth of labor force resulting in rising unemployment. The legislation that was meant to assist young black professionals did not succeed (Ponte et al. 2007). The arguments are plausible because the World Bank (2018) released a report which showed that high unemployment remains the critical challenge for South Africa and the inability to generate sufficient jobs. The report also showed that the labor market is split into two, at one extreme is a small number of people with highly paid jobs in the formal sector and the larger population in the informal sector. Further, it highlighted that despite the challenges, there was progress in the reduction of poverty since 1994 (World Bank 2018).
BEE strikes as a fatal blow against the emergence of black entrepreneurship by creating a small class of unproductive but wealthy black capitalists made up of African National Congress politicians … who have become strong allies of the economic oligarchy that is ironically the caretaker of South Africa’s industrialisation’. The objects of BEE were to co-opt leaders of the black resistance movements by offering them what looked like a massive transfer of assets at no cost. As a result, subsidiaries of BEE, namely affirmative action and affirmative procurement, created economic oligarchs to protect assets. (Mbeki 2009)
BEE is another transformation goal of the democratic government and indeed a necessary policy. The problem with policies is always implementation, which results in mixed reactions towards BEE. Nonetheless, the progress since 1994 cannot be ignored as there are more black people participating in the economy.
Black economic empowerment is a policy by the South African government to address participation in the economy of previously disadvantaged South Africans. The equal participation of previously disadvantaged persons is regulated by the Broad-Based Black Economic Empowerment Act and implemented by the Department of Trade and Industry. The participation in the economy includes, among others, control of enterprises, ownership, and skills development. Organizations gain points for compliance which is audited by verification agencies.
- Black Economic Empowerment Commission. (2001). Black economic commission report. http://www.kznhealth.gov.za/TED/commission.pdf. Accessed 30 May 2019.
- Broad-Based Economic Empowerment Act. (2003). https://www.bbbeecommission.co.za/wp-content/uploads/2016/09/Consolidated-B-BBEE-Act-2013.pdf. Accessed 30 May 2019.
- Brun, B. (2014). The practical guide to the amended broad-based black economic empowerment codes of good practice. Durban: LexisNexis.Google Scholar
- Duffett, R. G., Van der Heever, I., & Bell, D. (2009). Black economic empowerment progress in the advertising industry in Cape Town: Challenges and benefits. Southern African Business Review, 13(3), 86–118.Google Scholar
- Emuze, F., & Adlam, R. (2013). Implementation of broad-based black economic empowerment in construction: A south African metropolitan area study. Acta Structilia, 20(1), 126–154.Google Scholar
- Mbeki, M. (2009). Architects of poverty: Why African capitalism needs changing. Johannesburg: Picador.Google Scholar
- Naidoo, R. (2016). Corporate governance: An essential guide for South African companies. Durban: LexisNexis.Google Scholar
- World Bank. (2018). Overcoming poverty and inequality in South Africa: An assesment of drivers, constraints and opportunities. http://documents.worldbank.org/curated/en/530481521735906534/pdf/124521-REV-OUO-South-Africa-Poverty-and-Inequality-Assessment-Report-2018-FINAL-WEB.pdf. Accessed 30 May 2019.