Contextualising the costs and benefits of B-BBEE

IOL News

3 days ago

Unsplash As South Africa grapples with the challenges of inclusive growth, any meaningful conversation about the future of B-BBEE must extend beyond a narrow cost-benefit calculus.
Image: Unsplash
The current media debate around Broad-Based Black Economic Empowerment (B-BBEE) has brought fresh attention to the policy's impact on the economy – raising important questions about its effectiveness, costs and outcomes.
As this conversation grows louder, it's worth taking a closer look at some of the arguments being made. This article engages critically with aspects of the debate, not to dismiss concerns, but to consider them alongside broader economic realities, the policy's longer-term contributions and the context in which B-BBEE was designed to operate.
An example from the debate is a recent study released by Solidarity and the Free Market Foundation (FMF), which arguably overlooks certain key economic implications of B-BBEE. Titled 'The Costs of B-BBEE Compliance,' the report estimates that B-BBEE may reduce South Africa's gross domestic product (GDP) growth by as much as 1.5 to 3% annually, potentially resulting in 96,000 to 192,000 fewer jobs each year. It further contends that the policy disproportionately benefits a narrow elite while imposing undue compliance costs on the broader economy.
While such figures demand scrutiny, they also warrant a critical examination of the underlying assumptions, methodology, and, crucially, the broader socio-economic context in which B-BBEE operates.
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Causality and complexity: What the report overlooks
One of the most significant concerns with the FMF/Solidarity report is its presentation of correlation as causation. The paper attributes specific percentages of GDP loss and job losses directly to B-BBEE but does not demonstrate how these impacts were isolated from South Africa's myriad economic challenges.
South Africa's macroeconomic environment remains deeply constrained by structural impediments such as: chronic electricity and water shortages, including load shedding;
global economic headwinds;
endemic corruption; and
policy uncertainty and governance deficits.
Attributing complex macroeconomic trends solely to B-BBEE risks simplifies a nuanced reality and underestimates the multifactorial nature of South Africa's growth constraints.
Safiyya Patel, Managing Partner at Webber Wentzel
Image: Supplied
The neglected side of the ledger: B-BBEE's economic contributions
Equally important is the report's limited treatment of the potential benefits of B-BBEE. Many of which manifest over the medium to long term and are difficult to quantify through conventional compliance cost frameworks alone. Equity equivalent programmes (EEPs)
EEPs enable multinational corporations, constrained by global ownership structures, to achieve ownership points through local investments in enterprise development, skills transfer, and innovation. Far from being passive mechanisms, EEPs represent substantial, targeted injections into the domestic economy.
IBM, for example, committed ZAR 700 million over ten years to enterprise development, research, and education. This included support for 74 black-owned businesses and fully funded bursaries for dozens of students from disadvantaged backgrounds in critical ICT fields.
Samsung also made a substantial commitment, launching a ZAR 280 million EEIP in May 2019, projected to contribute nearly ZAR 1 billion to the South African economy over its ten-year duration. This programme aimed for a measurable impact on job creation, specifically targeting the creation of 262 direct jobs and supporting 13 black-owned and women-owned businesses. A notable focus of Samsung's EEIP is on Black Industrialisation through e-Waste recycling and beneficiation research and development, including the establishment of the first black-owned and operated e-waste beneficiation plant in Africa.
These company-specific statistics, alongside broader programme impacts such as J.P. Morgan's Abadali EEIP, which aims for an additional 1,000 permanent jobs and ZAR 2 billion in financing transactions, underscore the crucial role of EEPs in boosting Small and Medium Enterprises (SMEs), particularly black-owned businesses, by providing essential funding, business support, and mentorship. Furthermore, these programmes significantly advance skills development, with more than 2,500 beneficiaries receiving critical skills training, and facilitating technology transfer, aligning with South Africa's national development goals and fostering a more inclusive and skilled workforce.
Such initiatives illustrate how EEPs catalyse skills development, promote black industrialisation, and build competitive black-owned enterprises that contribute to both GDP growth and employment.
Youth employment service (YES)
The YES programme directly targets South Africa's intractable youth unemployment crisis. Since its inception in 2018, YES has facilitated over 186,000 quality work experiences for young people, injecting nearly ZAR 11 billion in salaries into the economy.
Approximately 45% of participants secure permanent employment after placement, and 17% establish their businesses, multiplying the long-term economic benefit. The initiative also incentivises private sector participation by offering measurable B-BBEE recognition for companies that create these opportunities.
Enterprise and supplier development (ESD)
ESD remains a cornerstone of the B-BBEE framework, driving significant investment into the SMME sector. South African corporates reportedly channel ZAR 20 to ZAR 30 billion annually into ESD programmes, helping integrate black-owned businesses into supply chains and enabling sustainable growth.
For instance, the Shoprite Group's CredX programme has provided ZAR 10 billion in working capital to suppliers, while its Next Capital initiative has invested ZAR 20 million to support new black-owned enterprises. Collectively, such interventions empower black entrepreneurs, expand the tax base, and generate employment in communities historically excluded from meaningful economic participation.
The enduring shadow of apartheid: Why B-BBEE still matters
Perhaps the most profound omission in the Solidarity and FMF report is its decontextualised approach to B-BBEE's rationale. Apartheid was not merely a political system; it was an economic design that systematically dispossessed black South Africans of land, capital, skills, and opportunities. This entrenched economic disenfranchisement cannot be dismantled simply by repealing discriminatory laws.
B-BBEE emerged as a policy instrument to facilitate redress, promote equitable economic participation, and mitigate the persistent structural inequality that threatens social cohesion and long-term stability. Any analysis that fails to account for this historical imperative and the potential socio-economic cost of neglecting it is incomplete.
Towards a more constructive conversation
There is little doubt that B-BBEE can and should be improved. Calls for greater transparency, genuine empowerment outcomes, and tighter controls to prevent fronting and inefficiency are well-founded. However, presenting a one-sided narrative that focuses exclusively on compliance costs while disregarding significant economic and social returns undermines the opportunity for a more balanced, evidence-based debate. Balancing costs, benefits, and context
As South Africa grapples with the challenges of inclusive growth, any meaningful conversation about the future of B-BBEE must extend beyond a narrow cost-benefit calculus. It must weigh the policy's role in addressing historical injustices, its measurable and often intangible benefits, and the opportunity costs of not transforming the economy.
A policy of this nature should not be romanticised or demonised without context. Instead, it demands honest, nuanced engagement, one that prioritises national development, social cohesion, and sustainable, broad-based participation in the economy.
Moving forward, the question should not be whether B-BBEE has costs but rather whether we are collectively doing enough to ensure that its benefits are fully realised and that it continues to evolve to serve the South Africa we aspire to build.
Safiyya Patel, Managing Partner at Webber Wentzel