In South Africa, Black Economic Empowerment (BEE) was introduced to redress economic imbalances caused by apartheid. A central element of this policy is the BEE premium, an additional amount the government must pay when awarding tenders to businesses based on their BEE credentials, regardless of whether their offer is the best value for money.
The rationale behind BEE premiums is to ensure businesses meeting BEE requirements are given preferential treatment. If two companies submit similar bids, the one with the higher BEE score wins the tender, even if their price is higher. Under current rules, contracts under R50 million can carry a 25% premium, while those over R50 million are capped at 11.1%.
In practice, BEE premiums have failed to improve the lives of most South Africans. While some black business owners have benefitted, the policy has done little to address the country’s high unemployment, particularly among black South Africans, who were meant to benefit most. Black unemployment has nearly doubled since the late 1990s, despite billions being spent through BEE procurement. A few connected business owners have prospered, while the majority of citizens gain no benefit.
The implementation of BEE premiums worsens the situation. The International Monetary Fund and the World Bank have raised concerns about the economic impact of these premiums. They argue that the additional funds paid to businesses with high BEE scores do not stimulate the economy or improve service delivery.
The IMF reports that South Africa’s fiscal multiplier, which tracks how government spending contributes to economic growth, has become negative in recent years. This means money spent on BEE premiums has not resulted in economic growth. The World Bank similarly describes BEE premiums as costly and inefficient, stating that they benefit a small, politically connected elite, rather than fostering widespread economic development.
The Zondo Commission, which investigated state capture, highlighted the lack of transparency in procurement processes. This opacity undermines the policy’s effectiveness and prevents the public from understanding the true cost of BEE premiums. The Commission recommended prioritising value-for-money over BEE preferences, which distort procurement processes and lead to wasteful spending.
A troubling aspect of the BEE premium system is the refusal of the Treasury to disclose the full extent of these payments. Despite the vast sums involved, estimated at R150 billion per annum, the National Treasury has not made the value of BEE premiums publicly available. This lack of transparency is a violation of constitutional principles of accountability. Taxpayers deserve to know how their money is being spent, especially when billions are diverted without clear benefits to the economy.
While redress is necessary, BEE, as currently implemented, has not achieved its intended goals. We in the DA believe that a race-based system is bound to fail, and empowerment should be based on need, not race. In addition, the DA would scrap the BEE premium, ensuring that value for money in procurement is prioritised. This saving would eliminate the need for tax increases or additional loans, thus encouraging economic growth.
Alan Fuchs MPL, DA Gauteng Member of Standing Committee on Public Accounts (SCOPA)