BEE: an enabler of state capture

Most businesses have colluded with the system that has failed to distinguish fronting or rent-seeking from real business, writes Jonathan Yudelowitz

Business Day September 2017

The advocates of radical economic transformation fail to notice that, despite increasingly vigorous implementation of BEE, racial iniquities, economic exclusion and marginality are as entrenched as ever and that SA remains one of the world’s most unequal economies.

Most businesses have colluded with the system that has failed to distinguish fronting or rent-seeking from real business, has corrupted society and damaged the reputation of black business people, while lifting goods and services costs.

Critics of BEE are labelled reactionary racists or apologists for colonialism. Their concerns are dismissed and business is blackmailed into censoring insights that may foster growth and create jobs, but challenges the transformation orthodoxy.

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The system does not encourage integrity or commercial acumen. It has set BEE legislation up to be a key enabler of state capture.

The looting of parastatals has violated governance and procurement policy and the Public Finance Management Act, but it is technically correct and perfectly legal according to BEE regulations.

The supplier development element of BEE legislation is meant to promote small enterprises.

It beggars belief therefore that McKinsey, a well-schooled management consultancy that feigns commitment to backing emerging businesses, mistook Salim Essa for a naive emergent entrepreneur, and not the wily businessman with exemplary political connections that he is.

The McKinsey-Trillian deal reflects the trend of BEE deals that are vehicles to enrich the politically connected, enabled by a transformation approach that treats people as members of categories, ignoring their characters and other attributes.

The front companies set up by SAP to bag lucrative Transnet contracts and KPMG’s failure to notice the diversion of Free State government funds to pay for the Gupta wedding serve as cases in point.

Like McKinsey, these firms have global stature, have fancy codes of ethics and employ the most intelligent people. Yet, until investigative journalists exposed them, they were silent: raking in billions, diverting public funds to middle-men who were bribed to ensure the granting of state contracts.

In contrast, the push-back by the Chamber of Mines against the new Mining Charter displays backbone and courage. The charter seeks to amplify the questionable ethics of BEE legislation, which qualifies the Gupta family for preferential treatment, while disadvantaging expert and sound South African mining houses and citizens.

Solly Sachs, a pioneer of progressive trade unions in SA, argued that the economic expansion that followed the Second World War could have provided work for all who flocked to the cities. This could have enabled relationships to be forged between people in a way that would naturally mitigate the judgmental stereotyping that happens when people label others by race, sex or culture.

Thus, the day-to-day interaction that happens in places of work, could — Sachs wrote in 1957 — have realised the potential of its diverse population and turned SA into a nonracial global economic powerhouse. The apartheid government vilified Sachs and drove him into exile.

As with BEE, the majority of business leaders endorsed racial iniquity, the cruel effects of which hobble SA’s society and economy to this day.

A more organic approach to economic transformation that emphasises entry-level employment would exclude a pay cheque for the politically connected, but would be more sustainable than current BEE.

Such an approach would focus on growing talent and capacity; especially if it were supported by appropriate education and training policies.

As visionaries like Sachs saw, the workplace provides the perfect common purpose, where people can co-operate in order to build a new society.

The employment equity and skills development elements of economic transformation are significantly de-emphasised by the latest version of BEE legislation. Interestingly, this version of BEE has “coincided” almost exactly with the state-capture project.

Yudelowitz is joint MD at YSA and author of Smart Leadership.


Resistance: BEE legislation treats people as categories, ignoring their individual attributes, and so qualifies the likes of the Gupta family for preferential treatment. Picture: ALON SKUY