Gabriel Crouse on BEE Premiums: DA’s opportunity to end R150bn annual gift to ANC-loved elites
Pressure on the ANC's elite-enriching BEE policies ratcheted up to a new level this week. Apart from GNU negotiations over the delayed National Budget, attention was also focused on BEE after on the completion, 17 years later, of the Kusile power station at a final cost of R250bn. It had been signed off as an R80bn project, but was massively escalated by BEE requirements that opened the door to corruption and rent seeking. Among the beneficiaries was (publicly disclosed) billions received by the ANC's investment arm Chancellor House. IRR fellow Gabriel Crouse spoke to BizNews editor Alec Hogg.
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Highlights of the interview ___STEADY_PAYWALL___
South Africa stands at a crossroads. As the government of national unity debates the country's embattled budget, one question looms large over the proceedings: how much is the nation truly paying for its policy of transformation? According to analyst Gabriel Crouse, the cost of Broad-Based Black Economic Empowerment (BEE) premiums alone could be as high as R150 billion a year — and that's just within the public sector.
To put that into perspective, that's enough money to build over 13,000 classrooms or a highway from Cape Town to Johannesburg with billions left over. Instead, it's being legally siphoned off through a policy mechanism that, while designed to promote equity, may be fueling elite rent-seeking, deepening inequality, and hobbling infrastructure development.
BEE Premiums: The Legal Surcharge on Procurement
In an in-depth conversation with BizNews founder Alec Hogg, Crouse unpacks what BEE premiums really are: legally sanctioned additional costs that the state must pay based on racial preferences in procurement. For contracts under R50 million, that premium can reach up to 25%. For contracts over R50 million, it's capped at 11.1%. These premiums, mandated by the Public Procurement Policy Framework Act (PPPFA), are meant to empower historically disadvantaged groups by redirecting state spending to black-owned businesses.
But there's a catch. In many cases, particularly involving high-tech infrastructure like power stations, South Africa doesn't manufacture the parts needed. That means Eskom, for example, often can't buy directly from original manufacturers overseas. Instead, it must go through intermediaries — BEE-compliant middlemen — who simply add a mark-up without adding value.
"Kusile Power Station was meant to cost R80 billion. It ended up costing over R250 billion," Hogg notes. "A significant chunk of that was due to BEE premiums."
A System Designed for Patronage, Not Progress
The story becomes even more troubling when you look at the political incentives behind it. Crouse cites a case study by Gwen Ngwenya detailing how Hitachi was effectively pressured into doing business with Chancellor House, the ANC's investment arm, to meet BEE requirements. That extra margin helped fund the ruling party's political machine — an entirely legal arrangement under current laws.
"It's not illegal corruption," Crouse explains. "It's rent-seeking — a collusion between business and state that locks out competition, discourages investment, and funnels wealth to a well-connected few."
For Crouse, the comparison to apartheid-era cronyism is hard to ignore. "Apartheid used race to exclude, and this system uses race to include — but the end result is still elite enrichment at the expense of the masses."
The Public's Quiet Rebellion
Despite the entrenched nature of BEE, public sentiment may be shifting. A recent Institute of Race Relations (IRR) survey found that 70% of South Africans, including two-thirds of black respondents, support scrapping BEE premiums altogether. Many are open to using race as a tiebreaker — when two bids are equally priced — but not at the expense of value for money.
What does this look like on the ground? Take traffic light controllers in Cape Town. The city was forced to pay 7–8% more per unit by going through a BEE intermediary, leaving less money for public safety and other needs. Multiply that across R1.2 trillion in annual public procurement, and the losses become staggering.
A Turning Point in the Budget Debate
As the government of national unity thrashes out its priorities, the DA has started pushing for the end of BEE premiums as part of broader budget reform. Yet the ANC, whose patronage network depends on the current system, remains reluctant. When asked by Crouse how much BEE premiums are costing the country, ANC Secretary-General Fikile Mbalula reportedly said, "I don't think people need to hear. Rather we should wait and see."
The numbers, however, speak for themselves. Since BEE laws gained teeth in 2008, black unemployment has doubled from 5.5 million to 11.1 million — suggesting that the policy has done little to help its intended beneficiaries. "It's not just inefficient," says Crouse, "it's actively harmful to those it's meant to empower."
The Moral Hazard of Fronting
Another festering wound in the system is "fronting" — the practice of paying nominal black partners to appear compliant while the real business control remains unchanged. Though technically illegal, it's rarely prosecuted. As Crouse argues, it's also an inevitable response to flawed incentives.
"If the law turns race into a commodity — something you need to buy to survive — then people will trade it," he says. "The real shame is on the law itself."
Time for Transparency — and Change
The call for transparency is growing louder. Even if BEE premiums aren't scrapped overnight, Crouse insists that simply making the costs public would change the game. "If the ANC is forced to publish what it spends on BEE premiums, that will be the beginning of the end. Because then everyone — even BEE supporters — will see the damage."
This isn't about tearing down empowerment; it's about building it differently. A growth-led model that allows merit, entrepreneurship, and open competition to flourish could create far more black millionaires and billionaires than rent-seeking ever will.
Until then, R150 billion a year — enough to transform schools, hospitals, and roads — will keep disappearing into the hands of those who least need it, under the banner of helping those who do.
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