The profound delusions that underlie BBBEE: Dave Steward

Key topics:

• BBBEE blamed for low growth, rising inequality, and job losses.

• ANC policies seen as ideological, not economically pragmatic.

• BBBEE said to exclude minorities and fail to build inclusivity.

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By Dave Steward

A statement titled “BBBEE Policy is a Critical Policy of Government”, which was recently issued by the Government Communication and Information Service (GCIS), is a stark and bitterly ironic reminder of the degree to which the ANC-led government has lost all contact with reality.

According to the statement “BBBEE is a key policy instrument of the state” to

• redress historic imbalances (i.e. to promote equality), 

• broaden economic participation (i.e. to create jobs), and to

• “build an inclusive economy that works for all South Africans”.

The statement resonates with a recent comment by President Ramaphosa that BBBEE is essential to promote economic growth and equality.  This is patently untrue.  Under President Mandela the economy grew at an average rate of 2,7% - and under President Mbeki it averaged almost 4%.  In the period between 2014 and 2025 – when Mr Ramaphosa, as Deputy-President and President has overseen accelerated implementation of BBBEE and related policies - it has averaged only 0.76% - compared to an annual population growth of 1,3%.  

Neither is it true that BBBEE has addressed inequality.

A 2017 study of the racial distribution of wealth in South Africa by Zizzama et al identified five economic classes: a 4,9% elite group (65,4% white); a 22,4% middle class (20,5% white); a 19,4% vulnerable middle class (0,1% white); an 11% transient class (1,6% white); and a 42% chronic poor class (0% white).  (This profile had changed significantly since 1994 and has inevitably changed even more in favour of black South Africans since 2017). 

BBBEE has certainly benefited the 10 million black South Africans in the Elite and Middle-Class groups, but it has had a negative impact on 81% of black South Africans in the lower echelons of the economy - and particularly on the 47% who are languishing in chronic poverty.   South Africa – with a GINI coefficient of .68 - is one of the most unequal societies in the world – and is more unequal than it was in 1994.  However, the GINI coefficient within the black population is .65 - almost as high as the national figure.  ANC policies have not reduced inequality – they have simply redistributed it.  The core problem is that unemployment stands at 32.9% and is 46,8% if discouraged work-seekers are included (closely tracking the percentage of the chronic poor) . 

The remedy for inequality and unemployment is economic growth.  Had the ANC been able to maintain the 5%+ growth rates that it achieved between 2005 – 07 under President Mbeki and Trevor Manuel, the economy would by 2025 have been twice as large as it was in 2008.   Between 2004 and 2008 unemployment fell by more than 4% to 21.5%.  If this trend had continued, unemployment might by now have dropped to below 10%.  

This would have had a significant impact on inequality with a much smaller chronic poor class – and much larger black middle and elite classes. Everyone would have benefited.  Instead, National Democratic Revolution (NDR) policies of BBBEE, expropriation without compensation and employment equity race quotas have become the principal obstacles to economic growth; They have severely limited investment and job creation and have opened the floodgates of corruption.  

The statement’s most cynical claim is that BBBEE is intended to build “an inclusive economy that works for all South Africans”.   

Well, it is certainly not working for all South Africans. According to the IMF, South Africa is the only country in the world where real GDP per capita is expected to shrink in 2025.

Also, It is certainly not building an inclusive economy. Not only are 47% of black South African (the chronic poor) effectively locked out of the economy, but future prospects for the country’s minorities are also grim.  

In terms of President Ramaphosa’s vision, the economic space in which minorities will be allowed to operate will be progressively restricted to their proportional demographic pens - irrespective of their qualifications, merit and hard work. Unfortunately, these pens will progressively diminish as the shares of minorities in the total population decline.  In 1994 the white population was 5 244 000 - 11,9% of the total.  By 2025 it had declined to 4 497 000 - 7,1% of the total - which means that whites are now entitled to only 60% of the property, jobs and land that they could have claimed in 1994 – simply because their share of population has shrunk!

The prospects for the future are bleak: although whites comprise almost 40% of the population over the age of 80, their share of the population below the age of 5 is only 2,9%.   The Indian community faces a similar challenge:  They now comprise 2,6% of the population, but only 1,5% of the children below the age of 5. 

In 2014, then Deputy President Cyril Ramaphosa insisted that “race will remain an issue until all echelons of our society are demographically representative.”

To achieve demographic representivity “in all echelons of our society” the white share of the top 4,9% elite income group would have to be reduced from 1,8 million to 219 000. Their share of the 22,4% middle class would diminish from 2.59 million to 1 million.  This means that more than three million whites would have to join the chronic poor; transient poor and vulnerable middle classes.

Demographic representivity would also require more than a million Indians to be downgraded to poorer classes.  

Whites and Indians would, of course, not accept relegation into poverty – so, in the ANC’s great scheme of things, what would become of them?

The impact of BBBEE has been the polar opposite of the goals proclaimed by the GCIS. It is difficult for rational observers to understand why the ANC so doggedly pursues policies that are so manifestly at odds with its professed goals of economic growth, job creation and national reconciliation.   Why does it not revert to the successful pragmatic policies of President Mbeki and Trevor Manuel?

The answer may be that the ANC, like many governments, throughout the world and throughout history, is driven by ideology and not by a rational assessment of national realities. President Ramaphosa is a true believer in the NDR and his alliance partners the SACP and COSATU are steadfastly committed to the establishment of a communist state.  

Ideologies provide their adherents with an irrefutable explanation of the nature of the world and a plausible justification for their own deeply held political beliefs and policies.  However, they are strongest when they accord most closely with the private interests of those involved.    The ANC’s dedication to its NDR ideology aligns with the potential for BBBEE and EWC to promote the private interests of its leaders and supporters.  

President Ramaphosa and the GCIS are incontrovertibly wrong:

• BBBEE and associated policies are the principal reason why South Africa has the lowest GDP growth in the world;

• They have exacerbated and perpetuated inequality;

• They are the main reason that South Africa has one of the highest unemployment rates in the world;

• They do not work for everyone and will progressively exclude whites and Indians from the economy.