Eustace Davie critiques Broad-Based Black Economic Empowerment (BEE), intended to uplift marginalized communities but ultimately fostering cronyism and inefficiency. Davie explores how BEE undermines equality before the law, distorts market incentives, and enriches a politically connected elite. By prioritizing race over merit, BEE has failed its original purpose, calling for a return to principles of fairness and accountability for true economic progress.
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By Eustace Davie*
How BEE subverted the Rule of Law and created corruption in South Africa
Broad-Based Black Economic Empowerment (BEE) was introduced with the goal of uplifting people who were disadvantaged and left impoverished by apartheid. However, despite these good intentions, BEE has caused significant unintended consequences. Instead of creating real empowerment, BEE has undermined the rule of law and opened the door to corruption, cronyism, and inefficiency. The result is that economic freedom has been eroded, and only a small, politically connected elite has benefited.
The founding provisions of The Republic of South Africa
The drafters of the South African Constitution set out very clearly what kind of democracy the drafters wished to propose to the people. The Founding Provisions of the Republic of South Africa commenced with the description of the following values:
(a) Human dignity, the achievement of equality and the advancement of human rights and freedom.
(b) Non-racialism and non-sexism.
(c) Supremacy of the constitution and the rule of law.
(d) Universal adult suffrage, a national common voter’s roll, regular elections and a multi-party system of democratic government, to ensure accountability, responsiveness and openness.
The Rule of Law undermined
A successful society is built on the rule of law. This principle ensures that laws apply equally to all, regardless of their race, status, or connections. South Africa’s Constitution, in Section 1(c), clearly states: “The Republic of South Africa is one, sovereign, democratic state founded on the supremacy of the Constitution and the rule of law.” This means that no one is above the law, and the law itself must be predictable, stable, and fair.
As Austrian Economist Friedrich Hayek famously pointed out, the rule of law is what allows people to plan their lives and run their businesses with confidence, knowing they are governed by clear and consistent rules. However, BEE completely violates this principle by introducing race-based criteria into law. By enforcing racial quotas for business ownership, management and government contracts, BEE treats individuals and companies differently based on race. This undermines the basic idea of equality before the law.
When laws become tools for achieving political goals instead of being applied equally the door to corruption and favouritism is thrown wide open. BEE has done exactly that, leading to manipulation, political patronage and massive corruption.
Favouritism and Corruption
One of the most harmful outcomes of BEE is the culture of favouritism it has created. The policy gives bureaucrats and government officials the power to hand out contracts and tenders based on BEE scores. This has resulted in businesses spending more time navigating regulations and seeking political connections than focusing on merit, innovation, and efficiency.
This has led to the rise of “tenderpreneurs” – individuals who use their BEE status to secure lucrative government contracts, often without the necessary skills, qualifications or experience to carry out the work. As Thomas Sowell said in his critique of race-based policies, “policies intended to help the disadvantaged… have all too often simply created new problems, such as rent-seeking and political patronage.” In South Africa, BEE has allowed politically connected individuals to exploit the system for personal gain, rather than uplifting the majority.
The result is substandard service delivery, with contracts being awarded not to the most qualified, but to those with the right political connections. This mismanagement has resulted in wasted resources, collapsing infrastructure and unending inefficiency.
Sowell’s insights into affirmative action policies are applicable here. He observed that such policies create incentives for “cosmetic changes, rather than real progress.” BEE has created a surface-level change that does nothing to address poverty and instead creates a culture of corruption.
Distorted incentives
BEE has also distorted market incentives. Businesses are no longer focused on improving their services or expanding their operations; instead, they are driven by the need to meet BEE requirements. This diverts attention away from merit and competitiveness, reducing productivity and efficiency in the economy.
Sowell argued that race-based policies “substitute political criteria for economic criteria,” leading to inefficiency and stagnation. In South Africa, BEE has caused businesses to prioritise compliance with bureaucratic regulations over growth and productivity. The result is a less competitive economy, where innovation and success take a back seat to meeting racially and politically motivated targets.
Policy backfired
BEE was meant to uplift millions of South Africans, but in practice, it has achieved the opposite. By undermining the rule of law and prioritising race over merit, BEE has entrenched corruption and inefficiency in both the public and private sectors. The policy has enriched a small, politically connected elite, while sacrificing the interests of the majority.
For South Africa to prosper, it must return to its core Founding Principles. The law should apply equally to all, and businesses should compete based on merit and not race or political connections.
To move forward, South Africa needs to abandon policies like BEE that distort the market and undermine fairness. Restoring the rule of law and ensuring equal treatment under the law is the only way to create real, broad-based prosperity for all South Africans.
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*Eustace Davie is a Director of the Free Market Foundation and author of Unchain the child.Â
