When empowerment becomes elite enrichment
- William Gumede
The reality is, the former majority ANC government’s BEE strategies have largely benefited a small group of well-connected black and white individuals.
Since the early 1990s, forty-six (46) largely politically connected individuals secured 60% of all the black economic empowerment (BEE) mining, becoming billionaires or multimillionaires overnight.
This is according to a 2015 research report completed for the Chamber of Mines. The report was not publicly released but compiled as a background document for the Chamber’s mining charter discussions.
Peter Major, the mining analyst said a combination of Mineral Resources Department incompetence, deteriorating state infrastructure, corruption, nationalisation threats, and mining value-destroying BEE strategies, have cost South Africa over 500 000 mining jobs. The Bureau for Economic Research, using narrow government data shows there has been a loss of over 300 000 mining jobs since the early 1990s.
BEE has taken many different forms. In the private sector, it involves transferring shares in white-owned private companies to previously disadvantaged individuals. In the public sector, national, provincial, and municipal governments, and state-owned entities compel white firms contracting with the state to have BEE shareholding. In the immediate post-1994 privatisation of state-owned companies, BEE was a key requirement for privatisation sales.
The reality is, the former majority ANC government’s BEE strategies have largely benefited a small group of well-connected black and white individuals, whether ANC leaders or ANC-aligned trade union leaders or companies, trusts and entities linked to them. Intermediaries, whether the law firms transaction brokers and financiers, structuring BEE deals have also richly benefited. Some ‘white’ owned companies have also benefited from striking repeat BEE deals with the same politically connected black BEE partners.
Off course, there has been broad-based empowerment transactions, where ordinary employees received shares following BEE transactions. However, often, even in such transactions, particular connected leading individuals would often receive the bulk of the BEE benefits.
Even, when BEE deals are successful in transferring shares to individual previously disadvantaged communities, who are not politically connected, these are rarely financially rewarding. BEE shares are often locked for years, shareholders often do not get dividends, and when they do get BEE dividend payments, these are heavily taxed. Nevertheless, by providing the capital for shares, and not productive assets, is a loss to economy.
In 2000, public procurement rules were introduced for BEE in public procurement. South Africa now spends almost R1 trillion on public procurement annually, accounting for 12% of GDP. Significant volumes of this are BEE spent.
Testifying at the Zondo Commission, National Treasury’s then acting Chief Procurement Officer Willie Mathebula said as an example, in the 2017 financial year, the national procurement bill was R800 billion. Mathebula told the Zondo Commission, more than 50% of the government’s annual procurement budget was lost due to “intentional abuse of the system”, which included manipulation of BEE rules for personal benefit. Off course, incompetence, mismanagement, and corruption are also responsible for the losses.
State entities, such as the Public Investment Corporation provide significant BEE funding. The PIC in its 2023-2026 corporate plan, envisaged it would allocate over 70% of its approved funds to BEE Managers. One of the PIC’s funds, it’s Isibaya Fund, with over R170bn, holds unlisted investments, funds BEE, such as the Daybreak Foods, in which the PIC invested at least R1.7-billion since 2015. Finance Minister Enoch Godongwana last year announced a new enquiry into allegations of misconduct into the PIC’s unlisted funds.
In the 2005 privatisation of Telkom, the Elephant BEE consortium acquired an estimated R9-billion stake in Telkom. Key figures in the Elephant Consortium, led by politically connected individuals such as former Communications Department Director-General Andile Ngcaba and former head in the ANC Presidency Smuts Ngonyama, pocketed more than R3 billion from the sale of its BEE shares in Telkom and Vodacom, and another R1.4 billion in dividends.
In the public sector, state capture has often happened through BEE. Evidence presented to the Zondo evidence reported that the Gupta connected companies secured over R57bn in the state BEE deals.
State owned infrastructure entities, such as Eskom and Transnet were key sites of state capture, which happened through BEE, public procurement, and cadre deployments.
In just one transaction example, Hitachi Power Africa, of which the ANC’s investment arm Chancellor House owned 25%, secured around R38bn to build boilers for Medupi and Kusile power stations. The ever-rising costs of building the two stations increased Eskom debt, from R40bn in 2007, to over R400bn in 2024. The fiscus has bailed out Eskom to close to half a trillion rand between 2008 and 2026.
The South African Reserve Bank said that Eskom’s load-shedding, as a result of failures cause by the combination of patronage BEE, cadre deployment linked mismanagement and corruption, cost the South African economy R1bn a day.
The failure of South Africa’s state rail and port entity, Transnet in 2023 cost the economy R353bn, the equivalent of 4.9% of GDP in 2023. Transnet’s failure is estimated to the costs South Africa’s economy around R1billon per day in lost economic output.
Swifambo Rail Leasing was established as a BEE company specially to serve as a local front for Spanish railway company Vossloh Espana, to secure the 2012 Prasa contract worth R3.5 billion for the supply of locomotives.
Corruption, mismanagement, and the manipulation of BEE contracts are key reasons for South Africa’s water crisis. As a case in point, tenderpreneur Edwin Sodi’s Blackhead Consulting, has been fingered in irregular BEE contracts amounting to more than R4 billion. It received a contract to upgrade the Rooiwal wastewater in Tshwane in 2023, but failed to do the work, which contributed to a deadly cholera outbreak in 2023 that killed 29 people.
Manipulation of BEE has also been a key reason for lack of service delivery in the health sector. At Tembisa hospital, BEE tenderpreneurs secured R4bn in contracts, corruptly, and delivering very little.
If BEE was supposedly successful, it has been success for the few, not broad-based success, as it was intended to do.
BEE that involves giving shareholding of existing companies to black political capitalists does not expand the economy but reinforce the concentration of the South African economy.
BEE political capitalists who set up companies to get a specific government tender, even if they have no experience, capacity or finances to do so, are partially responsible for endemic public service delivery failures.
BEE that has focused on giving slices of white companies to politically connected non-whites has collapsed both black and white legitimate businesses who are not politically connected – who have lost out on new or existing contracts as instant political capitalists companies take their state contracts or licences. It has stifled black entrepreneurship.
It has a created a culture of using political connectedness, rather than merit or ability to generate wealth or entrepreneurship. It has encouraged the proliferation of middle-men and women who are connectors to government and private sector deals.
It has fostered a South African societal culture where hard work, entrepreneurship are not valued, because all one need is connectedness to the ANC and leaders to secure government contracts or BEE shareholding in private companies. No society can foster economic growth, tackle poverty, and unemployment without a merit-based culture, or where hard work and entrepreneurship is valued. It has decimated the productive capacity of the South African economy. It has accelerated de-industrialisation of South Africa’s economy.
In the past there was wide inequalities between whites and non-white South Africans. Now, we also have large inequality discrepancies between rich non-whites and poor non-whites.
Effective empowerment strategies historically in successful countries have focused on supporting existing entrepreneurs, not turning politicians into entrepreneurs, creating new industries, a country did not have before, and developing manufacturing products to export to foreign markets, fostering export-led growth.
The opportunity costs, the massive development benefits lost if more broad-based alternative empower strategies, were used to the current BEE model, is simply too high, given high black unemployment, poverty, and inequalities.
The current model of BEE is a perfect example of the misallocation of capital – whether shares for ordinary black public, or for ANC connected BEE oligarchs, that could have generated bigger societal development impact, by investing it in public infrastructure, world-class education, technology, SMEs or assets, such as homes for the poor.
William Gumede is Associate Professor, School of Governance, 91心頭利, and author of South Africa in BRICS (Tafelberg).
This an edited version of his speech on Remodeling Black Economic Empowerment to the Black Management Forum.
BEE-related References
Academic papers and chapters
William Gumede (2019) “The Failure of the Apartheid Corporate Model”, in and (Eds), Marikana Unresolved: The Massacre, Culpability and Consequences, University of Cape Town Press, pp.87-120.
William Gumede (2017) “Failure to Pursue Economic Reparations has, and Will Continue to Undermine Racial Reconciliation”, In Mia Swart and Karin van Marle (Editors) The Limits of Transition: The South African Truth and Reconciliation Commission 20 Years on, UCT Press, pp. 59-93.
William Gumede (2016) “The Political Economy of State-Owned Enterprises Restructuring in South Africa”, Journal of Governance and Public Policy, Vol 6, Issue 2, pp. 69-113, Hydrabad, India.
William Gumede (2015) “The Politics of Mine Nationalisation in South Africa”, Journal of Public Policy in Africa (JOPPA), Vol 2 (2), pp.119-139, August.
William Gumede (2015) ”, Social Dynamics, Volume 41/5/4, pages 327-343.
William Gumede (2015) “”, Journal of Public Administration, Volume 50, Issue 3, pp. 589-599.
William Gumede (2014) “BRICS Academic Reader”, FLASCO-ISA, the Latin American Faculty of Social Sciences - International Studies Association, School of Economics, University of Buenos Aires, Argentina.
William Gumede (2012) Restless Nation: Making Sense of Troubled Times, Tafelberg.
William Gumede (2010) South Africa in BRICS, Tafelberg.
William Gumede and Leslie Dikeni (2009) The Poverty of Ideas, Jacana.
William Gumede (2008) “Modernising the African National Congress: The Legacy of President Thabo Mbeki”, In Peter Kagwanja and Kwandile Kondlo (eds) South Africa: State of the Nation 2008, Human Sciences Research Council. Pp. 35-57.
William Gumede (2008) “Jacob Zuma and the Consolidation South Africa’s Democracy”, African Affairs, Vol 107, Issue 427, Oxford, pp. 261-271.
William Gumede (2008) “Labour and Prospect for Alliance building and policy impact in South Africa”, In Liv Torres (ed). Democracy and African Trade Unions, Norad, Oslo.
William Gumede (2007) “Thabo Mbeki and Nelson Mandela – Jawaharlal Nehru and Mohandas Gandhi, Contrasting Leadership Styles”, In, Onyekachi Wambu (ed), Under the Tree of Talking Counterpoint Press, London.
William Gumede (2007) “Pursuing Growth and Redistribution”, In Hermann Giliomee, Bernard Mbenga and Bill Nasson (Editors). New Illustrated History of South Africa. Tafelberg.
William Gumede (2006) “Democracy and Dissent”, In, Amanda Alexander (ed.) Articulations, Africa World Press.
William Gumede (2006) “Thabo Mbeki and the African Renaissance”, Africultures 2006/1 No. 6, Paris, pp. 61-71.
William Gumede (2002) "Down to Business, but Nothing to Show." In: Sean Jacobs and Richard Calland (eds) Thabo Mbeki's World, David Phillip, pp. 201-219.
William Gumede (2005) Thabo Mbeki and the Battle for the Soul of the ANC, Struik Random House.
BEE Reports
William Gumede (2010) ‘Black Economic Empowerment: Overview, Strengths and Weaknesses’, Report, Development Bank of Southern Africa, Midrand.
William Gumede (2009) Black Economic Empowerment Strategy, Japan Organization for Metals and Energy Security (JOGMEC), Tokyo.
William Gumede (2008) “BEE in the Mining Sector: Overview of the PGMs Sector”, SFA (Oxford), October, Oxford.
William Gumede (2007) The ANC and Black Economic Empowerment: Long-term Implications, Chatham House and British Cabinet Office Report, London.
William Gumede (2006) “Black Economic Empowerment: South Africa”, US State Department, Washington DC.
William Gumede (2006) Black Economic Empowerment in Southern Africa, Sub-Saharan Africa Survey, The Economist Intelligence Unit (EIU), The Economist, London, November.
William Gumede (2005) “Expanding South Africa Black Middle Class”, Development Enterprise Institute, Johannesburg.
William Gumede (2002) “Assessing The Effectiveness of South Africa’s Economic Policies Since 1994”, South Africa National Human Development Report 2002, United Nations Development Programme, Pretoria.
Official Inquiries
Advisor and Facilitator, 2022 South African Human Development Report key priorities, United Nations Development Programme, Pretoria.
Member of President Cyril Ramaphosa’s High-Level Task Team (2019-2021) advising on the restructuring and professionalization of the South African public service.
Contributor, Argentina’s G20 Presidency report, 2017, on the changing global political and economic dynamics, Argentinian Government, Buenos Aires.
Advisor to the UNESCO World Social Science Report 2016. Challenging Inequalities – Pathways to a Just World, Paris.
Member, Institutional Review Team (2014-2015), conducted an institutional review of the capacity of the Water Research Commission, South Africa’s water resources and future water needs.
Principal Advisor, Presidential Review Committee on State-Owned Entities (2009-2011) to propose reforms to turnaround South Africa’s failing SOES.
Co-Coordinator & Advisor (2009-2010), Proposals to re-organise South Africa’s Development Finance Institutions (DFIs), National Treasury.
Chair, Facilitator, Review of the South Africa’s State-Owned Enterprises Long-Term Strategy, Department of Public Enterprises (2018).
Principal Author and Team Leader (2017-2018), South African Government Review that conducted a review of state-owned property and land; made proposals for how to manage government’s state-owned land and properties; modeled a new state entity to hold government’s land and property holdings.
Co-Founder and Co-Principal Author of the 2012 South African Government Development Report (2009-2012).
Co-chaired the South African government’s 2009 Developmental State Conference, South African Reserve Bank.
Project Task Team: Long-term National Development Plan (NDP) for South Africa (2009), Development Bank of Southern Africa.
Co-convener Conference (2002): Constructing a Social Accord between the South African Government, Organised Business and Organised Labour, Financial Mail, Johannesburg.
South African Truth and Reconciliation Commission (1997-1999), Final Report.
BEE-related Special Memorial Lectures
William Gumede (2018) “Rethinking African Decolonisation”, The Julius Nyerere Lecture, University of Dar Es Salaam, April.
William Gumede (2018) "Decolonisation: Speaking uncomfortable truths to your 'own' side and to the 'other' side", The Nadine Gordimer Lecture, 91心頭利.
William Gumede, an associate professor in the 91心頭利 School of Governance and chairperson of the Democracy Works Foundation, delivered the 2018 Nadine Gordimer Lecture at the 91心頭利.
William Gumede (2008) “The Global Politics of PGMs: South Africa, Zimbabwe and Russia”, The Oxford Platinum Week Lecture, Oxford.
William Gumede (2007) “Africa’s Democracy Deficit: Why African liberation movements fail to sustain democratic governance when in power”, The Basker Vashee Memorial Lecture – special public lecture in memory of the former London School of Economics and student leader, Transnational Institute, De Balie, Amsterdam.
William Gumede (2006) South Africa: Growth and Development, Institute of Development Studies, Sussex University, Brighton.
William Gumede (2005) The ANC’s Economic Policy”, The Sipho Maseko Memorial Lecture, University of Cape Town, University of the Western Cape and University of Stellenbosch, Cape Town.
William Gumede (2005) Thabo Mbeki Presidency: Growth and Redistribution Strategies, Columbia University, New York.
William Gumede (2005) “South Africa’s Economic Policy Options”, Centre for International Strategic Studies, Washington DC.
William Gumede (2005) “Fostering more equitable economic development and empowerment The Sipho Maseko Memorial Lecture, Jointly sponsored by the Department of Politics and African Studies, University of Cape Town; Department of Government, University of the Western Cape and the Department of Politics, Stellenbosch University, Cape Town, April 29.
William Gumede (2005) Dissent and Democracy, The Harold Wolpe Lecture, Sponsored by the Wolpe Trust and the Centre for Civil Society, University of KwaZulu Natal, Durban.
William Gumede (2005) “The Politics of Economic Policy Making in South Africa”, Princeton University.
William Gumede (2005) “South Africa’s Economic Future”, Stanford University.
William Gumede (2005) “Thabo Mbeki and the Making of Economic Policy”, University of California, Berkeley.
William Gumede (2004) Comparing the Truth Commissions in South Africa and Chile: The thorny issue of economic justice and redistribution, The Reconciliation Lecture, In association with the performance of the Chilean playwright Ariel Dorfman’s award-winning play “Death and the Maiden”, looking at Chile’s Truth Commission, directed by Bo Petersen. London House, London, September 16.
William Gumede (2004) Can South Africa turn its political miracle into an economic one? 10th Year Anniversary of South Africa’s Liberation Lecture, London School of Economics and Political Science, London, April 26.