Without economic growth, incomes cannot rise sustainably, and growth cannot be sustained without investment. South Africa’s Gross Fixed Capital Formation (GFCF) sits at 14% of GDP, a rate which has been insufficient to replenish South Africa’s depreciating capital stock.’
This means our public Infrastructure has deteriorated and our growth potential has declined. This report argues that Broad-based Black Economic Empowerment (B-BBEE) regulations have been a key policy contributing to making South Africans of all races worse off than they would otherwise have been.
It is worth being precise about what South Africa Is trying to achieve with B-BBEE, and what B-BBEE actually is.
Transformation is the objective. A South Africa in which the economic legacy of apartheid has been dismantled is the goal that most South African share. B-BBEE is not that goal. It is a policy tool: one of several instruments that the democratic government chose to deploy in pursuit of goal by giving assets to black South Africans. This distinction matters enormously, and it has been almost entirely lost in the public debate.
When a tool is not working because the costs of doing so are very high, the rational response is to examine and, if necessary, replace or amend it, not to apply more force. The evidence in this report suggests that B-BBEE, in its current form, is not delivering transformation at an acceptable cost. Yet the dominant policy response has been to increase the compliance burden, tighten enforcement, and expand the reach of the legislation. The implicit assumption, that firms are simply not trying hard enough, and that compulsion will eventually deliver results, is not supported by the data.
There is a deeper problem with this framing. By conflating the tool with the objective, we make it structurally difficult to consider alternatives. If B-BBEE is transformation, then questioning B-BBEE becomes questioning transformation itself and that is a debate many are understandably reluctant to have. But if B-BBEE is merely one possible instrument for achieving transformation, then the question of whether it is working, and whether a different instrument might work better, becomes not only legitimate but necessary. South Africa cannot afford to foreclose that conversation. Twenty-three years of data, an 80% decline in average business size, collapsing productivity growth and declining investment all suggest that we need better tools – not more of the same one.
Report by XA Global Trade Advisors & Codera Analytics