The leader of South Africa’s primary Black Economic Empowerment (BEE) program plans to introduce new incentives and possible penalties to enhance corporate participation and prevent the misuse of the system, which aims to address the country’s severe inequality.
The African National Congress (ANC), which governed without opposition for three decades until losing its parliamentary majority in the recent May elections, faces mounting pressure to improve the conditions of Black individuals who have suffered from years of white minority rule.
The BEE law, established in 2003, implemented a scorecard system that incentivizes companies to hire and promote Black individuals through tax breaks and access to government contracts. Despite this, two decades later, the unemployment rate for Black individuals remains five times higher than that of white individuals, with income inequality ranked among the worst globally, according to the World Bank. Critics argue that the BEE policy has failed to achieve its objectives.
“There is no society that can thrive with such a level of inequality,” stated Tshediso Matona, head of the Broad-based Black Economic Empowerment Commission, in an interview with Reuters.
Under the voluntary program, companies earn points in various categories, including Black ownership, management control, and skills development.
However, Matona notes that some companies inflate their scores by falsely claiming Black individuals as managers, a practice known as “fronting,” which is illegal under the law.
Since 2017, the commission has received 1,348 complaints regarding fronting, according to Matona. He did not specify how many cases have gone to trial but mentioned that no convictions have been secured due to the criminal justice system’s ongoing adjustments to the B-BBEE regulations.
Publicly traded companies must report their Black empowerment status in annual reports, but compliance is declining. In 2022, only 141 of approximately 400 listed companies submitted a report.
Matona expressed his desire to enhance compliance incentives while also considering a strategy of “naming and shaming” or imposing fines on those that fail to submit reports.
President Cyril Ramaphosa has emphasized his intention to demonstrate the benefits of Black empowerment to companies, but he also warned that penalties would be necessary for non-compliance. “On this issue, we are unequivocal,” Ramaphosa told reporters recently, calling racial inequality an “existential challenge” for South Africa. “It must be addressed, and it will be addressed.”
While Matona refrained from detailing specific proposals, he mentioned that incentives could focus on increasing recognition for companies that invest in skills and enterprise development, rather than solely prioritizing ownership of existing businesses. He aims to have amendments to the law presented in Parliament within a year.
However, the inclusion of punitive measures could lead to tensions between the ANC and its coalition partner, the pro-business Democratic Alliance (DA), which has expressed opposition to such actions. “Businesses do not exist for altruistic purposes; we must acknowledge that,” said DA labor spokesperson Michael Bagraim.
