OPINION: To BEE or not to BEE?

One of the most pervasive criticisms of South Africa’s transformation efforts, especially in the mining industry, is that Broad-Based Black Economic Empowerment (B-BBEE) has not lead to widespread socio-economic development, but has instead resulted in the establishment of a small elite.[1]One explanation for this outcome is put forward by politico-economic theorist, Moeletsi Mbeki. In his book Architects of Poverty: Why African Capitalism Needs Changing, Mbeki argues that Black Economic Empowerment (BEE) has become synonymous with the paying of reparations.[2]This means that businesses and individuals, from whom reparations are sought, must retain a position of privilege as a prerequisite for paying such reparations. For this reason, he contends that corporations must not transform ‘beyond putting a few black individuals in their upper echelons’.[3]BEE, he says, requires one to ‘fatten the goose that lays the golden egg’.[4]

Although there is some truth to this argument, it is flawed in at least two ways. First, while ‘transformation’ has hitherto resulted in the incorporation of a ‘few black individuals in [the] upper echelons’ of big business, it is disingenuous to characterise this outcome as an inherent flaw of the espoused model of transformation. A focus on equity acquisition benefits those with political influence, and this also explains BEE’s creation of a small elite as opposed to more widespread transformation. Second, it is simply untrue that the reparations model in order to protect businesses interests(and their ability to pay reparations) requires such limited transformation. It does not in fact protect big businesses or their interests in the long run. B-BBEE’s emphasis on share ownership has been a catalyst for significant labour unrest, most notably in the mining sector.[5]This is clearly bad for business, and so this limited form of transformation does not in fact serve to protect commercial interests. This is a critical point, as the understanding that limited transformation is also unsustainable for corporations may help to reconcile the perceived tension between business interests and transformative objectives. In short, though it is true that empowerment has thus far created merely a small elite, this is not only because reparations require businesses to be protected and remain untransformed. 

It is true that black equity acquisition de factoremains the core of empowerment initiatives.[6]Mbeki argues that this is so because BEE, modeled on reparations, requires it to be so. However, it is also true that the emphasis on ownership has predominantly profited a small group of politically connected individuals (and their families).[7]A number of political heavyweights became billionaires through black empowerment deals in the mining sector.[8]

This small elite has become self-contained and self-sustaining. For instance, Ernst and Young reported in 2003 – after the B-BBEE Act came into force – that BEE deals to a value of R43 billion had been made. However, 60 per cent of the benefits of these deals went to companies owned by only two individuals, both of whom are politically connected and influential.[9]

To add insult to injury, many wealthy BEE beneficiaries have used their political and economic influence both to advance their businesses and to diminish empowerment regulations.[10]This issue is compounded by the fact that mining companies seek out black mining moguls as equity holders, as they are considered economically – and politically – safe bets. Through this, businesses aim at once to satisfy empowerment requirements while also allaying investor concerns.[11]It seems that the inclusion of only a select few in the upper echelons is not entirely due to an inherent flaw in the reparations model. This result is to the benefit of the political elite with the clout to implement transformative policies, and this too must be taken into account.

The Broad Based Black Economic Empowerment Charter for the Mining Industry (‘Mining Charter’) of 2018 states that its vision is to ‘facilitate sustainable transformation, growth and development of the mining industry’. On the one hand, it seeks to facilitate the incorporation of Historically Disadvantaged Persons (HDPs) into the mining and minerals industry in a bid to redress historical socio-economic inequalities.[12]On the other hand, it also seeks to promote sustainable growth, development and competitiveness in the industry.[13]Overtly, at least, the Charter does not dichotomize transformation and business interests as mutually exclusive concepts. However, a closer look at the Charter does reveal an overreliance on transferal of mining assets to HDPs. 

The Charter provides that existing mining right holders who have achieved a minimum of 26 per cent HDP ownership will be considered BEE compliant for the duration of that right.[14]An entity applying for a new mining right must have a minimum 30 per cent BEE shareholding to be eligible to be granted that right. Moreover, the Charter provides rules on how this BEE shareholding must be distributed.[15]The Charter refers to ‘effective ownership’, which seems to indicate a more extensive transformative framework than the one referred to by BEE-critics like Mbeki. Moreover, mining stakeholders are severely penalized for failing to comply with these ownership requirements – such disobedience could result in being denied, or losing, prospecting and mining licenses.[16]It must also be said that the 2018 Charter, unlike its 2010 predecessor, does not make provision for HDP participation only in the upper echelons of business. For instance, the 2018 Charter provides rules on HDP participation in senior, middle and junior management.[17]However, the fact that mining businesses rely on government-granted licenses may still exacerbate their proclivity for seeking out politically connected equity holders. 

The Charter goes on to address several other means of attaining B-BBEE transformation in the mining industry, including inclusive procurement, supplier and enterprise development; employment equity; and mine community development.[18]It is yet to be seen whether these provisions will be effective. The 2010 Mining Charter’s analogous provisions were criticized for being too vague, lacking consistency or being built ultimately on the BEE-model, which does indeed create a self-contained elite.[19]

It is a further mistake to assert that extensive transformation cannot take place because this would be contrary to business interests. In reality, the disconnect between B-BBEE policy objectives, their implementation and the expectations of mineworkers has resulted in serious labour unrest within the industry.[20]Such unrest, apart from being deadly at times (as was the case at Marikana in 2012), has resulted in serious losses for mining businesses and the South African economy more generally.[21]To give but one example, the five-month long strike in the platinum industry in 2014 nearly sent the South African economy into recession and resulted in a total revenue loss of about R24 billion for three mining companies (Impala Platinum, Lonmin and Amplats).[22]The primary complaint was that mineworkers were housed in Spartan squalor, with lack of security, poor ablution facilities and overcrowding all remaining issues.[23]The 2010 Mining Charter did seek to address this, including a number of housing and living conditions targets for mineworkers.[24]The 2018 Charter also provides principles on mining and living conditions.[25]The efficacy of these provisions has not yet been tested. However, clearly the fact that B-BBEE has not improved the lives of mineworkers and mining communities has real adverse consequences (both financial and reputational) for businesses and the South African economy. Corporations – and policy implementers – ought to consider that their longevity may be curtailed should they fail to transform more extensively.

In sum, it is both disingenuous and dangerous to say that the creation of a small elite is an inherent part of the reparations model of transformation. It is disingenuous because it does not take into account that political connections may play a significant role in attaining economic empowerment. It is dangerous because it suggests that, in order to continue to pay reparations, mining corporations should not extensively transform. In fact, such limited transformation is ultimately bad for ordinary South Africans as well asbig businesses. Lack of real transformation has been a catalyst for serious, economically damaging labour unrest. Upon closer inspection of B-BBEE in the mining sector, it seems that this goose is being fattened for the slaughter. 

Written by Hannah Massyn.