Black economic empowerment in South Africa: Is transformation of the management structures of enterprises as essential as it should be?

Dr J van de Rheede

This post is an adaptation of an article that is available at http://dx.doi.org/10.17159/2077-4907/2021/ldd.v26.4

Black Economic Empowerment (BEE) was launched as an integrated policy initiative to empower black people and redistribute wealth across the spectrum of South Africa’s population. The Broad Based Black Economic Empowerment Act 53 of 2003, as amended in 2013, was enacted to correct the imbalances of apartheid and promote transformation of the economy. The Codes of Good Practice adopted in terms of the Act were promulgated to provide a standard by

which the BEE rating of enterprises can be calculated. BEE ratings are important to enterprises since enterprises use them to attract and retain clients: the higher an enterprise’s BEE rating, the more it is likely to benefit financially. It is for this reason that it is in most enterprises’ interests to have a good BEE rating. The BEE rating of an enterprise is calculated by using the rules and formulae in the Codes of Good Practice. However, despite the objectives of the Act, enterprises are able to obtain good BEE ratings even where a low percentage of black people form part of their management structures. It is important to determine how this is possible. This article exposes shortcomings in the existing BEE legal framework that make it possible for enterprises to obtain good BEE ratings under such circumstances.

In South Africa, Black Economic Empowerment (BEE) stands as a critical framework designed to redress the economic imbalances of apartheid. The document delves into the intricate workings of BEE, highlighting its legislative foundations and operational mechanisms. It explores how BEE aims to elevate historically disadvantaged individuals, particularly black South Africans, by providing economic opportunities previously denied to them.

A central aspect of BEE is the emphasis on ownership, skills development, and enterprise and supplier development. However, the document scrutinizes the shortcomings of the existing framework, revealing how enterprises can exploit certain aspects to enhance their BEE ratings without effecting substantial transformation in their management structures. It sheds light on the loopholes that allow enterprises to prioritize certain elements over others, perpetuating inequality in managerial positions.

Fronting practices emerge as a significant challenge within the BEE framework. Despite legislative measures and penalties in place to deter fronting, enterprises continue to engage in deceptive practices to manipulate their BEE ratings. The document underscores the need for more effective enforcement mechanisms and the criminalization of fronting to ensure genuine transformation and accountability. Moreover, the document examines the role of the Broad-Based Black Economic Empowerment Commission in overseeing BEE compliance and investigating fronting practices. It emphasizes the importance of reporting and transparency in combating fraudulent activities and fostering genuine economic empowerment.

In conclusion, the paper calls for urgent reforms to address the loopholes and shortcomings in the BEE framework. It advocates for greater emphasis on management control, stricter enforcement measures, and increased transparency to achieve the objectives of economic empowerment and equality in South Africa. As the nation navigates its post-apartheid journey, a robust and inclusive BEE framework is essential for fostering sustainable economic growth and social cohesion.

About the author

Dr van de Rheede completed her LLD at the University of the Western Cape in 2020. Her research focuses on employment equity and black economic empowerment.