Issued by Ismail Joosub on behalf of the FW de Klerk Foundation on 23/08/2024

In the pursuit of a more just and equitable society, South Africa’s Black Economic Empowerment (“BEE”) policies – now known as Broad-Based Black Economic Empowerment (“BBBEE”) – were introduced with the noble aim of correcting the injustices of the apartheid era. These policies were designed to ensure that previously disadvantaged individuals could participate more fully in the economic life of the nation. However, as we examine the effects of these policies, it becomes clear that there are significant constitutional and economic questions that need to be addressed.

The Constitution is a beacon of hope and fairness, enshrining principles of equality and non-racialism. Section 9 of the Constitution is the cornerstone of our equality framework. It asserts that, “everyone is equal before the law and has the right to equal protection and benefit of the law.” This section not only prohibits discrimination, but also allows for affirmative action measures to be implemented to promote equality. Specifically, section 9(2) provides that, “to promote or achieve equality, legislative and other measures designed to protect or advance persons, or categories of persons, disadvantaged by unfair discrimination may be taken.”

The intention behind this provision is clear: To ensure that those who have been historically marginalised have the opportunity to succeed and participate fully in society. However, the application of this principle through BBBEE policies has raised significant questions about whether these measures are achieving their intended goals without conflicting with other constitutional principles.

BBBEE, established through the Broad-Based Black Economic Empowerment Act of 2003 and its 2013 iteration, seeks to promote economic inclusion by improving black ownership, management control, skills development and preferential procurement. At its core, BBBEE aims to address economic disparities by integrating black South Africans into the mainstream economy.

Yet, despite its intentions, BBBEE has sparked debate about its alignment with constitutional values. While the policy has undeniably made strides in opening doors for some previously marginalised individuals, it has also faced criticism for its execution. The concept of demographic representivity – ensuring that business and public sector employment mirror national demographics – has led to complex and often contentious practices.

The Employment Equity Act (“EEA”) of 1998, a precursor to BBBEE, mandates that employers achieve racial representivity at all organisational levels. While this aim is rooted in the desire to promote inclusivity, the practical application has sometimes resulted in unrealistic targets. The pressure to meet these targets can lead to appointments based more on race than on merit or qualifications. This has occasionally undermined organisational efficiency and service delivery, particularly in the public sector where competence and skill should be paramount.

In the private sector, BBBEE’s impact is equally profound. The policy’s stringent requirements and frequent amendments have created a challenging environment for businesses. Companies are required to demonstrate compliance with various criteria related to ownership, management control and procurement. For multinational corporations and family-owned businesses with existing structures, these requirements often necessitate complex restructuring. This can be particularly burdensome and may deter investment, as investors seek stable and predictable environments for their capital.

Moreover, the frequent changes in BBBEE regulations contribute to an environment of uncertainty. Each update can alter compliance requirements and impact business strategies, leading to hesitation among potential investors. The European Union Chamber of Commerce has highlighted these challenges, noting that the ambiguous application of BBBEE criteria poses significant hurdles for foreign investors.

The economic ramifications of BBBEE cannot be ignored. Economic growth is essential for national prosperity, particularly for improving living standards and reducing poverty. The Fraser Institute’s 2023 Annual Report underscores the correlation between economic freedom and growth rates. Nations that embrace free markets and minimise government intervention typically experience higher growth and better living standards. In contrast, BBBEE’s rigid quotas and compliance requirements have led to inefficiencies and reduced economic dynamism.

The EEA and BBBEE policies have been linked to increased unemployment and reduced state efficiency. The mandate for demographic representivity has, in some cases, led to higher operational costs and reduced competitiveness for businesses. In the public sector, the focus on meeting demographic targets has sometimes overshadowed the need for efficiency and competency, resulting in decreased service delivery and increased corruption.

The legal background to BBBEE policies underscores their constitutional complexities, particularly when examined through the lens of the Constitutional Court’s ruling in the Van Heerden case. In The Minister of Finance and Another v Frederik Jacobus Van Heerden, the Court addressed the constitutional validity of measures under section 9(2) of the Constitution, which permits differentiation to promote equality. The judgment emphasised that affirmative action measures must not only target disadvantaged groups, but also genuinely advance their position and foster substantive equality. This entails that such measures should rectify systemic inequalities and provide meaningful benefits to those historically marginalised.

Despite this framework, BBBEE policies often fall short of these constitutional criteria. The Zondo Commission highlighted that BBBEE has been manipulated to advance the interests of a select few, rather than addressing broader economic disparities. Harvard’s Growth Lab and the Institute of Race Relations have similarly criticised BBBEE, arguing that its continuation hampers economic growth and fails to benefit the broader disadvantaged population. Instead of broadly advancing economic equality, BBBEE has sometimes benefited a narrow elite, leaving many disadvantaged individuals with limited gains. This disparity underscores a significant constitutional tension: While BBBEE aims to address historical injustices, its implementation has not fully achieved its goals of poverty reduction and equality enhancement. The persistence of high levels of inequality suggests that BBBEE has not sufficiently met the criteria of advancing substantive equality as envisioned by section 9(2) and the Van Heerden judgment.

Additionally, section 195 of the Constitution emphasises “broad representivity” in public administration, but differentiates it from strict quotas. This suggests that while diversity is important, it should not come at the expense of efficiency and merit. The rigid racial targets imposed by BBBEE policies often conflict with this principle, as they enforce quotas that may not align with the functional needs of various sectors.

In light of these challenges, it is crucial to explore alternative approaches that are more in line with section 9’s principles of equality and fairness. Rather than relying solely on racial quotas, a model that addresses socio-economic disadvantage more broadly could better align with the Constitution’s commitment to substantive equality. This approach would focus on alleviating poverty and providing opportunities based on need, rather than race alone.

In conclusion, while BBBEE was introduced to address historical injustices and promote economic inclusion, its implementation has raised significant constitutional and economic concerns. Aligning empowerment policies with the Constitution’s principle of equality (section 9) and the foundational value of non-racialism (section 1) is essential. By creating a more conducive environment for growth that balances social objectives with economic efficiency, South Africa can work towards a more equitable and prosperous future for all its citizens. The road ahead requires a commitment to reevaluating and reforming policies to ensure they serve the broader goals of justice and economic development, in true alignment with the values enshrined in our Constitution.