A new report by the Institute of Race Relations (IRR), a Johannesburg-based think tank, argues that black economic empowerment (BEE) has concentrated wealth among a small, politically connected elite while discouraging investment, limiting employment, and undermining economic growth. To make a small circle of people wealthy, the policy is sacrificing the future opportunities of millions of South Africa’s very poor citizens.

The report, Breaking the BEE Barrier to Growth, was launched at a webinar yesterday. Written by Dr Anthea Jeffery, the IRR’s head of policy research, it examines the costs of BEE, the continued support for race-based economic policies by the African National Congress (ANC), and alternatives proposed by the IRR.

Jeffery argued that the policy has failed to deliver broadly shared economic benefits, with most gains accruing to a small group of beneficiaries.

She pointed to research on mining ownership deals concluded before 2014, which indicated that approximately 60% of the net value redistributed through these transactions went to about 46 BEE companies or participants. Each was estimated to have gained between R2 billion and R3.7 billion. This was against very modest amounts distributed to mining communities, and the general decline in the mining industry as a whole.

The report cites criticism by Professor William Gumede of the University of the Witwatersrand, who has argued that BEE has largely involved transferring portions of established white-owned companies to politically connected black businesspeople, while contributing to the failure of businesses without political connections. This has done very little to stimulate entrepreneurship or investment – quite the contrary, in fact.

Jeffery contended that BEE has encouraged patronage, corruption, and extortion, while deterring investment and restricting job creation. She linked these effects to South Africa’s persistently high unemployment, with approximately 8.5 million people unemployed.

She referred further to commitments made by the ANC in April 1994, when it acknowledged the risks associated with BEE and pledged to prevent the policy from becoming a vehicle for political patronage. The ANC has said at the time that the new state would ensure BEE did not become “an instrument of racially based extortion and patronage in which friends were favoured, opponents disadvantaged, and bribes accepted”.

It also pledged that empowerment would remove obstacles to black entrepreneurship and enable South Africans to contribute to wealth creation.

The IRR argues that these commitments have not been fulfilled and that alternatives to the current system are available.

The IRR advocates its own proposed alternative, economic empowerment for the disadvantaged (EED). Under this approach, assistance would be directed towards disadvantaged people regardless of race, with the aim of preventing benefits from being captured by a small elite. The proposal also seeks to encourage investment, economic growth, employment, innovation, and competition.

The IRR says the model would additionally address barriers to upward mobility arising from inadequate schooling, housing, and healthcare.

Jeffery argued that economic redress does not require the retention of the existing BEE framework, and that alternative policies could direct support towards poorer South Africans while encouraging broader participation in the economy.

The report comes amid polling by the IRR and the Social Research Foundation (SRF) indicating strong public support for ending race-based rules. The BEE approach, contrary to official narratives and the assumptions of much of the media, is not a popular one.