South Africa losing R4.8 trillion to BEE and similar policies

Independent research shows that South Africa’s economy could have been R5 trillion bigger if it were not hamstrung by policies like Black Economic Empowerment (BEE).

This is according to a recent research report titled “The Costs of BEE Compliance,” by the Free Market Foundation (FMF) and the Solidarity Research Institute (SRI).

According to the report, Broad-Based Black Economic Empowerment (B-BBEE) policies are estimated to have cost the South African economy up to R290 billion per year.

Over nearly two decades of the policy being implemented, the cumulative drag on growth amounts to more than R5 trillion in lost economic activity.

The FMF says that this has left South Africa behind its global peers while destroying close to 4 million jobs in the process.

“Rather than broad-based empowerment, B-BBEE has wrought broad-based economic stagnation,” said Dr Morné Malan, FMF Senior Associate and co-author of the report.

A separate study by Investec Wealth & Investment International showed that South Africa’s economy could have been much larger.

If South Africa’s growth had kept up with its peers over the last 15 years, it would have added an extra R5 trillion to the fiscus.

Osagyefo Mazwai, an investment strategist at Investec Wealth & Investment International, said South Africa has faced a challenging economic environment since around 2010.

“If South Africa followed a more pragmatic approach over the last 15 years, focusing on the structural enablers of the economy, the outcomes could have been more beneficial,” he said.

He added that it could have happened without diverging from South Africa’s commitment to the constitutional principles of addressing past inequalities.

He highlighted that South Africa’s economy has only grown at around 1% per year over the last 15 years, lower than the population growth of 1.3%.

There has also been a structural break in South Africa’s economic performance relative to the rest of the world.

This created a stark dislocation in Gross Domestic Product (GDP) per capita compared with the rest of the world.

“In essence, people are worse off than they were in 2010, suggesting that economic policy has been ineffectual in addressing poverty, unemployment and inequality,” Mazwai said.

The impact of these policies on South Africa’s economy

In a recent interview with BusinessTech,  political economist and chairman of the South African Institute of International Affairs, Moeletsi Mbeki, said that there are “a number of policies that are very destructive to the South African economy.

A central point of Mbeki’s critique is the policy of BEE, which he says “transfers resources in existing companies to a small political elite within the ANC” and “hampered broader economic growth and boosted unemployment.”

He contends that South Africa’s large public sector wage bill stems from the ANC’s focus on advancing the African middle class, its primary support base.

This is sustained through policies like BEE, preferential procurement, and employment equity.

However, instead of benefiting a much larger group,  it “transfers resources in existing companies to mainly benefit a small political elite” and their voter base.

He argues that BEE doesn’t generate new wealth or entrepreneurs but instead encourages parasitism on existing companies and the state, while discouraging investment, especially from foreign investors who must often relinquish significant equity.

Theuns du Buisson from SRI said that the South African economy would have grown by an additional 3% since 2007 if BEE had never been implemented.

Losing such high economic growth rates would have a significant impact on any economy, especially in South Africa, which suffers from high unemployment and other social ills.

If the South African economy grew by an additional 3% since 2007, the 2024 GDP would have been R12.2 trillion instead of R7.4 trillion.

This means that South Africa’s current GDP would have been R4.8 trillion higher, making all citizens much richer.

These figures align with those from Osagyefo Mazwai from Investec Wealth & Investment International.

He said South Africa’s nominal GDP could have been just below R12 trillion in 2024, compared with the actual number of R7.5 trillion, representing a decrease of around 36.7%.

Balancing the budget

Mazwai highlighted that the South African government lost around R5 trillion in revenue over the last 15 years.

“That is material, considering the fiscal constraints facing South Africa and demonstrates the need to ensure economic growth to boost the fiscal war chest,” he said.

The R5 trillion lost would be enough to clear almost 90% of SA’s gross national debt, bringing the debt-to-GDP ratio down to just below 10% compared to the 77% this year.

These numbers align with calculations based on the numbers from the Free Market Foundation and the Solidarity Research Institute.

South Africa’s gross government debt stood at R5.26 trillion in 2024 and was expected to increase to R6.09 trillion in 2025/26.

If South Africa had achieved the 3% additional GDP growth, the debt-to-GDP ratio would have been significantly lower.

Over the past 3 years, South Africa’s tax revenue averaged 27.8% of GDP. If South Africa maintained the 3% additional growth and reached R12.2 trillion in 2024, South Africa’s tax revenue would be R3.4 trillion.

This is R1.4 trillion more than the tax revenue reported by the National Treasury in 2024.

At this level of government tax revenue, South Africa would have reported a R1.1 trillion budget surplus compared to the R312 billion budget deficit.

Response to the study

Dumisani Mpafa, a member of national office bearers and head of policy at the Black Business Council, has disagreed with the report.

In an opinion piece in the Sunday Times, Mpafa claimed the report unfairly blames BEE for South Africa’s economic woes, distorts data, and ignores BEE’s contributions to building a black middle class.

He calls the report’s cost estimates as inaccurate, claiming that it “misrepresents” standard business practices as BEE-related costs, and overlooks non-financial contributions.

Mpafa said that success stories like Capitec, Discovery, and the renewables sector contradict claims that BEE deters investment.

He added that BEE is not a cure-all but a tool to redress apartheid-era imbalances, not the root cause of poverty or unemployment.

He also claimed that the report overlooks BEE’s benefits, such as market access and consumer goodwill.