Broad-Based Black Economic Empowerment

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Broad-Based Black Economic Empowerment (B-BBEE) is a policy of the South African government which aims to facilitate broader participation in the economy by racial groups that were repressed through Apartheid.
What are the main aims and objectives?

The primary aim of B-BBEE is to combat the legacy of South Africa’s racial apartheid system and promote economic development within the black population (defined within the legislation as “Africans, Coloureds and Indians”). To achieve this goal, the B-BBEE act sets several objectives including: 

  • Promoting economic transformation to enable meaningful participation of black people in the economy 

  • Achieving a substantial change in the racial composition of ownership and management structures 

  • Increasing black female ownership and increasing their access to economic activities, infrastructure and skills training 

  • Promoting access to finance for black economic empowerment 

  • Ensuring black-owned businesses benefit from preferential procurement policies 

How does the program work?

The central feature of B-BBEE is the B-BBEE Scorecard which measures companies’ commitment to black empowerment. The Scorecard assesses a company's level of compliance against five elements - ownership, management, skills development, enterprise and supplier development, and socio-economic development. The targets for each element are based on different levels of importance, with ownership being the most important and socio-economic development being the least important. You can see the full details of the scorecard rating system and relative weightings here. 

Once a company has been measured against the B-BBEE Scorecard it will achieve an overall score which determines the level of public procurement contracts that they can bid for. Certain industries are also mandated to have a particular percentage of Black ownership or a high enough B-BBEE score to receive licenses to operate. For example, in terms of the Mineral and Petroleum Resources Development Act, 2002, an entity must have 26% Black ownership to be issued with a mining right. Further to that, the Act also provides incentives for companies that exceed the minimum B-BBEE requirements, including tax breaks, access to government tenders and preferential financing options.  

Companies that fail to comply can be fined or even de-registered. Companies that fail to achieve a 40% sub-minimum on any of the five priority elements will automatically have their B-BBEE status reduced by one level. 

What is the overall cost?
The Broad-Based Black Economic Empowerment Act, was passed without any direct financial cost. However, the Act does provide for certain benefits and programs aimed at black run businesses which will have required public funds to operate. Likewise, there are certain to have been costs associated with the implementation and enforcement of B-BBEE. However, these costs have been spread across a myriad of government programs and departments so it is difficult to put a figure on them.  
How was it implemented?

Black Economic Empowerment was officially adopted as the policy of the South African government in 1994 but B-BBEE was introduced as a more comprehensive policy framework through legislation in 2003. The legislation establishes a framework for the promotion of black empowerment, empowers the Minister of Trade and Industry to issue codes of good practice and to publish transformation charter, and establishes the Black Economic Empowerment Advisory Council which is responsible for advising the government and reviewing progress.  

The B-BBEE Act was followed with the generic Codes of Good Practice on B-BBEE in 2005 which are a set of regulations aimed at promoting economic transformation and addressing the legacy of Apartheid in South Africa. The codes have been updated several times since then, most recently in 2018. The codes are divided into seven sections, which cover ownership, skills development, enterprise and supplier development, social and economic development, preferential procurement, management control, and measurement criteria. 

The enforcement of the revised Codes of Good Practice for Broad-Based Black Economic Empowerment is carried out by the Department of Trade and Industry (DTI). All companies registered with the DTI are required to submit their annual B-BBEE compliance scorecard and are subject to monitoring and audits by the DTI. 

Finally, the Broad-Based Black Economic Empowerment Commission (B-BBEE Commission) is an independent body established by the South African government in 2016 to oversee, supervise, and promote adherence to the B-BBEE Act. The Commission's main functions are to: provide guidance on the enforcement and observance of the Act in the interest of the public; strengthen and foster the development and growth of black economic empowerment; monitor and provide feedback on the state of B-BBEE performance in the economy; and investigate, monitor, and enforce compliance with the Act, its regulations, and the Codes of Good Practice. The Act also authorizes the Commission to conduct investigations, inspect books and records, and recommend remedial action to the Minister of Trade and Industry. 

Timeline: 

1994: The African National Congres (ANC) comes to power and sets out its policy of Black Economic Empowerment 

1996: The Constitution of the Republic of South Africa provides all people in South Africa the right to equality with a backdrop of severe racial inequalities in wealth and income.  

1997: Green paper on Public Sector Procurement Reform 

2000: Preferential Procurement Policy Framework Act of 2000 implemented 

2001: Preferential Procurement Regulations published 

2001: BEE Integrated Strategy 

2003: B-BBEE Act 

2005: First Codes of Good Practice 

2007: Second Codes of Good Practice 

2008: Verification Manual published 

2011: Preferential Procurement Regulations updated 

2013: B-BBEE Act amended 

2014: B-BBEE Advisory Council 

2016: B-BBEE Commission Established 

2018: Lates version of Codes of Good Practice implemented known as the B-BBEE Amendment act of 2018 

2022: President Cyril Ramaphosa nominates 14 individuals to a Black economic-empowerment council to address the lack of improvement in some metrics of Black involvement in the economy. 

What impact has been measured?

While black control of businesses has increased since the legislation was passed in 2003, there is widespread recognition that South Africa is a long way from achieving the goals set out in B-BBEE. Indeed, current President Cyril Ramaphosa announced in June 2021 that the strategy and legislation will be reviewed.   

In August 2022, the Broad-Based Black Economic Empowerment Commission (B-BBEE Commission) released its annual “National Status and Trends” report which revealed a dramatic 76% downturn in compliance reports being submitted by companies which indicates a broader problem with enforcement. Overall black ownership fell from 31% in 2020 to 29.5% in 2021 with management control dropping from 57% to 51.6%. The report also found that 0% of the companies listed on the Johannesburg Stock Exchange were 100% black-owned, unchanged from 2020 but down from 3% in 2019. Contributions towards skills development, enterprise, supplier development and socioeconomic development all decreased in 2021.  

A report into the State of Procurement Spent in National and Provincial Departments highlights challenges in accurately assessing progress due to gaps in data and inconsistent practices between departments. The report was only able to analyse R177 billion (approx. $9.78 billion) of procurement spending out of a total of R938 billion (approx. $51.84 billion) in 2016/17. Furthermore, they were only able to determine the level of black ownership for 53% of the suppliers included in the R177 billion. Of the data they were able to analyse, 47% was spent on suppliers who are Level 1 and Level 2 B-BBEE compliant. Additionally, R19 billion (approx. $1.05 billion) went to suppliers with black women ownership, and R8 billion (approx. $440 million) went to black youth ownership. If this were to be representative of the entire procurement budget, it would suggest the South African government is delivering a significant chunk of procurement contracts to marginalised groups.   

What lessons can be learned?

B-BBEE has received a range of criticism from both outright opponents of the policy and from supporters who believe it has fallen short of its objectives.  

Some opponents of the policy – including the opposition party Democratic Alliance – have argued that it deters investment in South Africa by increasing the cost of doing business and adding layers of regulation that have become burdensome to entrepreneurs. Others have argued that B-BBEE has been corrupted by members of the political elite in order to enrich themselves and their allies. A more measured version of this criticism has emerged arguing that B-BBEE has had a very narrow base of empowerment, hugely benefiting a small black middle class without addressing wider inequalities and the success of the much larger working-class population.  

Critics – who are supportive of the policy aims – have pointed towards compliance as the main failing of B-BBEE. In particular, the practice of “Fronting” whereby companies seek to manipulate the system by appearing to be more diverse than they are in reality. This can include activities such as tokenism where companies appoint black directors, managers or employees who have no real responsibilities in the organisation. Likewise, compliance figures indicates that a large portion of companies are refusing to comply with the policy outright. Critics contend this is a failure of government to consistently and effectively implement B-BBEE universally.  

Other key challenges and lessons that have been identified include: 

  • In recognition of the challenges with the verification process, the DTI released the 2008 verification manual and developed a system of accreditation in order to create consistency amongst verification agencies 

  • The systems and governance structures for public procurement have required constant review and changes over time which has been reflected in the South African governments revisions and updates of the policy 

  • Public bodies in South Africa have been critiqued for their low quality of record keeping which has prevented the accurate monitoring of racial preferences in procurement outputs 

  • Successful implementation requires human resource capacity with the slowness of the government in setting up the B-BBEE Advisory Council and B-BBEE commission being seen as an impediment to achieving the goals of the policy.  

CURATED BY

Tom Hancock

Research Associate
Global Entrepreneurship Network
United Kingdom