CID Working Paper No. 170, May 2008

Is Black Economic Empowerment a South African Growth Catalyst? (Or Could it Be...)

Matthew Andrews

A publication of the CID South Africa Growth Initiative

Abstract 

This study asks the question, “Is Black Economic Empowerment a South African growth catalyst?” It addresses the question with reference to the theoretical literature on economic and organizational structures. This literature argues that structures reflect values and influence patterns of behavior, empowerment and opportunities for economic growth. The paper shows that South Africa’s economic structures have had negative influences on both racial access and economic opportunity, creativity and responsiveness. The proposition is that transformation and growth require change in economic structures; the same BEE-induced changes will work for both goals. However, some observe that BEE is not effecting change. This raises a counter proposition that BEE will not catalyze growth. The two propositions are examined in a study of BEE responses in twenty-five JSE listed firms. The basic finding is that while firms are actively responding to BEE requirements they are also doing so within a static structural context, where firms keep looking to established networks for solutions. This limits the number of beneficiaries of BEE. It also exacerbates constraints on the number of people in these groups—especially manifesting in added pressure on skilled groups. A number of firms are also not developing vertical connections that might open opportunities for entrepreneurs. Firms that are developing vertical connections are creating capacities to bridge the network divides that exist. The payoff seems very high in these initiatives, evident in trained and screened talent, new jobs and new enterprises. These findings lead the paper into a discussion of what could be done to improve BEE—such that it does become a policy that catalyzes growth.

Keywords: South Africa, Black Economic Empowerment (BEE), economic growth

JEL codes: O16, O17, O25, O43, O55

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