Overview of South Africa’s Black Economic Empowerment Framework
The purpose of Black Economic Empowerment is to attempt to redress the economic legacy of Apartheid. Between 1913 and 1991, black people were progressively excluded from the economy. Black people were not generally allowed to own property. They were barred from certain trades and broadly excluded from the South African formal economy with significant restrictions placed upon their ability to participate in the informal economy as well.
Their education was vastly inferior to that of whites and they could not enrol in recognised universities and technical colleges. Their movement was restricted, limiting where they could seek work. The movement of their cattle was restricted, limiting who they could sell to. The legal system was stacked against them and they could not vote to change their situation. The result was that the economy was hugely dominated by white capital and barriers to entry for black people were very high.
In this context, Black Economic Empowerment is a legislative attempt to include black people in the economy at all levels. South Africa’s Black Economic Empowerment Legislation encourages black ownership of shares; black participation in voting and the management of companies at all levels; procurement from black owned businesses; support of black businesses; education and training of Black People and support for organisations that enable black people to earn a living. In addition, the Codes try to enhance the position of women, the disabled and various other designated groups and aim to increase employment through encouraging support for small and medium size businesses.
To address some of the unintended consequences of BEE, the Codes were revised in 2013. The Revised Codes came into force on 1 May 2015.
The Legal Effect of BEE Legislation
BEE Legislation is not enforceable by law, participation by companies in BEE is voluntary.
Notwithstanding this, the economic imperative to be BEE compliant in South Africa is rapidly increasing and it is becoming progressively more challenging to operate a business without complying.
It must be noted that despite BEE Legislation not being enforceable by law, certain actions as envisaged within BEE Legislation are considered to be fraud and carry criminal conviction and jail sentences of up to ten years. For example, lying about the empowerment status of a company or engaging in Fronting could land the directors in jail for up to ten years.
Companies are encouraged to comply with the legislation by being given access to licenses to mine, water use licenses and by being allowed to tender for state, parastatal and municipal business. It is also becoming increasingly difficult to participate in corporate business in South Africa with a poor BEE rating.
Due to the fact that companies earn Empowerment points by dealing with empowered counterparties, the imperative ripples outwards from companies wanting government work and/or licenses to their suppliers and their suppliers’ suppliers.