Billions Lost, Jobs Destroyed: The True Economic Toll of South Africa’s BEE Model

Wits Professor Unpacks the High Cost of Patronage: How BEE, Corruption and Cadre Deployment Bankrupted the State, in an address to the Black Management Forum

By William Gumede

Since the early 1990s, forty-six (46) largely politically connected individuals secured 60% of all the black economic empowerment (BEE) mining, becoming billionaires or multimillionaires overnight.

This is according to a 2015 research report completed for the Chamber of Mines. The report was not publicly released but compiled as a background document for the Chamber’s mining charter discussions.

Peter Major, a respected mining analyst, said that, based on broader industry data, a combination of the Mineral Resources Department’s incompetence, deteriorating state infrastructure, corruption, nationalisation threats, and mining-value-destroying BEE strategies has cost South Africa over 500,000 mining jobs. The Bureau for Economic Research, using narrower government data, shows there has been a loss of over 300,000 mining jobs since the early 1990s.

BEE has taken many different forms. In the private sector, it involves transferring shares in white-owned private companies to previously disadvantaged individuals. In the public sector, national, provincial, and municipal governments, as well as state-owned entities, require white firms contracting with the state to have BEE shareholding. In the immediate post-1994 privatisation of state-owned companies, BEE was a key requirement for share sales.

The reality is, the former majority ANC government’s BEE strategies have largely benefited a small group of well-connected black and white individuals, whether ANC leaders or ANC-aligned trade union leaders or companies, trusts and entities linked to them. Intermediaries, whether law firms, transaction brokers, or financiers structuring BEE deals, have also benefited richly. Some ‘white’ owned companies have also benefited from striking repeat BEE deals with the same politically connected black BEE partners.

Of course, there have been broad-based empowerment transactions in which ordinary employees received shares. However, often, even in such transactions, particular connected leading individuals would often receive the bulk of the BEE benefits.

Even when BEE deals successfully transfer shares to individuals from previously disadvantaged communities who are not politically connected, these deals are rarely financially rewarding. BEE shares are often locked for years; shareholders do not receive dividends, and when they do, the dividends are heavily taxed. Nevertheless, providing capital for shares rather than productive assets is a loss to the economy.

In 2000, BEE rules were introduced for public procurement. South Africa now spends almost R1 trillion on public procurement annually, accounting for 12% of GDP. Significant volumes of this are BEE spent.

Testifying at the Zondo Commission, National Treasury’s then-acting Chief Procurement Officer, Willie Mathebula, said, for example, that in the 2017 financial year, the national procurement bill was R800 billion. Mathebula told the Zondo Commission that more than 50% of the government’s annual procurement budget was lost due to “intentional abuse of the system”, which included manipulation of BEE rules for personal benefit. Of course, incompetence, mismanagement, and corruption are also responsible for the losses.

State entities, such as the Public Investment Corporation, provide significant BEE funding. The PIC, in its 2023-2026 corporate plan, envisaged allocating over 70% of its approved funds to BEE Managers. One of the PIC’s funds, its Isibaya Fund, with over R170bn, holds unlisted investments and funds BEE investments, such as Daybreak Foods, in which the PIC has invested at least R1.7 billion since 2015. Finance Minister Enoch Godongwana last year announced a new enquiry into allegations of misconduct in the PIC’s unlisted funds.

In the 2005 privatisation of Telkom, the Elephant BEE consortium acquired an estimated R9-billion stake in Telkom. Key figures in the Elephant Consortium, led by politically connected individuals such as former Communications Department Director-General Andile Ngcaba and former head of the ANC Presidency Smuts Ngonyama, pocketed more than R3 billion from the sale of its BEE shares in Telkom and Vodacom, and another R1.4 billion in dividends.

In the public sector, state capture has often happened through BEE. Evidence presented to the Zondo Commission reported that the Gupta-connected companies secured over R57bn in the state BEE deals.

State-owned infrastructure entities, such as Eskom and Transnet, were key sites of state capture, which happened through BEE, public procurement, and cadre deployments.

In one example, Hitachi Power Africa, in which the ANC’s investment arm, Chancellor House, owned 25%, secured around R38bn to build boilers for the Medupi and Kusile power stations. The ever-rising costs of building the two stations increased Eskom’s debt from R40bn in 2007 to over R400bn in 2024. The fiscus has bailed out Eskom to the tune of close to half a trillion rand between 2008 and 2026.

The South African Reserve Bank said that Eskom’s load-shedding, resulting from failures linked to patronage, BEE, and cadre deployment, and compounded by mismanagement and corruption, costs the South African economy R1bn a day.

The failure of South Africa’s state rail and port entity, Transnet, in 2023 cost the economy R353bn, equivalent to 4.9% of GDP. Transnet’s failure is estimated to cost South Africa’s economy around R1 billion per day in lost economic output.

Swifambo Rail Leasing was established as a BEE company specifically to serve as a local front for the Spanish railway company Vossloh Espana, to secure the 2012 Prasa contract worth R3.5 billion for the supply of locomotives.

Corruption, mismanagement, and the manipulation of BEE contracts are key reasons for South Africa’s water crisis. As a case in point, tenderpreneur Edwin Sodi’s Blackhead Consulting has been fingered in irregular BEE contracts amounting to more than R4 billion. It received a contract to upgrade the Rooiwal wastewater in Tshwane in 2023, but failed to do the work, which contributed to a deadly cholera outbreak in 2023 that killed 29 people.

Manipulation of BEE has also been a key reason for the lack of service delivery in the health sector. At Tembisa Hospital, BEE tenderpreneurs secured R4bn in contracts corruptly and delivered very little.

If BEE was supposedly successful, it has been a success for the few, not a broad-based success, as it was intended to do.

BEE that involves giving shareholdings in existing companies to black political capitalists does not expand the economy but rather reinforces the concentration of the South African economy.

BEE political capitalists who set up companies to get a specific government tender, even if they have no experience, capacity or finances to do so, are partially responsible for endemic public service delivery failures.

BEE, which has focused on giving slices of white companies to politically connected non-whites, has collapsed both black and white legitimate businesses that are not politically connected, who have lost out on new or existing contracts as instant political capitalist companies take their state contracts or licences. It has stifled black entrepreneurship.

It has created a culture of using political connectedness, rather than merit or ability to generate wealth or entrepreneurship. It has encouraged the proliferation of middlemen and women who serve as connectors for government and private-sector deals.

It has fostered a South African societal culture in which hard work and entrepreneurship are not valued, because all one needs is connections to the ANC and its leaders to secure government contracts or BEE shareholdings in private companies. No society can foster economic growth, tackle poverty, and reduce unemployment without a merit-based culture in which hard work and entrepreneurship are valued. It has decimated the productive capacity of the South African economy. It has accelerated the de-industrialisation of South Africa’s economy.

In the past, there were wide inequalities between whites and non-white South Africans. Now, we also have large inequality discrepancies between rich non-whites and poor non-whites.

Effective empowerment strategies in successful countries have historically focused on supporting existing entrepreneurs, not turning politicians into entrepreneurs, creating new industries that a country did not have before, and developing manufactured products for export to foreign markets, fostering export-led growth.

The opportunity costs, the massive development benefits lost if more broad-based alternative empowerment strategies were used in the current BEE model, are too high, given high black unemployment, poverty, and inequalities.

The current model of BEE is a perfect example of the misallocation of capital – whether shares for ordinary black public, or for ANC-connected BEE oligarchs, that could have generated a bigger societal development impact, by investing it in public infrastructure, world-class education, technology, SMEs or assets, such as homes for the poor.

Prof. William Gumede is Associate Professor, School of Governance, University of the Witwatersrand, and author of South Africa in BRICS (Tafelberg).

This is an edited version of his speech “Remodelling Black Economic Empowerment” to the Black Management Forum on 17 March 2026.

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