The Unaccounted Cost of BEE Premiums in South African Public Procurement

In the South African landscape of public procurement, a spotlight has been cast on an opaque expenditure: Broad-Based Black Economic Empowerment (BEE) premiums. As Senior Treasury Official Willie Mathebula presented to Parliament earlier this month, there is an established system that dictates how these "premiums" are accounting for in the procurement process. However, the actual sums dedicated to BEE premiums have remained a mystery to the public, challenging the ideals of transparency and accountability that should underpin such fiscal policies.

According to Mathebula, contracts under the R50-million mark could contain a BEE premium of up to a staggering 25%, while larger contracts are capped at 11.1%. Yet, the Treasury has not disclosed the total expenditure on BEE premiums, leaving the taxpayers in the dark about how much of their money supports these measures. With public procurement reaching approximately R1.2-trillion annually, the implied cost of BEE premiums could be monumental.

Digging deeper into the matter, research from the late Prof. Stephen Oseko Migiro of the University of KwaZulu-Natal suggested that, in a small sample of cases from 2010, the average BEE premium was around 20%. Although this figure's applicability to today's national average is questionable, it does highlight the potential financial magnitude of these premiums.

Moreover, a look at the City of Cape Town’s Procurement Transparency Report indicates that BEE premiums are certainly being paid. A notable example is the purchase of traffic signal controllers at a premium of 7.4% due to BEE considerations. If such premiums are common nationwide, the total annual costs could exceed billions of Rands, a significant sum in the context of social grant expenditure for millions of beneficiaries.

Indeed, while some premiums are evident in the records, others may be less clear, especially when BEE considerations prevent the most competitive bids from even entering the tendering process. All the while, none of these premiums have been systematically reported, despite Section 216 of the Constitution mandating "transparency and expenditure control" within the Treasury.

The necessity of clarity around BEE premiums extends beyond mere budgetary concerns. In the wake of the Zondo Commission Report, which highlighted the dangers of procurement systems confused by conflicting imperatives, it is clear that accurate accounting and disclosure are fundamental to preventing the abuse of public funds.

Prompted by Parliamentary requests, the Treasury has released certain statistics, including how approximately R883-billion was disbursed to private, racially indexed businesses—with a striking 66% going to majority black-owned companies—over the last several years. While these statistics provide a partial financial tapestry, they stop short of articulating the full cost implications of BEE premiums, which could influence the approach towards future budgets and public funding trajectories.

The call is thus being made—across the political and ideological spectrum—for the Treasury to come clean on the true costs of BEE premiums. As the country heads towards another election, the absence of this critical data from public debate and fiscal planning is conspicuous, underscoring the urgency for transparency.

The health of South Africa’s public purse, the integrity of its procurement system, and the trust of its citizens rely on the full disclosure of these financial realities. It's incumbent upon Treasury to uphold the spirit of the Constitution and communicate openly with those who bear the fiscal burden: the South African taxpayers.