WHERE AUSTRIAN ECONOMICS MEETS REAL WORLD ACTION

Picture this. The government decides your business should hand over a slice of its profit every year. Not the tax you already pay — this is extra. In return, you get points on a scorecard.

Refuse, and you can lose contracts, drop a compliance level, and get shut out of doing business with the state altogether.

That’s not a hypothetical. It’s the direction South Africa’s transformation rules are heading right now — and the people who’ll feel it first are the small and medium businesses that create most of the country’s jobs.

South Africa’s two big “transformation” laws — Broad-Based Black Economic Empowerment (B-BBEE) and the Employment Equity Act — give the state a say in three decisions every owner used to make alone: who owns your company, who you hire and promote, and who you’re allowed to buy from. If you’re above a certain size — or smaller but chasing government tenders or corporate supply-chain work — you’re scored on a B-BBEE scorecard. Fall short and the bill arrives as lost contracts, a dropped rating, and exclusion from state work.

In January, the government moved to tighten the screws. Draft amendments to the Codes of Good Practice were gazetted on 29 January 2026, and their centrepiece is a new Transformation Fund. The idea: instead of running your own enterprise- and supplier-development programmes, you can hand over roughly 3% of your net profit after tax each year for up to 20 scorecard points — feeding a state-linked pool that aims to raise an initial R20 billion. The same draft pushes procurement harder toward 100% black-owned suppliers.

The public-comment window on those amendments closed on 30 March, and they’re still working their way through the process — so nothing here is final yet. But the direction is clear, and the next domino is already moving: under the new Public Procurement Act, National Treasury published draft regulations on 16 April that are open for comment until 15 June. If you’ve got an opinion on how state buyers should weigh your business, that window is open now.

Here’s the part that should make every owner sit up. This isn’t just the libertarian fringe complaining. Empowerdex — one of the country’s most established B-BBEE verification agencies, a firm whose entire business is helping companies comply — has argued the Fund may be flatly unlawful: that you cannot manufacture a compulsory payment to a state-linked fund through the back door of compliance codes, without Parliament passing an actual law to create it. When the referees start saying the new rule looks like a tax nobody voted for, it’s worth listening.

Let’s be fair about the goal first, because it matters. These laws exist to undo a real wrong. Apartheid deliberately locked the majority of South Africans out of the economy for generations, and the imbalance it left behind is real. Almost nobody disputes that. The argument isn’t about whether that exclusion was unjust — it was. It’s about whether this particular machine fixes it or quietly makes it worse.

Start with how a business actually works. You run on one honest signal: what your customers will pay for. That signal tells you who to hire, which supplier to back, where to put the next rand. Get it right and a small shop becomes a big one — and the country gets richer in the process.

Now bolt a racial scorecard on top, and add a 3%-of-profit “contribution” for points. You’re no longer optimising for what works — you’re optimising for the scorecard. You bring in an owner who adds points but not value. You pick the supplier who scores well over the one who delivers well. You hire to satisfy a quota rather than to win customers. (Economists have a name for what happens when prices and profit stop guiding decisions — they call it a breakdown of economic calculation — but you already feel it in your gut: the moment a choice is made for any reason other than “this is what actually works,” the business gets weaker.)

Do that across a whole economy, year after year, and you don’t redistribute prosperity. You shrink the very thing you were trying to share. That’s the trap: a policy sold as empowerment that, by overriding the one mechanism that creates wealth, leaves less of it for everyone — including the people it was meant to lift.

For small and medium businesses — the real engines of jobs and innovation here — the day-to-day damage looks like this:

The policy that promises opportunity ends up rationing it — by making honest, merit-based enterprise riskier and more expensive to run.

If you run or advise an SMB in South Africa, reframe the whole thing in your head: B-BBEE is a cost of doing business with the state — not a growth strategy. Treat it accordingly.

Real inclusion doesn’t come from a points system. It comes from the boring, durable stuff: secure property rights, contracts the courts will actually enforce, and the freedom to hire, fire, buy, and sell on merit — for anyone, of any background.

Strip out the race-based ownership and employment quotas. Protect private property and voluntary contracts. Let entrepreneurs compete on what they can build and how well they serve customers, not on who they can satisfy on paper. That isn’t an untested theory — it’s the only arrangement that has ever lifted large numbers of people out of poverty and kept them there.

The exclusion of the past was real. The cure is more freedom to take part — not a more elaborate set of permissions to ask for.

Stay free,

Jean-Pierre

The Austrian Actor

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