It might be more apt to say it has run out of road. It’s obviously very topical because News24 invited five opinions on the subject. Two of them (Gabriel Crause and Moletsi Mbeki) argue that it delivers nothing. Duma Gqubule delivered his predictable diatribe about how much of the JSE is owned by black people. His argument is repetitive and tiring. He never looks beyond the determined shareholding of the various companies listed on the JSE. I would imagine, and I think this is confirmed by his opinion piece, that his source of information is based on a sample of annual reports and BEE certificates. This is a very poor method to actually determine any type of ownership. He conveniently forgets about mandated investments like unit trusts and pension funds. He also has not looked at the actual shareholders, in fairness this is a daunting task and cannot be done with any form of accuracy. But if you are going to cast 5.8% aspersions then you need to make it absolutely clear how you came to this conclusion. It’s flawed. I do, however agree with his conclusion that “we must rewrite the empowerment rules and bring an end to the voodoo system of accounting for black ownership.” I never thought I would ever agree with him, I think he’s a bit of a hazbeen.
Predictably the black management forum concludes with “Instead of calling for the end of B-BBEE, the BBC advocates for the acceleration of its implementation in order to ensure that the majority play a meaningful role in the economy to safeguard our democracy.” They also note that black people own 5% of the economy. That is patently wrong and is probably only drawn from the same stats that Duma conjured up.
I think the most meaningful article was written by Lumkile Mondi. In this article Professor Mondi puts forward a case that goes along the lines of “black man you are on your own”. Instead of laying the blame in the usual places he distributes it between the economy and government policies. I have to quote him
Nimrod Zalk in his doctoral thesis, titled "Things we lost in the FIRE [Finance, Insurance and Real Estate]", shows how the false promises by white business conglomerates to the Mandela government of black economic participation destroyed the industrial base of South Africa as they exited South Africa and how preferential procurement of HDSAs incentivised imports to the detriment of white-owned South African businesses destroying industrial capacity base and employment for many black workers.
It is the economic policy choices of the ANC and B-BBEE implementation that destroyed commuter rail services, road infrastructure, electricity supply, schools, libraries and many livelihoods as the economic growth slumped, employment collapsed, and poverty deepened.
The Covid-19 pandemic added to the misery. It is not surprising that many did not turn up at the polls on 29 May and those who voted supported other parties, resulting in the ANC losing its overwhelming majority in Parliament.
It was vote of no confidence on the policies of the ANC and their implementation. A vote for something new for a better life for all.
The whole article must be read. It’s balanced and doesn’t throw stones unnecessarily.
This blog is full of discussions about how the implementation of BEE was left to those businesses that didn’t have enough ownership to not be compliant. By setting the QSE threshold at R50m turnover in most codes they excluded a large number of black owned businesses from participating in the whole BEE process, something that the BEE strategy actively discourages. This exclusion provided the leeway that some black-owned businesses needed to catapult themselves into the awarding of state contracts. All it took was an affidavit and recently created company and off you went (in spite of the BEE codes wanting a bigger certificate for larger contracts). We are however not alone. There was a famous Covid PPE case in the UK which was a carbon copy of what our connected people are capable of doing.
PPE Medpro was one of the private companies awarded valuable contracts having been referred through this High Priority Lane by Baroness Michelle Mone. PPE Medpro was set up on (registered) 12 May 2020. It was awarded its first contract, worth £81 million, a month later on 12 June to supply 210 million face masks. The Department awarded a second contract a couple of weeks later on 26 June, worth £122 million for sterile surgical gowns.
The first codes were published in 2007, our good friend Rob Davies gave the initial codes no time to work and went about creating the new ones. He knew that these revised codes were designed to allow black-owned businesses the necessary latitude to go about gaining government business almost exclusively. His intention was to punish everybody else by setting targets and requirements that have now taken on the dimensions of an additional ANC tax. Unfortunately for our bolshie, the clever lawyers in Bloem figured out a way to get around the ownership requirement using the modified flow through principle. This was then closed off and was replaced by another type of ownership structure developed by the Pretoria Afrikaners.
Why have these get-arounds been so popular? Simple, the cost of compliance is so high that companies will do anything to get those costs down. For those whose turnover is over R50m, including black wholly-owned businesses, the problems (read costs) multiply. Compliance is expensive. No wonder skills development schemes started developing using tax breaks like the Employee Tax Incentive break. It’s simply because companies could now comply and get a decent score.
I’m going to use a Duma-approved sensational figure. The FirstRand Group’s staff cost during the 2023/4 year was R32,515,000,000.00 (I think this is R32bn). If they want the 4 points you get for training unemployed people then that will cost them about R480m). Where is the logic here?
I think our government should start having frank conversations with companies in South Africa. Those companies that need to implement a full scorecard. They should ask them whether this process is working. Everyone of the large companies will say “We believe in transformation, we are proud of our BEE performance.” They won’t tell you what they really think. BEE compliance costs a fortune, whole departments have to be created to monitor and implement it. It has created an industry. Yes, it’s created employment, but it’s a major grudge purchase. I have saved my clients amounts in the hundreds of millions of Rands over the last 20 years and they reluctantly pay me my meager fee.
Nothing – other than Duma going through your annual report and BEE reports concluding that you are untransformed. His analyses have been quoted by anc politicians for years. Because it’s a smoke screen. It hides the fact that this government has stripped the country bare. And on top of this they are an unequal partner in this process. They have destroyed the education system. You can’t employ people that the government has systematically neglected over the last 30 years. And let’s not forget that the BEE codes are a legal requirement for government entities and departments.
Yes – BEE has failed and will continue to do so. It’s a useful scapegoat for the government. They won’t get rid of it and if they make it more stringent then I’ll figure out other ways to comply.