B-BBEE – IS THERE AN ALTERNATIVE?
During the drafting of the South African constitution it was agreed by the overwhelming majority of political parties and members that there had to be some form of affirmative action or had to be undertaken to empower people who had been previously disadvantaged. This therefore led to the inclusion of clause 9(2) in the Bill of rights. Clause 9 is the equality clause and the relevant sections state that:
(1) Everyone is equal before the law and has the right to equal protection and benefit of the law.
(2) Equality includes the full and equal enjoyment of all rights and freedoms. To promote the achievement of equality, legislative and other measures designed to protect or advance persons or categories of persons, disadvantaged by unfair discrimination may be taken.
(3) The state may not unfairly discriminate directly or indirectly against anyone on one or more grounds, including race, gender, sex, pregnancy, marital status, ethnic or social origin, colour, sexual orientation, age, disability, religion, conscience, belief, culture, language and birth.
However this has to be balanced very carefully against the rights granted in clause 9(3) which prohibits the state from unfairly discriminating on any of the grounds highlighted above in that clause. It based on this clause that there have been a number of appeals against various institutions.
In my opinion the concept has benefits and indeed is necessary and constitutionally correct. The problem arises in its implementation which has led to a number of ‘unintended consequences’ resulting in corruption and an abuse of power. I believe that one of the major legislative inadequacies is the failure to put a ‘sunset’ clause into the law. Nobody knows how long certain categories of people are going to be regarded as disadvantaged, will some people still be classified as such in 100, 200 or even 500 years time? A sunset clause of a specific time would bring certainty to the issue; being open ended is a recipe for inefficiency and corruption.
The BEE legislation is supported and functions in conjunction with various other forms of Legislation, including the Employment Equity Act, Skills Development Act, Preferential Procurement Framework and others.
Government’s decision to use the ‘big stick’ to enforce compliance of this bouquet of legislation is counterproductive. If the government offered certain incentives to companies that reach predetermine level of compliance such as a tax deduction would this encourage greater compliance there would be less animosity. Threats create negativity and resentment.
It is common knowledge that in order to create jobs South Africa requires a growth rate of 7% to 8% in order to make a substantial reduction in unemployment. Imagine the impact on the economy of rather encouraging foreign investment in the country if there was a foreign investment allowance for establishing a new business in South Africa with a further allowance for 90% local employment and a further allowance for mentorship and training programmes. There could even be an allowance once you attained a specified target of ‘previously disadvantaged’ people in executive positions.
Rather than summarily revoking a mining licence for retrenching staff imagine the benefits of granting a tax incentive for employment and for attaining predetermined levels of equity and employment diversity targets? Currently government is introducing laws and regulations that try to limit foreign ownership of companies to below 50% this instead discourages investment, reduces job creation resulting in greater levels of unemployment and increased poverty.
Of course there will be individuals, Julius Malema and his fighters, who will condemn this on the basis of the investor repatriating profits out of the country, however if the investment incentives in South Africa are attractive enough it makes good business sense to continue investing in the country thereby increasing profits which results in increased levels of tax revenue. Capital flights only occur in times of uncertainty or when the incentives to do business elsewhere are greater.
Former Deputy President Kgalema Motlanthe admitted on 5 February 2010 that Black Economic Empowerment (BEE) had failed hardly a surprising revelation, but it was a significant step in showing the way forward. The BEE programme was implemented starting from 2003. It was criticized for benefiting only a narrow stratum of previously disadvantaged groups, and this led in 2007 to the introduction of a modified programme called Broad-Based Black Economic Empowerment or B-BBEE. However what is necessary is that B-BBEE must add value to companies in order for it to be sustainable at all.
What is wrong with the current B-BBEE?
The perception that the government has created through the implementation of affirmative action or B-BBEE has resulted in a breakdown in trust between various people or groups of people. Depending on whom you are or what your circumstances it is perceived that:
- The policy is reverse apartheid and a means of getting revenge;
It is common knowledge that many positions in government departments remain unfilled because by employing suitably qualified people upsets the racial quotas and therefore service delivery is sacrificed in favour of transformation. This is particularly prevalent in local government.
Eskom encouraged qualified engineers to accept ‘packages’ they were replaced by less qualified and experienced personnel resulting in inefficiency and ‘load shedding’;
There has recently been a realisation that the South African police service and defence force are no longer representative of the population as a whole and white South Africans are being encouraged to join up. Then comes the catch but do not expect to be promoted above a certain limit. Reverse apartheid?
- It is only the wealthy and well connected comrades that benefit. This flies in the face of the intention to involve more South Africans in the mainstream economy;
The most commonly quoted case is Deputy President Cyril Ramaphosa in May 1996 he left parliament after the adoption of the constitution which he piloted through parliament from drafting to adopting. He then entered the private sector in an empowerment deal with the racist/capitalist multinational company Anglo American to become non executive chairman of the company Johnnic.
Eight years later the same person had changed from an average middle class person into one of South Africa’s richest men with Forbes estimating his wealth at $675 million.
Mr Ramaphosa has, in line with best ethical practice internationally, divested himself of assets regulated by government since his election as Deputy President. The assets that are not classified under regulated assets have gone to his family trust. This frees Mr Ramaphosa to fulfil his government responsibilities without fear of conflict of interest.
Unfortunately the same names coming up in empowerment deals, no matter how good the person is, it is perceived as cadre enrichment rather than empowerment. Names most frequently heard are Patrice Matsepe (Ramaphosa’s brother in law); Tokyo Sexwale; Sipho Nkosi and Phathuma Nkosi.
Archbishop Desmond Tutu has previously warned that South Africa is sitting on a “powder keg,” and that Black Economic Empowerment only serves a few black elite, leaving millions in “dehumanising poverty”.
It encourages inefficiency and corruption;
Affirmative action and preferential procurement has brought out the worst in all South Africans with fronting becoming one of the most serious activities. It cannot be linked to any one section of the population Black or White. Depending on the circumstances all population groups use it to line their own pockets.
Because price is no longer the major consideration used when awarding a contract contracts are awarded at exorbitant prices because the B-BBEE credentials meet the prescribed criterion but their standard of work is unchecked. Scores of government projects remain unfinished, incomplete or late and over budget because the contractors did not have the expertise to handle a project of that magnitude.
There has been a mushrooming of the so called tenderpreneurs in South Africa. There are people in government who abuses their political power and influence to secure government tenders and contracts. Many believe that this practice is giving rise to a kleptocracy, a condition where the political elite manipulate the three arms of government (legislature, executive and judiciary) with the intention of capturing resources that will enrich those elite.
A burgeoning of fake qualifications for senior positions in government has emerged, this results in inefficient people being appointed with costly and possible tragic consequences. Prasa’s chief engineer Daniel Mthimkhulu who designed Prasa’s controversial locomotives is a perfect example.
Another example is the SABC Chief Operations Officer Hlaudi Motsoeneng who lied about having a matriculation certificate. He earns R3.76 million per year. In 2010 his salary was R334 167 increased to R2.8 million in 2014 and a further increases of R912 000 this year despite the SABC recording a loss of R395-million in the 2014/15 compared to the R358-million profit in the previous financial year. Under Hlaudi Motsoeneng’s watch, the SABC’s finances have taken a R753-million nose-dive.
Numerous other cases can be highlighted however; I believe that these types of offences occur because of the government’s obsession with racial quotas rather than encouraging Black Empowerment through incentives rather than the ‘big stick’.
It is safe to say that current legislation has had almost no impact on the lives of the majority of black people. In actual fact B-BBEE has correctly been criticised for creating a brain drain, because qualified white expertise has emigrated to countries where they are not being discriminated against. IFP leader Mangosuthu Buthelezi a strong critic of BEE supports this view. He stated that “the government’s reckless implementation of the affirmative action policy is forcing many white people to leave the country in search of work, creating a skills shortage crisis”
The truth of the matter is that neither laws nor procurement rules have yet led the private sector to create enough jobs to absorb black unemployment. Approximately 44% of blacks, but only 7.5% of white, are out of work. Worse, these disproportionate unemployment rates have hardly budged for the past five years.
I really do believe that B-BBEE is a crucial and essential requirement to furthering the aims of democracy and entrenching a culture of broad economic participation. It is a shame that it has been subverted for so long in order to pander to a few political heavyweights within the ANC. The policy has to be transformed into a win win situation for all South Africans not just the favoured few.
It can be done, but does government have the political will to do it?
Until next time,
This newsletter is published by Clive Hatch former Leader of the Opposition in the Mpumalanga Provincial Legislature and former DA Provincial Leader. These views are my personal views and do not represent those of any other person or organisation.