It was never adequately communicated as to why the former minister of trade and industry Dr Rob Davies changed the BEE codes in 2013 to the ones that now deter foreign investment and discourage economic growth. The Department of Trade and Industry (dti) suggested that small black businesses were being charged exorbitant amounts for BEE certificates as a justification.
The most likely reality was that compliance levels were so high that black businesses were no longer able to compete for state contracts with their competitors whose ownership levels did not match theirs. Davies’ solution was to launch a new phase of empowerment with exemptions for significant black ownership and a stick for those companies who chose to either have no black ownership or not meet the desired level of black ownership.
There was some method to this madness. Davies knew that corporate South Africa would never rock the empowerment boat. No large company was willing to speak out against these patently biased codes for fear of government and other political party lambasting. I did attempt to extract the reasoning behind these Draconian codes from the dti through the Promotion of Access to Justice Act.
The dti’s response was simple – these codes are constitutional. In other words – if you don’t think they are constitutional then you take it to court. My attempts to raise money for a court challenge raised just enough money for an hour of a silk’s time.
There is little doubt in my mind that these BEE codes are unconstitutional. But I think this is a moot point, a constitutional challenge might not be successful because the underlying sentiment is one of redress. But this does not detract from the fact that it is very likely that the process in the gazetting of many of these codes, specifically the dti’s generic codes, was not consistent with the prescripts contained in both the Constitution and the BEE Act.
My specific bugbear was the skills development that requires companies to spend 6% of payroll on the training of black people (in exchange for eight points). For those who don’t understand the magnitude of this amount, it is in the region of R1-billion for a large financial institution based on its 2012 financials. This is ludicrous, or perhaps more pertinently – nonsensical.
How can you spend such a large amount on the training of your black staff and still expect them to come to work? It’s not possible. How is it that any company which had to implement these codes agreed to this? I don’t think that many companies who are subject to the codes did agree to these – my suspicion is that Davies ignored those comments and went ahead and gazetted the draft codes, with minor changes to demonstrate that he did read some of the comments.
To a certain extent that is now water under the bridge. The codes have been accepted and companies are making plans to get to the scores that their clients are insisting on. This is despite the dti’s two militant lapdogs, the SA National Accreditation System (Sanas) and the BEE commissioner, still sowing doubt and uncertainty in the marketplace. Sanas is the authority that provides the accreditation for BEE verification agencies, its arbitrariness is a legend among the BEE verification agencies who live in fear of losing their licence to operate because of the mood of the Sanas inspector on the day.
The BEE commissioner could fill up a chapter in the history of empowerment with her poorly thought out analyses and a complete lack of understanding of the legislation that governs her conduct. You would not be wasting your time by reading this very measured opinion on the commissioner’s MTN finding by Pieter Steyn, a partner at Werksmans Attorneys.
In the last year or so, Davies decided that not only can the BEE codes redress the legacies of apartheid, but they could also be used to address certain social issues like the Fees Must Fall movement and youth unemployment. After a little bit of corporate dissent, he managed to incorporate the Youth Employment Service (YES) as a BEE carrot. When he proposed the YES programme he also proposed that companies should pay over 2.5% of their payroll for bursaries for black students at higher education institutions.
This lay in limbo for a year and then was unceremoniously dumped on us just before Davies took his very-overdue retirement package. After considering multiple comments he decided that this 2.5% of payroll was a reasonable amendment and has now incorporated it into the skills development scorecard. In typical Davies fashion he never really made it clear when this amendment will come into effect.
To get an idea of the financial outlay that this requires, that same large financial institution would need to lay out in the region of R450-million per year on bursaries. This is possibly affordable to said institution but is definitely not affordable to smaller companies and those entities that are legally obliged to adhere to the BEE Act – these include most state departments and SOEs. The most topical SOE is the financially denuded Eskom. Its target spend on those four points is in the region of R720-million and legally it has little choice but to spend the money even though it doesn’t have it.
I see corporate South Africa, which includes the SOEs, having three choices here when it comes to the latest phase of BEE legislation.
The first one is to comply and take the points – but in a declining economy, this doesn’t make any financial sense. The second option is to lobby the Presidency to speak to the new Minister of Trade and Industry, Ebrahim Patel, to withdraw these amendments or offer significant tax breaks for these donations. The third option is not to comply with those elements in the scorecard that are simply unaffordable.
If option one is chosen then you can expect Minister Patel to be emboldened to add amendments that further erode the viability of every entity operating within South Africa. BM
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