Socio-economic Watch

South African BEE policy a massive flop

Real B-BBEE lies beyond just shares
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After being in place for twelve years, and billions of rands later, South Africa’s broad- based black economic empowerment policy has only succeeded in redistributing inequality.

The racial complexion of the distribution of wealth has changed somewhat since the Black Economic Empowerment Act was passed in 2003, but very little has changed for the previously disadvantaged masses.

The policy has seen the transfer of billions of rand in terms of business ownership to a small elite of group of ‘insiders’ who could mobilise capital – often courtesy of soft loans. It did very little, if anything, for the majority of the people at the bottom of the economic pile.

It also created a whole new “broad-based black economic empowerment industry”, in the words of David Ndou when the “industry’s” two main representative groups – the Association for B-BBEE Professionals (ABP), of which Ndou was the chairman, and the National Association of BEE Consultants – merged in May this year to form a single professional organisation.

The process aimed at the intended goal of black economic empowerment kicked off soon after the act was passed by industry Sector Charters. The Financial Sector Charter was the first to be published. This became symbolic of what happened to the policy ever since, as it mainly consists of financial/equity manoeuvring.  

To streamline things, the Department of Trade and Industry (DTI) in February 2007 gazetted the first set of generic BEE “codes of good practice”. At that stage it helped speeding up the issuing of BEE compliance certificates. But it took two more years before accredited verification agencies were put in place to create certainty of standards.

Ownership central from the start

From the word go the main emphasis was on the transfer of equity ownership and it became the easiest and quickest way to earn BEE points. The way things worked out in practice, for example in the case of the mining industry, had the Department of Mineral Resources (DMR) commenting in 2009 that “regrettably, the reported level of BEE ownership is concentrated in the hands of anchor partners and [special purpose vehicles], representing a handful of black beneficiaries, contrary to the spirit and aspiration of both the Freedom Charter and the Mining Charter”.

In early 2011 the Minister of the DTI, Rob Davies, mooted plans to amend the 2003 act to shift the focus from equity deals to enterprise development. In November that year the act was amended.

Then, in October 2012, the DTI published revised draft BEE codes, because BEE did not work well enough and the new codes were intended to speed up the process. It took another year for the “new” revised codes to be gazetted in October 2013 for a consultation process. They looked very similar to what was started with in 2007.

Implementation date was to be May of this year.

Warning signs

In November 2012, in the wake of the tragedy at the Marikana mine, in which 34 miners were shot by the police during unrest, driven among others by the poor living conditions of miners and their families, Peter Leon at a Transformation Indaba blamed what had happened in part on the failure of BEE in the mining industry.

Leon, head of Africa Mining & Energy Projects, Webber Wentzel attorneys, said: “A major problem with the application of BEE measures in the mining industry is an over-emphasis on the elements of ownership, (our emphasis) despite the importance of the other elements; and  

“This has led to the continued promotion of ‘narrow’ BEE, a form of crony capitalism that has enriched a well-connected few, rather than empowering workers and marginalised mine communities who should have been the principal beneficiaries of BEE.”

In June this year Intellidex released a report on research into BEE ownership deals done by the JSE’s 100 largest companies. It revealed that R317 billion, free of debt, has been transferred to black South Africans since 2001.

Last week Diale Mokgojwa, Standard Bank’s senior manager for enterprise development, told the media that the bank has facilitated R600 million worth of deals now prioritised by the latest version of the B-BBEE codes – ownership and enterprise development (enterprises with majority black ownership).

Under the latest set of codes and the points system that applies for B-BBEE verification, the term ‘broad-based’ has become a total misnomer.

This happened despite the warnings from even the DMR in 2009 and ANC treasurer general Mathews Phosa, who in October 2012 said: “Marikana taught us that ... our [BEE] model is dysfunctional ... If the miners at Marikana, and elsewhere, [had] a meaningful stake in the assets that they create, my view is that we would have had different and more positive outcomes.”

Under the new rules companies seeking enough points to qualify for top B-BBEE verification have even less reason or incentive to bother about empowering the broad community. Ownership and supply/entrepreneur development have been made priority elements.

Under the new rules the factors in play for the scorecard are weighted as follows:

  • Supply and enterprise development: 40%
  • Ownership: 25%
  • Skills development 20%
  • Management/control: 10%
  •  Residual: 5%

Factors of a purely socio-economic nature important to the broad community, like housing schemes and/or facilitation of home-ownership do not come into the reckoning at all.

Doing just the financial deals, even if it is by making interest-free loans available, as happened between Lonmin and a black empowerment partner, will ensure a level two B-BBEE rating.

What could have been

If only 10% of what was spent on equity deals by the JSE top 100 and of the deals Standard Bank facilitated went towards direct socio-economic projects, it would have meant an injection on that front of R31.8 billion.

Just imagine how many ordinary working people at the bottom end of the scale could have been properly housed and/or helped to acquire home ownership for the first time, putting them on the first step of economic upward mobility.

It is against this background that Anthea Jeffery, Head of Policy Research at the Institute of Race Relations wrote: “It is time to call a halt to BEE, which needs to be replaced by a new focus on “economic empowerment for the disadvantaged” or “EED”. Instead of breaking down property rights in pursuit of a socialist nirvana, EED would emphasise all the right Es”: from economic growth and excellent education to employment and entrepreneurship.”

As things now stand, B-BBEE only succeeds in redistributing inequality and doing the groundwork for an “Arab Spring”-type social upheaval.

 Also read: SAA confirms 30% Bidvest contract demand

by Piet Coetzer

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