Is black economic empowerment (BEE) working? Most observers positively cite the data referring to the rising black middle class and the numerous media articles around the prospering retail sector. Others negatively refer to the BEE deal arena where concentration of wealth occurs and value added by the new owners is not often explicit.
It is a tough question to pose, considering that implementation guidelines such as the Codes of Good Practice on Broad-based BEE is only now being finalised and a strategy for BEE was only released in 2003. BEE has largely been an experimental process, although one observes that elements of BEE such as employment equity and small enterprise development policy have been around since the Nineties. In addition, preferential procurement policy was legislated in 2000.
Another challenging question is to ask how BEE will work, especially in the light of recent policy thinking. I’m sure everyone wants to get ahold of the latest thinking around BEE.
The fact that BEE policy envisages working within a free market domain is a far cry from the African National Congress’s Freedom Charter of 1955. The Freedom Charter spoke of the nationalisation of banks, minerals and the monopolising of industry. Besides being a custodian of mining, fishing and communication licences, the South African government uses its might as the largest buyer in the land to further its socio-economic objectives. BEE policy is thus prescribed to state departments and state-owned enterprises and not to the private sector. The pressure on the private sector to transform, however, is immense, especially on those companies that have the government as its significant consumer. In a free-market domain, the government argues that it has every right to choose its suppliers.
Preferential procurement is largely the driver within BEE policy although much debate has gone into changing the ownership patterns of businesses. Government departments, state-owned enterprises and, increasingly, private business choose suppliers with a certain degree of BEE status. A BEE status will soon contribute towards 10 points when contracts or tenders are worth more than R1-million. Ninety points are still reserved for price and quality of the goods and services being supplied. For tenders worth less than a R1-million, a BEE status will count towards 20 points while the remaining 80 points will be allocated for price and quality. The state uses this process in exercising its free-market choice when selecting its suppliers. For suppliers in a sector where price and quality are not a significant differentiator among competitors, a BEE status becomes crucial to tip the scales.
The fundamental shift in thinking around the implementation of BEE is that a business’s degree of black ownership will cease to be the only contributor to scoring points towards the preferential procurement process.
The old definitions of a black enterprise, black-empowered enterprise and black-influenced enterprise will soon fall away. In the years ahead, points will be scored in having black executives, employment equity, enterprise development, skills development and preferential procurement, aside from simply having black investors or owners. One can go as far as to predict that businesses that do not have any black owners could still score a maximum of eight out of 10 points when tendering for a contract worth over R1-million.
Black ownership, in a largely black society is nevertheless still important. Aside from the political motivation for this, one need only look at the success of largely employee-owned companies the world over. And, for South Africa, its nature is such that businesses here in the future will be composed of largely black employees.
But it is about time that policy finds ways to motivate state departments and businesses to spend resources on other elements of BEE such as skills development and enterprise development. It is in these elements too that a direct correlation can be traced to economic growth over the long term.
With the shift in businesses paying attention to elements of BEE other than ownership, and being motivated to do so by significant points in the procurement process, the future seems promising. Nevertheless, it is still a long road ahead and one has to be mindful that prosperous economies the world over have taken more than a decade of freedom to achieve all the elements we hope to achieve here in South Africa.
Colin Reddy is a senior reasearcher at BusinessMap Foundation