The power of buying black

Preferential procurement scores for broad-based black economic empowerment (BEE) is one area that has become intrinsic to the behaviour of South African corporations's supply chain managers.

Progress in this area reflects how empowerment has spread across the economy: many suppliers have become compliant, making it easier for their customers to comply in turn. Most of the leading companies in this sector scored a respectable 20 points — the maximum allocated by the generic scorecard.

There are two exceptions. Frontrunners Telkom and Gijima scored 23.9 and 22.5 points respectively, but that was because they are scored in terms of the ICT sector scorecard, which provides for a maximum score of 25 for procurement rather than 20.

The intricate accounting system for measuring BEE compliance means companies can spend more than 100% of their total procurement. That is because each rand spent on priority groups — such as black women and black disabled suppliers — gets multiplied. Hence companies such as Datacentrix score more than 100%.

"Companies normally score well here," said Tholiwe Ngidi, a research analyst with Empowerdex. "These results could be driven by a company's procurement policy or can be the result of a growing compliant market of suppliers. It is also an indication of wholesale adoption of the codes by the entities that transact with big business."

Because procurement is the driving force of BEE, an increase in this score across the general market indicated a more BEE-compliant market, she said.

"Preferential procurement is part of our developmental mandate to encourage local production, stimulate the growth of small and medium enterprises, create jobs and provide critical ICT-intensive skills for the economy," said Telkom group procurement executive Vule Nemukula.

"We seek to shift procurement from established companies and bring new players into our supply chain," said Nemukula.

Telkom's procurement strategy brooks no compromise with technical compliance, output or required quality. The government's codes of good practice are a minimum guiding principle and broad-based BEE certificates only a starting point. Its goal is to create world-class black-owned companies. This requires strong partnerships and a commitment to multiple enterprise development initiatives.

Telkom has introduced an early payment policy to pay invoices from black-owned suppliers processed within five days. It also offers supplier quality and entrepreneurship training. Finally, a BEE commitment plan forms part of the contract between Telkom and suppliers, whose performance is monitored against economic transformation indicators.

"There is still too much focus on investment vehicles at the level of equity ownership. There is also limited participation by black people within management and control or leadership. There is also a serious scarcity of black female-owned businesses in the ICT sector," said Nemukula.

Consequently, Telkom has introduced "set-asides" for certain categories of procurement, which means those products are reserved for supply by black-owned and black women-owned businesses.

Michael Ferreira, who heads up Gijima's human resources department, said his company's BEE initiatives have made a meaningful impact. The company has helped to establish new enterprises in the industry, which have benefited from Gijima's business practices and the company's growth in certain accounts.

Its procurement policy states that a minimum of 50% of Gijima's procurement must be spent through BEE suppliers. Currently, 69.5% of procurement spend goes to these suppliers. But procurement policies could also have unintended negative effects, he said.

"Unfortunately, as true partners, they also encounter the business challenges that we face should we need to downscale.

"That is often a challenge for small businesses, because they do not necessarily have the capacity to deal with that. This is definitely something clients need to consider when they make changes to contracts with agreed-upon socioeconomic development initiatives."

Although this article has been made possible by the Mail & Guardian's advertisers, content and photographs were sourced independently by the M&G supplements editorial team. It forms part of a larger M&G Most Empowered Companies supplement.

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