BEE heading for a failure

MINISTER DAVIES: CODES AMENDED IN 2012

‘Black businesses will earn as resellers for firms that are not bothering about ownership.’

When President Cyril Ramaphosa started to clean up his Cabinet, he retained one minister who has caused immeasurable harm to the economy: Rob Davies, the minister of trade and industry.

Davies has destroyed whatever good a black economic empowerment (BEE) policy had the potential to deliver.

He appears to work on the principle that if it’s not broken, change it and make it more onerous. The warning signs were there when he amended his BEE codes in 2012, after giving the initial codes a mere five years to succeed.

I suspect some quarters were unhappy with the seeming ease of compliance and that black businesses were finding it difficult to compete with their white-owned counterparts, which were achieving scores that rivalled theirs.

News of the revised BEE codes, along with other unsubstantiated allegations that black companies were being wholly ripped off by verification agencies, prompted Davies’ department to change the structure. On top of this, they ensured the BEE scorecard marked negatively against those who did not meet certain sub-minimum requirements under three elements.

Davies automatically exempted businesses that are 51% or more black-owned with an annual turnover of less than R50 million and promoted them to BEE levels that would give them a huge leg up in state procurement. These are levels the average business with less than 51% black ownership would be hard-pressed to match.

Companies were finding ways to comply. And a variety of schemes were identified to get to 51% black ownership with minimal fuss or reduction of control. In some cases, these schemes raised the ire of BEE Commissioner Zodwa Ntuli, who could do nothing about them unless she went to court. Her toothlessness was brought to the attention of Davies, who attempted to close some of the loopholes in amendments published for comment in recent months.

However, Davies proposed a wide variety of amendments that would address a few of the government’s educational and employment challenges. Ignoring Ramaphosa and the ANC’s Thuma Mina programme, he exempted all businesses with ownership levels of 51% or higher from any of the elements in the BEE codes, irrespective of turnover.

The most notable amendment was the requirement that companies pay 2.5% of their payroll to black students as bursaries in exchange for four points under skills development. Davies tied this requirement to the BEE scorecard benefits that the Youth Employment Service (Yes) would provide. In other words, if you want to benefit from the promotion that Yes provides, you have to have all four points for bursaries.

This proposal was greeted with no enthusiasm from big business, prompting him to withdraw the requirement from the amendment. He still made sure whatever benefit the Yes could offer would be negated by other counterproductive conditions.

It seems he did not engage with the entities that have to comply. In fact, it’s doubtful Davies has ever spoken to the business community. It’s even more doubtful whether he has ever considered the comments of those entities after he has published the amendments for comment.

The whole BEE process is being set up for failure. Narrow-based BEE will become the norm and black-owned businesses will find it unnecessary to own the means of production as they can earn a very decent living acting as agents or resellers for established businesses that couldn’t be bothered with ownership. These black businesses will become plentiful and will compete with each other in terms of commissions. The more resourceful black-owned businesses will ensure they are on the necessary vendor lists to streamline the process.

Paul Janisch is the strategic director of Caird Group, an independent broad-based BEE consultancy