Reformulate BEE regulations
AWEEK is a short time in politics. Trade and Industry Minister Rob Davies, whom I criticised personally in last week’s column, has risen in my estimation (no doubt to his relief).
First, he seems to have got South Africa included in the Africa Growth and Opportunities Bill that passed almost unanimously through the US Senate a week ago. I said he was good at trade.
There is still the US Congress to negotiate, however, which will be tougher.
Second, he was very forthright with the parliamentary select committee last Tuesday in explaining that a clarification to new black economic empowerment (BEE) codes published the week before was indeed poppycock. The “clarification” said broad-based empowerment schemes that many companies had entered into in good faith would now be scored much lower on empowerment scorecards to encourage (once again) active (individual) and not passive (group) empowerment.
The complaint was that the schemes were being abused by big companies that loaded on black BEE beneficiaries purely for the purposes of fronting, which was a serious problem.
Back-pedalling under pressure, the Department of Trade and Industry first said the new rule would not apply to existing schemes. Then last week Davies appeared in parliament to say the idea had been scrapped altogether and that the clarification had, in fact, been a case of using “a big sledgehammer to hit a fly”.
I couldn’t have put it better myself. “We are back to the status quo,” Davies said.
The back story to all of this, helpfully supplied by Carol Paton in a Business Day article last week, is instructive. Davies was out of the country when the “clarification” was published.
It was instead signed off by his stand-in, Small Business Minister Lindiwe Zulu. The lesson is that when ministers are allowed to fiddle with the regulations surrounding legislation (I confused the two last week) at their discretion and without sending their changes to parliament first, mistakes like this will happen.
But ministerial discretion in legislation is becoming a feature of the way President Jacob Zuma runs his administration. It is threatened in draft bills on mining and energy, and it is dangerous.
A law should be the law until parliament changes it.
The only knot left untied after all of this is a report Davies is expecting from a task team on how to police broad-based schemes. That is long overdue.
We need to know that fronting will be aggressively punished, and that the communities and trusts that broad-based dividends are paid into are actually getting the money and distributing it as they should.
I have no problem with BEE. South Africa would not survive without it, but it has to be done effectively.
Nor do I have much quarrel with the argument that established businesses should do more to encourage it. But if that is to work, the private sector has to own the process.
I have three thoughts on how that might happen. First, big listed and non-listed companies should be required by the JSE or the law to mentor small to medium-sized black businesses – not microenterprises, but companies turning over between, say, R20-million and R100-million a year.
The mentoring would place at least one senior director (not, please, human resources) on the company board of the business being mentored, and that board would contain one member from the dominant union in the business and its main banker. The mentor would include a report on its mentored business in its JSE filings and annual report (or its tax returns), would pay for an annual external audit from a reputable black-controlled firm, and take a degree of responsibility for the performance of the mentored business.
The better the performance, the better the scorecard. Businesses mentored could be suppliers or not.
The aim would be to ensure good governance and sustainable jobs.
Second, the JSE itself should come to the party. I’m sure it does tons for empowerment, but an old idea (there is some dispute as to whether it was Stephen Mulholland’s or Jacko Maree’s) is still powerful.
It would require, under JSE supervision and possibly its enforcement, all listed companies to raise their share capital by 1%, and to pool it. At the current market capitalisation of the JSE that would raise about R120-billion.
The idea would be for control of the pool to exclude totally the state and any political interest. It would be the responsibility of a board of trustees drawn from the great and the good of the private sector (think retirees such as RMB’s Paul Harris, Tsogo Sun’s Jabu Mabuza and SAB’s Norman Adami).
Their job would be to distribute the money as quickly as possible to big and small (even micro in this case) black businesses that can make a case for it. Some will stick, some not. It doesn’t matter. Share prices can rise and fall sickeningly on the JSE, and 1% would soon be recovered. Critics of the idea say that because so much of the JSE is held by foreigners, it could not be done.
My bet is that watching private business in South Africa pumping money into black busi- ness would give them a hell of a lot more confidence in our future. The exercise should be repeated every three years for a decade.
Companies that participate in these first two programmes would be exempt from BEE regulations that deplete their balance sheets.
A third thought is that the state should ensure that when the president or a minister conducts a trade visit abroad it should be to get actual business and not merely to introduce potential black partners to possible foreign investors. UK prime ministers have been doing this to great effect since Margaret Thatcher began visiting foreign countries to sell British goods.
Leaders of big, established local manufacturers should always be a part of the delegations politicians take with them. And if the state helps them win a foreign order, the business needs to be shared with a local black-owned company.
These are the only ways established (call it white) and emerging (call it black) companies are ever going to meet each other on terms not dictated by political interests. And none is beyond our reach.
No? Okay, well then you’re stuck with trade and industry’s BEE team and the oily interventions of Economic Development Minister Ebrahim Patel. He’ll even fix your prices for you!
Soon it will (as it should) be impossible to count into your BEE score black investors such as the Public Investment Corporation or, say, Royal Bafokeng, who buy into your business with their own money.
The only way out of the state’s BEE trap for the establishment is to start a creative inclusion game all of its own. If the business establishment wants rid of BEE then it should invent a new, inclusive game all of its own and save its balance sheets.
‘ I have no problem with BEE. South Africa would not survive without it, but it has to be done effectively