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Black Economic Empowerment is on life support

And Rob Davies is about to pull the plug on SA’s empowerment progress and inclusive economic growth.

South Africa was a battered and bruised country when President Cyril Ramaphosa took over the reins. 

There was an air of immediate optimism after his state of the nation address. It seemed as though his Thuma Mina proposal was going to get the country to work and everyone was going to roll up their sleeves and get involved. Ramaphosa started out by cleaning up aspects of his cabinet and the entities immediately under his control.
 
Many commentators lamented about the continued employment of dubious cabinet ministers such as Bathabile Dlamini and Malusi Gigaba. Those two ministers have been put in their place, with their ability to destroy society and the economy.

Ramaphosa did however retain one minister in his original portfolio, who has caused an immeasurable amount of harm to the economy: Rob Davies, the Minister of Trade and Industry. I’m not in a position to comment on his broader role as minister, but I have watched him destroy whatever good that a Black Economic Empowerment (BEE) policy had the potential to deliver. 

Davies appears to work on the principle that if it’s not broken then 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. At the time, I thought that this was as a result of certain powerful lobby groups that had the ear of then President Jacob Zuma. It seems as though this was an incorrect sentiment. Davies has continued on this strategy of destruction since the advent of Ramaphosa’s presidency.

I can only speculate about the reasons for the revision of BEE codes in 2012. But I suspect that 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, who were achieving scores that rivalled theirs without ownership. 
 
News of the revised BEE codes, along with other unsubstantiated allegations that black companies were being wholly ripped off by verification agencies, prompted Davies and his department to change the structure of BEE and make the targets and requirements more onerous. On top of this, they ensured that the BEE scorecard marked negatively against those who did not meet certain sub-minimum requirements under three elements [RM1]. 
 
To skew the system in favour of black-owned businesses, Davies automatically exempted businesses that are 51% or more black-owned with an annual turnover of over less than R50 million and promoted them to BEE levels that would give them a huge leg up under state procurement – a level that the average business that had less than 51% black ownership would be hard pressed to match.

I would suggest that even though the revised targets made compliance more onerous, companies were finding ways to comply. And, as with all systems, a variety of clever schemes were identified to get to 51% black ownership with minimal fuss or a reduction in control. 

In some cases, these schemes had raised the ire of BEE Commissioner Zodwa Ntuli, who realised that she could do nothing about them unless she went to court. Her toothlessness was brought to the attention of Davies, who then attempted to close up some of these loopholes in amendments that were published for comment in the last three months. 

However, Davies did not think that he should merely close up the loopholes and proposed a wide variety of amendments that would address a few of the government’s educational and employment challenges. 

Choosing to ignore Ramaphosa and the ANC’s Thuma Mina programme, Davies decided to exempt all businesses whose ownership levels are 51% or higher from any of the elements within the BEE codes, irrespective of turnover.
 
The most notable amendment was the requirement that companies should pay 2.5% of their payroll over to black students as bursaries in exchange for four points under skills development. In his wisdom, 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 could provide, you have to have achieved all four points for bursaries. 

This proposal was greeted with almost no enthusiasm from big business, prompting Davies to withdraw the requirement from the amendment. Davies still made sure that whatever benefit the YES could offer (which could mean a promotion up to two levels for over-achievement of the YES targets) would be negated by other onerous and counter-productive conditions. This should have been a major red flag for Davies but he must have thought that 2.5% of payroll to be spent on bursaries was an achievable target. It seems he failed to speak with those entities that have been forced to comply with his revised BEE codes. 
 
Using the payroll spend of one of the big four banks in 2012, my calculations show that a large financial institution would need to spend close to R400 million to get these four points. 
 
In fact, it’s doubtful whether Davies has ever spoken to the business community. It’s even more doubtful whether he has ever considered the comments that come from those entities after he has published the amendments for comment. I have my absolute doubts that he has applied his mind to or even read the drafts that he has published for comment since he began his tenure in 2009. 
 
Now when you consider that he has proposed that all 51% or more black-owned businesses should be exempt from BEE compliance altogether and automatically be promoted to a level that few companies with less ownership can compete with, you start to see a picture emerging. The whole BEE process is being set up for failure. 
 
As 51% black ownership becomes more of a requirement, more companies will find ways to restructure within the prescripts of the BEE codes. This means that they will no longer need to consider bursaries, skills development, who or what their suppliers look like. Enterprise and supplier development contributions as well as socio-economic development contributions will dry up altogether. 

Narrow-based BEE will become the norm and black-owned businesses will find it unnecessary to own the means of production because they can earn a very decent living acting as agents or resellers for established businesses that couldn’t be bothered with ownership. These same black businesses will become plentiful and will be forced to compete with each other in terms of commissions that are paid out.  The more resourceful black-owned businesses will ensure that they are on the necessary vendor lists to streamline the process.
 
Who then is left to attend to the social redress that BEE is supposed to address? The only likely candidates will be those companies subject to the Minerals Act and those listed on the JSE that will never be able to get to 51% black ownership. 

I am heartened by the corporate protest that resulted in Davies withdrawing his bursary proposal as a condition for YES compliance. But it’s not enough. Even the most jaded naysayer will recognise that this country’s future is dependent on a consistent BEE strategy that stimulates inclusive growth and drags us out of the mire that Zuma left us in. We need more corporate activism across the spectrum. Failure to do so will have dire consequences for us all. Davies’ economy-wrecking strategies need to be checked all along the way. Let us see if large business is up to the challenge.
 
Paul Janisch is the strategic director of the Caird Group, an independent broad based BEE consultancy.

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BEE policies are racist and don’t have a place in fair and free society. The sooner these go, the better for everyone in this country. Minorities should not be marginalized on racist grounds especially if minotities have to solutions, history and motivation. There is nothing more successful than a country full of happy taxpayers and nothing more destructive than giving opportunities away to people who have no interest but personal enrichment.
The original idea of BEE was made in good faith but is failing miserably as time progresses ( apart from being a racist policy as well)
Take it off life support and give it a decent burial.

What do you expect when a communist is appointed as Minister of Trade & Industries – BEE, the great State Capture enabler!

Minister of Trade & Industries Vision Statement:

“We will shape investment decisions to our world view using legislation, rather than understanding how value is created. We do not realize or care that South Africa is not the center of the world and other investment opportunities are numerous. We do not look back and measure whether our policies have been successful at growing the economy and the tax base.”

If policies like BEE were able to create inclusive growth, why are we the only nation on earth to implement it? Why doesn’t Warren Buffet “BEE” the millions of poorer individuals in the USA? There are many unequal societies on earth. Many societies and individuals all over the world are left behind by the capitalist system. How is it possible then, that the most equal societies on earth reached that position without BEE policies?

Why, after 24 years of BEE, is South Africa the most unequal society on earth?
Maybe it is time to “connect the dots”. Somewhere, somebody with a reasonable level of intelligence may come to the conclusion that socialist BEE policies are an additional tax that destroys the ability of local companies to compete internationally. It is a drag on the economy, destroys employment opportunities, prohibits wealth-creation and shrinks the tax-base.

Who is enabled by these socialist policies? The ANC politicians are the only beneficiaries of BEE policies. They will receive a salary as a politician until the next election. BEE policies create a comfort zone, security, employment, a source of funding for the political elite, while it leaves the rest of the citizens in poverty and widening inequality.

Socialist BEE policies are the hallmark of a losing nation.

My BiL is a civil engineer and runs his own small practice. He specializes in water supply and pumping stations. They employ 38 people. He is white so gets no state work and the moving goalposts in BEE make it unlikely he will ever get state work. A while ago they tendered on a huge water project in the north of the country with no hope of success. I think his tender was ~ R40 million. The tender went to a tenderpreneur for R60 million. The guy who won the tender got my BiL to do the work for less than R40 million and walked off with R 22 million and was never seen again.

This is not doing anyone a favour. Its plain theft.

Davies is simply a good ANC (and communist) cadre following the ANC road.
Do not look for anything different under CR’s stint.

All RSA Inc has done, it to learn from Zim’s failure.

Zim went straight to 51% by law and blew themselves up. We were smart enough, to use the slow creep method. Hide the 51% behind loads of other issues, then slowly let the other issues fall away and boom, pow, we have arrived at the 51% regulation. Soon it will be 51% by law and our transformation will be complete.

While I share the negative stance of most commentators to BEE, I do believe that we need to address inequality and it is highly unlikely that laissez faire capitalism will do this.

In condemning BEE I will go one step further and put it at the heart of our corruption problem. In all fairness what is truely the difference between the wealth that CR accumulated on the back of his political connections and what the Guptas attempted to do? Critiscm is heaped on SAP KPMG McKinsey et al for facilitating state capture but yet society expects it to conform to BEE that is legislated corruption.

However we cannot merely ignore inequality and expect the market to magically solve it. The status quo cannot continue and for South Africa to remain out of the hands of Malema and his populist thugs we need to do something and we need to do it quickly.

https://www.youtube.com/watch?v=BnOGaQX04Cs

There is the answer to your inequality problem my friend.

OK so lets go back to the UK during the industrial revolution. Child labour, horrible working conditions and massive poverty amongst the working classes. This was only rectified by government intervention.

I am far from a socialist and I used to share your view that the market solves everything, but if I compare Northern Europe’s social democrasies to the US it is clear that the Europeans enjoy a higher standard of living and is much more content than Americans.

You are 100% correct we must grow the cake not merely look for ways to slice it differently. But people are getting restless and to tell somebody who lives in a shack, is unemployed and cannot feed his children that he must be patient and wait 20 years for the miracle of trickle-down-economics to provide him with an income is not going to cut it anymore. We need to provide people with social support in the interim as we build the economy.

The advantaged among us must be prepared to sacrifice something – maybe in the form of higher taxes – if we want to have a sustainable future in South Africa.

I’m in agreement with Warren regarding inequality, it’s a blight

Unfortunately it’s a sideline concern for the ruling class in politics or Corporate governance as the issue is really beyond the fiscus of the country

It does however provide a status quo for the ruling elite, give the poor just enough to eat and a dry floor to sleep and you maintain an existence of control

In the USA AA was created to protect a minority from racial discrimination.
It is incomprehensible that in SA the majority (who hold the levers of power) should be protected from discrimination by ~5% of the population.

So BEE is creating wealth for individuals who contribute very little to the economy. It does not help to create jobs for people who really need help climbing out of poverty.

When you have communists like Rob Davies and Ebrahim Patel driving the ship there can only be a wreck.

They have been in their respective well paying jobs for many years – and the results speak for themselves.

Either you have a free market – and the Government has little or no interference – or you don’t.

Rob – you and Ebrahim – go on holiday – stay well alone, you have done enough damage.

From a redress perspective, any reasonable and fair person should realize that something needs to be done to deal with this manufactured inequality that we have here. Unfortunately BEE as it stands has made things worse, through corruption mostly and lack of proper governance. I feel also that this corruption will still go unchecked during the land expropriation process. It’s really sad, BEE and land expropriation together should have been the trump-card for poverty alleviation, but instead politicians and government technocrats are just rubbing their hands together for more looting.

The fact the Communists, the worst system of governance in history, have a meaningful say on matters such as this is an indictment on our democracy. Their direct views have never been tested with the electorate but only indirectly via the ANC. If rabid communists want to have a say they must stand for office as a separate entity and let the people respond. I would do that if I thought my views and beliefs were credible.

People confuse the role of business which is to maximise shareholder NPV and the role of government. If you do this you get a low growth environment where businesses fail and the state cannot collect taxes to provide services to it’s population.

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