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FIFI PETERS: Let’s look at transformation now. It does remain a really hot topic in South Africa, given that the level of inequality in this country is terrible [with] one of the highest, if not the highest, inequality rates in the world – depending on how you measure it.
We know that this is because of the painful past that we are coming from, in which a lot of black people, a lot of women, and a lot of people from other disadvantaged backgrounds, were excluded from participating in the mainstream economy. So black economic empowerment, BEE, is one of the tools that our government has been using to try and change things for the better. To review whether it is having the desired impact, we are going to look at the Sanlam Gauge, look at that report which is done in partnership with the Sunday Times, as to how we are moving the dial when it comes to transformation.
Lerato Ratsoma, the managing director of Empowerdex, joins us for more. This is the second Sanlam Gauge report on transformation, and I’d like to understand what’s changed from last year’s report, and has that change been for the better?
LERATO RATSOMA: Thanks for the opportunity to discuss the Sanlam Gauge with you and your listeners this evening. I think what Sanlam was looking at together with the partners last year was to determine where we are as a country in terms of transformation. There wasn’t much talk about BEE at the time. It seemed to have been somewhere on the back burner whereas, when you look around you, you would still see that we do need a lot to move in terms of transformation. So then the decision to determine where we are as a country came about, and that’s how the 2021 Gauge was done.
Now in 2022, what we tried to do is to see if there has been any improvement in the last year – I know that not a lot can change in a year, especially from scorecards of companies – but also to try and figure out, like from the last 10 years, if there has been an improvement overall, because they’ve always said that ‘transformation is a journey, it’s not a particular destination’.
But through our journey has there been some improvement? What have we learned? What can we improve on?
What can we do more of and less of, and what have we learned especially, as you would know, a couple of weeks back the new Presidential Advisory Committee on BEE was we launched. Those are some of the things that they would need to grapple with in terms of transformation in the country.
FIFI PETERS: So how are you guys measuring transformation? What areas are you looking at? And, just based on those areas, what has improved and what hasn’t?
LERATO RATSOMA: What we’ve done is that we’ve looked at around 10 000 scorecards, looking at all of the companies who do report on their BEE transformation initiatives.
What we then did was to look at them from a generic point of view, in other words putting them all together to figure out how we are doing as a country compared to last year. And then we split them up into the different sector codes to see how they are doing within the sectors that they’re in.
So, for example, what we did see is that there has been a slight drop from last year in terms of the overall achievement of what I would call SA Inc, if it was a company. There was a slight drop overall. However, we can see that in the individual elements some of them improved slightly. But I think, for me, as we do more and more we should get a better understanding in terms of the trends we are heading towards.
But when we looked at the 10-year history, we found that definitely around 2016/2017 there was an absolute drop in the overall numbers for BEE, which then started going back up in 2019, but then Covid hit and we started going down again.
So one of the things that came out in today’s session was that there is no way of divorcing the economic performance of the country from the BEE performance, because a lot of it has to do with the amount of cash that we are spending, whether it’s [for] black entrepreneurs or black employees, on training and things like that.
But we need to find a way of making sure that we don’t lose the momentum, [and] that we continue to implement as much as we can, even when maybe survival is much more important than the scorecard. So that’s where we are at the moment.
FIFI PETERS: The fact that there was a slight drop means that there were a lot more sectors that are essentially sleeping on the job when it comes to transformation than there were sectors that are pulling up their socks. Break that down for us. Which sectors – I don’t know if I can call them high achievers at this stage – are at least passing when it comes to transformation, and which sectors still need to go back and do more homework?
LERATO RATSOMA: Interestingly, we found that the agriculture sector and construction were doing relatively better than their peers. The discussion with the construction industry was interesting, considering that quite a number of their members went through business rescue and even liquidations of some of their large contributors. However, they managed to still maintain a Level 3 [score] and even improve in some areas.
What we are finding, though, is that there are sectors that are highly competitive, and we find that, with those sectors, they’re able to maintain over time even if they don’t necessarily improve, where those that are less in the public eye tend to then switch gears.
But, like I said, when it comes to transformation, we should also look at how the economy is doing, because that has affected quite a lot of the sectors across the board.
But we are happy that agri BEE and construction continue to raise the bar, and we are happy that in terms of the overall we seem to still be on the same Level 4, if we were to allocate the Level 3 and Level 4 contribution sectors – which is an average score, to be honest. We should be aiming at Level 2 [or] Level 1, which is the highest.
Those are the two that are definitely pulling up everyone else. But we still have a lot of work to do, especially when we are looking at sectors such as property and tourism and some of those other guys.
FIFI PETERS: Retail and mining and finance and technology. Sorry to put you on the spot here, but what are those sectors saying is making it difficult for them to do more at this juncture to transform?
LERATO RATSOMA: Well, interestingly, when you speak to any sector, they’ll tell you that they’re really, really doing well. But unfortunately the numbers say something else. What we do know, for example, if we look at mining, they do ‘generic’. They’re doing very well when it comes to ownership because they have to. Their mining businesses are linked to their ownership. So they don’t have any leeway in terms of not getting full points in terms of that.
Whereas some, like in retail, for example, don’t have that much of a push to maintain high ownership scores. Therefore there would be a whole lot more ‘average’.
What we’re finding, though, is that almost everyone is sitting at around 50%, on average, in terms of obtaining their management and control goals.
Now management and control looks at who are you hiring, who is on your board. And it also only looks at your management level, your top, senior, middle and junior management. Everyone else below junior management does not get counted.
And what we found is that the majority of the sectors are sitting between the 50% and 55% mark, which is something, if you think about it, if you are a person and you are looking at a company and you’re trying to determine if they’re transformed without looking at their scorecard, you look at who they employ and you make an assumption about their level of transformation.
So when you look at all of these you find that when it comes to management and control, the majority of them are actually quite low. It gives you an impression that perhaps management and control or employment equity as a whole is not a focus area for all of the sectors on average, and especially the generic ones, especially the likes of manufacturing and things like that, where you find that they hire a whole lot more black people, but right at the bottom.
So this is something that has always been at the forefront. The Commission for Employment Equity is always talking about the lack of movement in those numbers, and you’re seeing it in the scorecards.
It’s something that we should really be looking at because, until that changes, the [person] on the street will always look at this and think this does not make sense. How can you be Level 2 – and yet the people they deal with are nothing but untransformed.
FIFI PETERS: I think it is really scary that a lot of these companies, as you say, a lot of the sectors, think that they’re doing okay, because what that suggests is that they don’t see a lot of areas in which they should improve because they think they’re doing okay, which means that we remain with the level of transformation that we currently have, or transformation happens at a slower pace in future.
But [that’s] a conversation for another day. Lerato, thanks so much for your time. Lerato Ratsoma is managing director of Empowerdex.