TOBY CHANCE | Billions for new BEE fund is tacit admission of policy’s failure

Within a few weeks two visions of how South Africa can grow the economy and tackle economic exclusion have been presented in parliament.

The first, from the ANC, was a tightening of the broad-based BEE policy framework, built around the ANC’s plan to set up a state-run Transformation Fund to channel money into black-owned small, medium and micro enterprises (SMMEs).

The fund lies at the heart of the recently gazetted amendments to the BBBEE Codes of Good Practice, which substantially alter the playing field for companies wishing to maximise their points on the scorecard.

The premise of the fund is that enterprise and supplier development, as stipulated in the codes of good practice, has not meaningfully increased black participation in the economy. In effect, trade, industry & competition minister Parks Tau is admitting BEE has failed in its goal through the rationale for the fund.

Instead of businesses developing enterprises and their own supply chains, they will receive five extra points on their scorecard if they hand their money to the fund to spend instead. Unsurprisingly, businesses are not keen to hand billions to a fund whose design creates huge opportunities for political interference.

The Transformation Fund has also been widely criticised for duplicating other government funds, disrupting existing business-supplier relationships, and the likelihood that the government will be far worse at picking which businesses to support. The ANC has trumpeted the fund as the answer to continued economic exclusion. It is its latest attempt to double down on BEE as its chosen instrument for redress.

The other vision is encapsulated in the Economic Inclusion for All (EIA) Bill, the DA’s latest weapon in our armoury to counter 23 years of the ANC’s misguided BEE policies. The bill, introduced by our head of policy, MP Mat Cuthbert, for the first time gives South Africa a comprehensive alternative to the ANC’s race-based policies, which have strangled business, crippled growth and perpetuated divisions in our society.

The EIA Bill acknowledges the need for inclusive growth that stimulates the economy and brings more opportunities for individuals previously excluded from participating in it, as business owners and workers. It does this by including a 20% provision in government procurement for investing in programmes that work towards fulfilling the UN sustainable development goals (SDGs), covering societal needs such as alleviating poverty, promoting good health and wellbeing and stimulating economic growth.

As the president himself recently said in the National Assembly, what is laid out in the SDGs is what has been embraced in the National Development Plan. The bill replaces race with need as the signifier of disadvantage and enables companies to choose the areas of need that are most closely aligned with their strategic objectives. It will move the benefits of public procurement away from the rich and politically connected and towards those most in need.

These two visions present a stark choice — one wedded to a failed ideology that divides, the other based on a proven system that builds. A recent meeting of the portfolio committee on trade, industry & competition revealed BEE policy shortcomings and how wedded the ANC is to its pet monster.

Presenting the BBBEE commission’s first and third quarter performance report, deputy trade, industry & competition minister Zuko Godlimpi and BBBEE commissioner Tshediso Matona cited statistics proving businesses simply cannot keep up with the costs of compliance with BEE policy. The costs of compliance are paid in jobs lost and investment foregone, and thus primarily by working South Africans. A small, politically connected elite captures the benefits.

The highlight of the presentation was the continuing decline in BEE reporting by JSE-listed companies and state-owned entities (SOEs). For the period under review reports were received from only 106 JSE companies, 76 SOEs and five sector education & training authorities (Setas). Last month there were 252 JSE-listed companies, more than 700 SOEs and 21 Setas. Compliance has all but collapsed, even in the government’s own entities.

The highlight of the presentation was the continuing decline in BEE reporting by JSE-listed companies and state-owned entities.

Since 2013 the commission has received about 28,000 BBBEE certificates, processed by the 89 verification agencies on behalf their clients who take the trouble to report their BBBEE scorecards. This compares with about a million companies submitting a tax return to the South African Revenue Service (Sars). This is hardly evidence of a functioning policy.

BEE compliance fatigue is clearly entrenched, which the commissioner admitted in his presentation, citing “reporting mischief” as the reason. Not content to admit to a failed policy, the commissioner bewailed the lack of enforcement instruments available to him, citing the ability of the Companies & Intellectual Property Commission to deregister companies and Sars to impose tax penalties on noncompliant companies.

He suggested benchmarks established by other department of trade, industry & competition entities that can impose penalties of up to 10% of turnover for noncompliance as “incentives” the department should consider in amendments to the BBBEE legislation. Yet threats and penalties will not lead to more compliance — they will lead to less investment and fewer jobs.

The department and the commissioner are betting the Transformation Fund will re-energise companies’ commitment to BEE. But the Transformation Fund is nothing more than the last kicks of a dying horse — a barely disguised inducement to contribute to a state-run fund in return for five extra points on the BBBEE scorecard.

Last year the DA won the portfolio committee’s support for the department to commission an independent review of BBBEE policy. When questioned by the DA in the committee, Godlimpi said the review was in its early stages, no panel members had been appointed and no terms of reference had been agreed. The focus of the review, he said, was to find ways of measuring outcomes and impact rather than box-ticking compliance. We will soon be able to assess the department’s bona fides when the review body and terms of reference are announced.

The DA encourages all measures to increase economic activity, the formation and growth of new companies and stimulants to job creation and economic growth. The current BEE regime has clearly failed by all those measures. The ANC has been forced to question its commitment to BEE, not only by the DA but by other business groupings, think-tanks and business owners who have been sidelined by connected insiders or face a reduced rating if the amended codes come into force.

The BEE review must refrain from further tightening the noose strangling the economy and instead focus on creating a new policy architecture for unleashing our entrepreneurs and business leaders to invest, innovate and grow.

Parliament will soon have a choice: follow the ANC way by continuing to support the tired and discredited BEE policy framework, or take the DA path, one that has global buy-in and finally discards race as the organising principle of South African society.

• Chance is an MP and DA spokesperson on trade, industry & competition.

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