B-BBEE: Do South African corporates have their heads in the sand or has a once-well-intentioned policy lost its way?

Between the idea and the reality

Between the motion and the act

Falls the shadow

– T.S. Eliot

I have been operating in the BEE industry for well over a decade and have found myself fighting a losing battle against deep cynicism over the last year. It’s hard to tell whether this is simply because I’ve spent too many years in an industry where disillusionment is cumulative, or whether it is because things have become increasingly dire. Never has there been a greater standoff and mistrust between the government and the private sector in the BEE space as there is today. And it’s not hard to understand why.

On the one hand, you have policy-makers who go through policy motions without any real attempt at engagement or an understanding of the practical, on-the-ground realities of the BEE legislation they have created, including a very limited appreciation for the unintended consequences of some of the rules. The policy is deeply rooted in the proverbial stick, and if business doesn’t want to transform, the answer must be to get a bigger stick. The idea of providing a carrot was blasphemous – at least until the introduction of the Youth Employment Service (YES) initiative, which is, in my opinion, the first potential carrot that BEE has produced.

On the other hand, you have many business owners and corporates who really don’t want to transform. And those who want to do the right thing, are often confronted with an extremely complex and challenging set of rules, to the point where, if they don’t have any black ownership and can hardly get to Level 8 or Level 7, question whether they should bother doing anything at all. Although some companies certainly care where their money goes and show a concern about impact, this is far from the prevailing view. Companies that see a strategic advantage in BEE, the opportunity to tap into the value of diversity (proven globally time and time again), or an opportunity to access new markets and opportunities are also few and far between. They see BEE as simply yet another tax to pay in an over-taxed society, not a tool which we can use to create the change which South Africa needs to pull ourselves back from crashing over the edge of a cliff.

My biggest frustrations in BEE stem from policy failures, market failures and rampant fronting. For example:

  • When you have to question if a CFA qualification, one of the highest and most sought after qualifications in the financial sector, can qualify as an Internship (it is technically not SAQA accredited) and a corporate finance firm may have to settle for matriculants on an NQF Level 2 filing paper in the back office, its not surprising that corporate South Africa is frustrated.
  • When you live with the incongruence of recommending that clients “buy” disabled learnerships because that’s what the Codes incentivise as the cheapest Skills points and you can’t pretend the points and “incentive” doesn’t exist, but you know that sausage factory training academies are recycling and exploiting disabled youth and pocketing the profits, and that most businesses don’t have the time or inclination to consider how to accommodate disabled employees.
  • When you have to accept that a large amount of fronting happens through BEE affidavits that you are compelled by the policy and the dti to accept, even though large generic entities are getting Ownership points they shouldn’t be getting, and real black entrepreneurs are being undermined.
  • When you’ve seen the same BEE money laundering model that blackwashes procurement spend or supplier development contributions and have to accept it because it meets the technical requirements of the Codes.
  • When you have to accept ESD money going to businesses that are 74% white-owned and structured to look like they’re 51% black-owned – and even after the dti gazettes this change you will still have to accept the incorrect affidavit from the same company that conveniently thinks it still qualifies as 51% black-owned.
  • When funding institutions pull the upside out of preference share structures which no one except an elite few understand, and companies that have maybe 5% real black shareholding look like they’re 51% black-owned.
  • When clever advisors sell clever and expensive avoidance structures. When substance over legal form is written in the legislation but has no teeth because only what can be technically proven counts.
  • When SANAS cares more about if a verification agent followed their own processes rather than how the BEE Codes are interpreted.
  • When verification agents are too afraid of losing their accreditation to award legitimate points that don’t fit neatly into the box.
  • When you lose a client because your advice isn’t aggressive enough.
  • When you ask a client to go elsewhere because you won’t support their fronting schemes.  

When all of this happens, it can be difficult to stay optimistic in order to keep pushing the true transformation that South Africa so desperately needs.

This is not to say that BEE hasn’t had some success. If it weren’t for the BEE policies, I doubt we would have made the inroads we have made so far with developing the skills of black South Africans, hiring and promoting of skilled black employees, buying from black-owned businesses and supporting the growth of black SMEs. It’s just that we could have done so much more. We could be doing so much more. So much BEE money is wasted, goes into a black hole or ends up in the pockets of advisors, facilitators, funders and opportunists. As a nation, we simply cannot afford this. An article that appeared in the Daily Maverick in the last week highlighted that, while globally, inequality is increasing, and the top 1% hold substantial wealth, South Africa’s inequality doesn’t mirror global patterns of wealth and income distribution and is unequal in the extreme, with the top 10% earning 67% of all income. As many as 75% of South Africans are struggling to get by and half of all South Africans are chronically poor. These poor South Africans are some of the hardest working people, and wake up early and get home late in order to travel long distances to work. The data simply does not support a “burgeoning black middle class”. South Africa’s schooling system on maths and sciences is ranked 140 out of 140 countries. Intergenerational income mobility, where children get a better shot at life than their parents, is statistically almost impossible. Stats from 2017 show that 19% of black graduates are unemployed compared with 4.7% of white graduates, and only about 10% of our youth even make it as far as obtaining a tertiary qualification. If this statistic alone doesn’t scare you, nothing will.

BEE is a policy that measures inputs and outputs. There are one or two indicators that measure outcomes – which are sometimes manipulated for short-term gain – and no indicators that measure impact. It’s no wonder that businesses view BEE as a tax; they aren’t incentivised to think of it in any other way. If we are not careful, the YES initiative, which by the time this article is published may have already been gazetted, will simply become another box-ticking exercise. If that happens, we are on shaky ground indeed. We saw what happened with Fees Must Fall, and if we “give opportunities” to 1 million youth, raise their expectations and then fail to deliver on jobs and career paths thereafter, we can expect them to be more angry than if their hopes were never raised in the first place, and rightly so. And we need far more than pretend jobs at R3,500 a month for economically active citizens; we need youth, with solid foundations, ready to be upskilled and who can enter and hold down real jobs paying living wages.

South Africa does, indeed, need Radical Economic Transformation if we are to avoid spiraling out of control. Instead of corporates like KPMG, VBS, SAP and McKinsey, complicit in supporting corruption and state capture, we need strong, decisive and ethical leadership from Business, which has the opportunity to lead by example and drive the narrative of what Radical Economic Transformation could mean for our country, and the social and economic return on BEE investment that could accrue to society, instead of leaving it to politicians, angry youth and revolutions. We don’t have to have the perfect policy. We just need business leaders to wake up and understand that change is necessary, take ownership, and help to create an impactful implementation of solutions that work for all.

Written By:

alana_1348763442Alana Bond

[email protected]

B. Bus. Sci. (Hons) Finance and Accounting from the University of Cape Town

Co-founder and Director of Simanye and a Trustee of The Simanye Trust