AT the Nedbank Top Empowerment Conference in Sandton last month, trade, industry & competition minister Parks Tau addressed the criticism that broad-based BEE (BBBEE) has “failed” because huge “gaps” remain. He made the following revealing comment: “The argument is not new, and it is not neutral. The global backlash against affirmative action is a politically driven campaign by those who have always opposed economic redress.”
This is factually inaccurate, and the evidence for saying so is me. Not me in particular, but I take myself to represent something akin to the centre of political gravity in business circles.
Until fairly recently, I considered BBBEE to be a righteous, necessary, uniquely South African and creative way of confronting a pressing political issue. In 40 years of business commentary journalism, I’ve expressed that sentiment more times than I can remember.
I was thrilled to see employees of Telkom and so many other businesses finally get an equity stake in their companies. But now, sadly, I find myself on the other side of the argument, like so many of my compatriots, particularly those trying to sustain businesses in extremely difficult circumstances. So what changed?
It’s simple. Bad actors have learnt how to game the system. And they have done so to the extent that the policy is working against itself, because BBBEE is not possible without economic growth and as it stands, BBBEE is constricting growth. The fact that Tau can’t see this has a natural explanation; the bad actors are precisely the people in his own party arguing not only for its continuation but for its expansion and extension.
I know there are people who have “always opposed economic redress”. My guess is that this group constitutes a vocal but small minority. In the early 2000s, my sense was that the South African business community did embrace BBBEE; many business organisations willingly took part in sector codes and special dispensations. The mining industry and a host of other companies accepted the original 26% ownership target — though often through expensive, heavily structured empowerment transactions — with alacrity, pride even.
But then the gaming of the system began, and business in the broad sense started having second thoughts. The problem is that having given away 25% of equity, business considered its responsibility from an equity point of view largely done.
But hordes of politicians wanted to know when it would be their turn to be showered with free money. The response of the mining industry was that if you demand that businesses give away 25% of their equity and they do that, and then you demand that they give away another 25%, where does it stop exactly?
BEE was not the only reason mining stagnated; Eskom, Transnet, licensing delays and commodity cycles all mattered. But the repeated reopening of the ownership question became one of the clearest signals to investors that the rules were never quite final.
Take the relationship between the South African National Roads Agency Ltd (Sanral) and WBHO. Civil engineering companies are very reliant on government contracts, so when the government’s BBBEE policy for the construction industry was announced, WBHO complied to the letter. WBHO has started dozens of smaller road-building companies and has carefully constructed a genuine Level 1 BBBEE contributor, 51% black-owned and 30% black-women-owned.
The ANC, in its infinite wisdom, handed the reins of Sanral to a communist transport minister, Blade Nzimande, who promptly appointed Themba Mhambi — an English lecturer — to head the board. Sanral became engulfed in procurement controversy, litigation and boardroom turbulence, in an industry already distorted by the wider construction mafia phenomenon.
Under Mhambi, Sanral I suspect wanted to facilitate the gaming process, but in WBHO it faced an unusual problem: the group was totally BBBEE compliant. How then to avoid giving the big contracts to this company and instead hand them to their mates? Well, simple. Increase the BEE equity requirements, right?
So that ended in a big court case, which WBHO effectively won. So what did Sanral do? It handed the big contracts to Chinese construction companies. You have to laugh. Obviously these companies were not at the time anywhere near as BEE compliant as WBHO and the other local construction companies, but they promised they would be, eventually, maybe.
Tau’s comment that people who oppose BEE are just racist and always have been is not only false but a smear. It’s a smear, not because he wants it to be, but because it has to be. This is visible in his use of bogus statistics such as the claim that “only 31% of the JSE” is owned by black South Africans. Well, yes, but to the extent we know, about 50% of the JSE is owned by foreigners, so actually black and white South African ownership of the JSE is more or less equal, which gives it all a different complexion.
BEE has been the key element in almost every major corruption scandal. But these scandals, which all but destroyed Eskom and Transnet, are just the tip of the iceberg. The problem is that city councils, water boards, training organisations and so many others have just disintegrated into incompetence and failures of innovation and management. The overall net result has been an economy that has grown by 0.7% for more than a decade.
Tau’s own organisation is now dominated by people who either have gamed or still want to game the system and are shouting in his ear: “Make BEE more onerous, we want our turn.” The minister had an opportunity to address the abuses of BEE at the conference but chose not to, which says much more than he appears to recognise. All of this is why the mood has changed on BBBEE; it’s not racism, it’s frustration.
This article first appeared in the Financial Mail.
