Policy objectives of B-BBEE and Transformation

Reference documents

B-BBEE Act, as amended
BEE Codes of Good Practice, as amended
Labour Relations Act, as amended
Employment Equity Act, as amended
Preferential Procurement Policy Framework Act
Companies Act
King IV Code on Corporate Governance™

We are all aware that B-BBEE and transformation of the economy and workforce is an ongoing process but instead of merely using the well-known BEE buzzwords of the industry a more detailed summary of policy objectives will assist business and individuals alike in understanding why the need for B-BBEE exists.

B-BBEE will remain a focus point for many years to come and rather than continually hearing the stagnant view of change is not always a good thing, it is best to understand that change is the one constant in our lives and is inevitable no matter what our views and opinions may be.

As long ago as 2003, the South African government drafted a BEE-focused document titled “South Africa’s Economic Transformation: A Strategy for Broad-Based Black Economic Empowerment”. The vast majority of the documents key focus points and strategies are as important today, in 2021, as they were in 2003.

Below is a summary of the key points from this almost 20-year old document. When embarking on your B-BBEE transformation process, keep this positive and highly essential outlook in mind.

The successful implementation of the BEE strategy will be evaluated against the following policy objectives:

  • A substantial increase in the number of black people who have ownership and control of existing and new enterprises,
  • A substantial increase in the number of black people who have ownership and control of existing and new enterprises in the priority sectors of the economy that government has identified in its microeconomic reform strategy,
  • A significant increase in the number of new black enterprises, black-empowered enterprises and black-engendered enterprises,
  • A significant increase in number of black people in executive and senior management of enterprises, An increasing proportion of the ownership and management of economic activities vested in community and broad-based enterprises (such as trade unions, employee trusts, and other collective enterprises) and co-operatives • Increased ownership of land and other productive assets, improved access to infrastructure, increased acquisition of skills, and increased participation in productive economic activities in under-developed areas including the 13 nodal areas identified in the Urban Renewal Programme and the Integrated Sustainable Rural Development Programme,
  • Accelerated and shared economic growth,
  • Increased income levels of black persons and a reduction of income inequalities between and within race groups.

The strategy is underpinned by four key principles.

Black Economic Empowerment is broad-based.

Societies that are characterised by racial or ethnically defined wealth disparities are not likely to be socially and politically stable. The process of BEE seeks to accelerate the deracialisation of the South African economy and fast track the re-entry of historically marginalised communities into the mainstream of the economy.

Black Economic Empowerment is an inclusive process.

A more equitable economy will benefit all South Africans, individuals and enterprises. The process of BEE is an inclusive one, and all enterprises operating within South Africa should participate in this process. This strategy has been implemented throughout all sectors of the economy and is not limited only to those enterprises that derive income from government procurement or those where the sector is regulated by government.

Black Economic Empowerment is associated with good governance.

A fundamental part of our economic reform and transformation is improving the quality and transparency of all economic activity. BEE must be associated with and ensure the highest standards of corporate governance. Concerted efforts will be made to ensure that the quality of corporate boards and governance is improved.

Black Economic Empowerment is part of South Africa’s growth strategy.

Economic growth, development and BEE are complementary and related processes. Our government’s approach is that BEE must be an inclusive process and not an exclusive process. No economy can grow by excluding any part of its people and an economy that is not growing cannot integrate all of its citizens in a meaningful way. As such this strategy stresses a BEE process that is associated with growth, development and enterprise development, and not merely the redistribution of existing wealth.

New, inclusive patterns of wealth accumulation must come from both existing economic activity and new economic activity. We need higher levels of investment that generates a substantial amount of new economic activities. At the same time, ownership patterns must change.

An effective and successful process of BEE and accelerated economic growth are mutually reinforcing objectives. The absence of shared economic growth will continue to generate a lower rate of growth as it will continue to restrict levels of demand in the economy, in turn reducing the multiplier effects of investment and the accelerator effects of higher levels of domestic consumption.

The de-racialisation of our economy is geared towards enhancing the economic growth of the country. In accordance with this principle, BEE must be pursued in such a way as to ensure that where ownership is transferred the proceeds from the sale of assets are reinvested in the South African economy.

In order to grow our economy, more enterprises are needed to produce value added goods and services, to attract investment, to employ more of our people in productive activities. A core component of the BEE strategy is the creation and nurturing of new enterprises undertaking new forms of economic and value adding activities. In BEE we must seek a new vitality in our economy by facilitating new entrants to all aspects of the economy.

What is the South African government doing about their own interaction with BEE?

From their strategy and policy document, the two following focus points come to mind:

“Restructuring of state-owned enterprises

The promotion of broad-based economic empowerment is one of the key objectives of government’s policy on restructuring state-owned enterprises. BEE can be achieved through the transfer or sale of an equity stake in a state-owned enterprise (SOE) to black enterprises. Initial public offerings of shares in SOEs can be utilised to promote ownership by black people individually, or by community and broad-based enterprises, through setting aside discounted shares. Worker and community ownership and management of SOEs is another option that is available to government to pursue BEE. In addition, preferential procurement by SOEs, employment equity, sub-contracting, and management development are other means through which the restructuring of SOEs will contribute towards achieving BEE objectives.”

“Preferential procurement by government

Preferential procurement is an effective instrument to promote BEE in our economy. Government is reviewing its preferential procurement policy in order to enhance its impact on BEE. Clear targets will be set to increase the levels of preference to black-owned and black-empowered enterprises. The final target will be set once research on existing levels of black empowerment procurement has been completed.

In support of increased procurement by black-owned firms, government will expand its supplier development programmes to ensure that more black enterprises are created and are able to meet the requirements of purchasers in the public sector.

The enabling legislation on BEE will provide that all government departments, state-owned enterprises and public agencies must take into account any code of practice issues in terms of the legislation in determining and implementing their preferential procurement policy.”

Whilst the two focus points above are easy to understand, what has the success rate been almost 20 years down-the-line? Dismal to say the least.

Think of the likes of companies such as Sasol, SAA, Transnet and Eskom. In reality, only Sasol has made any headway in improving public participation with ownership schemes. The current poor financial state of Eskom and SAA leaves much to be desired. The government retains sole shareholding of SAA, Transnet and Eskom.

In terms of Preferential Procurement, a Policy Framework Acts exists and is in use however the absence of clear criteria to be used in tender adjudication for State-owned Enterprises has come to the fore in 2020 via the South African Courts. The presence of corruption in South Africa remains high and such poorly drafted policies could allow tender fraud and corruption to continue.

A parting comment in moving away from this negative state of mind (i.e. fraud and corruption) is that CEOs and Directors undertaking B-BBEE transformation in their business must at all times promote the principle of good corporate governance coupled with internationally accepted business ethics. All CEOs and Directors should make time to read the “King IV Code on Corporate Governance™” published by the Institute of Directors in South Africa in November 2016. Further information may be obtained on https://www.iodsa.co.za/

Author Craig Tonkin

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