Face fiscal facts on BEE in Budget – IRR

29 October 2024

IRR Legal has written to finance minister Enoch Godongwana to request clarity on the cost of “BEE Premiums” in the Medium-Term Budget Policy Statement (MTBPS) to be delivered to Parliament tomorrow.

Acting Chief Procurement Officer Willie Mathebula has repeatedly told Parliament that BEE “preference premiums”, which are currently capped at 11.1% per contract above R50 million, and 25% per contract below R50 million, are being paid, and will continue to be paid through Treasury.

Furthermore, the City of Cape Town’s 2023 “Value-for-money” report found multiple cases of such BEE premium expenditures being paid in flagrant disregard of cost-effectiveness.

Opinion among South Africans is divided as to what amount, if any, should be paid in BEE premiums, but both critics and proponents can agree that the amount being spent ought to be publicly known.

However, despite repeated requests to Treasury by IRR Legal, the official amount spent on BEE premiums remains a mystery. This should be remedied at the MTBPS, either by directly stating the amount spent on BEE premiums, or at least by announcing Treasury’s commitment to estimating that amount by the time the Budget Speech is delivered in February 2025.

The current official secrecy around BEE premium costs is a violation of the Constitution, which states that “both transparency and expenditure control” are a “must”.

This secrecy also corrodes public trust. There is no doubt that some elites support BEE premiums regardless of public cost, because they hope to personally benefit from the system. Likewise, there is no doubt that some apartheid apologists oppose BEE premiums due to racial animus towards black people.

However, the vast majority of South Africans have a very different perspective from those two extremes, one that is driven by non-racialism and practical concerns, according to an opinion poll recently commissioned by the IRR.

There was limited support for BEE premiums among the 600 respondents in the poll. 24% of all respondents, and 30% of black respondents, indicated a preference for BEE premiums to be paid in public procurement.

By contrast, 71% of all respondents, and 66% of black respondents indicated a preference for zero BEE premiums. This supermajority was divided as to what to do if two companies were tied in the tender process – both offering the same product at the same price – with some people opting for a random tiebreaker, and others opting for race as a tiebreaker.

However, the strong overall preference to minimise BEE premiums adds a crucial public interest element to the basic constitutional requirement that Treasury “must” finally admit how much BEE premiums cost every year.

Furthermore, the Zondo Report advised organs of state to adopt a “maximum value-for-money” procurement policy to make supply chain management simpler so as to help reduce corruption.

Another expert report by Harvard University’s Growth Lab advised that BEE premiums hamper inclusive growth, and so recommended reducing their costs.

In this regard, Minister Godongwana has been asked to remind all organs of state, particularly those municipalities and state-owned enterprises in financial distress, that they can save costs by requesting an exemption from paying BEE premiums under section 3 of the Preferential Procurement Policy Framework (PPPFA) Act. This would better serve the public interest than halting service delivery.

There are two legal considerations for disclosing BEE premiums now. The Public Procurement Act, signed earlier this year but not yet in force, is set to increase BEE premiums, adding to the urgency of letting the public know how much is already being spent.

Second, the National Health Insurance (NHI) scheme is legally required to go through the BEE premium system.

BEE proponents should be proud of the amount of public funds that has been spent on BEE premiums, and should be boasting about how many more billions will be spent this way in the medium term.

BEE critics, a majority of all races, should be allowed to face the fiscal facts. That is Treasury’s ultimate duty.

Issued by IRR, 29 October 2024