BEE can ruin the economy
29 July 2015
The new BEE codes could well be the last nail in the coffin for the South African economy. This is the opinion of the business rights watchdog, AfriBusiness, after the organisation’s BEE vs Business conference.
This opinion was shared by a variety of experts who addressed the more than 400 conference attendees.
According to Cornelius Jansen van Rensburg, Chief Executive Officer of AfriBusiness, the new BEE codes is a cunning way to expropriate owners of their businesses. In view of other legislation which undermines property rights, the new BEE codes’ impact on private property rights will be even more invasive.
The new BEE codes are regulations with the aim to force entrepreneurs and businesses to renounce majority ownership of their businesses. The codes further require that up to 80% of a business’ procurement must be from so-called black businesses. The result is that it will become impossible for anyone who is not black, to start, own and manage a business.
According to the economist and chief strategist of ETM Analitics, Russell Lamberti, the implementation of the BEE codes will send the already struggling economy over the cliff. South Africa needs a strong and healthy entrepreneurial class and business sector. These codes will make it very difficult to do business in South Africa.
Dr Anthea Jeffery, Head of Policy Research at the Institute for Race Relations, discussed her recent research on BEE. According to Dr Jeffery, BEE sadly failed. “Our research indicates that BEE has not had a true impact on poverty in the past ten years. It is clear that it held many more advantages for the political elite of the ANC than for the poor masses.” According to Dr Jeffery, an empowerment policy which focused on uplifting the poor would have had a much bigger impact.
Piet le Roux, head of the Solidarity Research Institute, indicated that BEE is nothing else than Affirmative Action for entrepreneurs. Just as AA, the BEE codes want all businesses to represent the race demography of South Africa. According to Le Roux, the race-based distribution of resources in the economy will be detrimental to all consumers.
Frans Nortjé, an independent BEE consultant conducted an in-depth analysis of the BEE codes. According to the analysis, the BEE codes focus on the following:
- Substantial increased emphasis on black ownership and black management representation.
- Doubling of skills development targets (applicable to black employees only, but according to national racial demographics).
- Introduction of a Black Supplier Development Budget (vs previously much wider-defined enterprise development).
- Substantially stricter Preferential Procurement targets with shifts in procurement required from black-owned and black women-owned businesses, as well as businesses with a turnover below R10 million and R50 million (EMEs and QSEs respectively).
- Substantially stricter measuring criteria / compliance targets as well as the introduction of penalties if minimum compliance targets are not met.
As there will be an impact on all groups, it is imperative that everybody should become involved to prevent a catastrofic scenario. According to AfriBusiness there are four important areas to focus on in order to stop the implementation of the codes:
1. Civic Organisations should lobby Corporate South Africa not to implement the current version of the codes. Civics should aim at protecting societies’ basic economic rights. One avenue of possible action is to focus on the legality and constitutionality of these codes. Public pressure should be generated through the exposure of the blatant discrimination brought about by the revised codes.
2. Corporate South Africa should provide moral leadership in finding a workable alternative that leads to accelerated growth and economic advancement of all of South Africa’s poor. They should consider either one of three approaches:
a) Not seek to go beyond a BEE Level 4 (as this means active ridding of their WAF workforce and suppliers).
b) Refuse to be measured under the revised scorecard and continue to issue scorecards under the former codes.
c) Compile their own empowerment measurements, by using EED principals.
At the very least, Corporate South Africa should take a stand against the unworkable codes, committing not to implement irrational aspects until workable alternatives are found.
3. White, non-RSA African and other foreign businesses must take a stand against the marginalisation of their economic rights. This can most effectively be done through supporting and partnering up with Civil Rights Organisations. WAFs should actively seek opportunities outside of South Africa in addition to their local interests. They should separate the vehicles through which level-sensitive and non-sensitive business can be conducted. These businesses should set the example by continuing to invest in the development of all their employees, irrespective of race, make rational investment (and raise capital) choices and remain pragmatic in order to stay afloat. They should understand available options, carefully consider trade-offs and structure such to provide future flexibility.
4. Black South African entrepreneurs should demand participation in the economy by all regardless of race and expose the poor thinking and science that underpins the Revised Codes from an economics perspective.
Statement issued by Cornelius Jansen van Rensburg, AfriSake, July 29 2015
