Budget for BEE cut
16 February 2023
The IRR has requested that Treasury consider implementing a “maximum value-for-money” procurement policy, or at least publish a budgetary analysis of what would be saved by doing so.
According to the Zondo Commission’s State Capture Report (the Report), “the primary national interest is best served when the government derives the maximum value-for-money in the procurement process and procurement officials should be so advised.”
The Report issued this advice explicitly in the context of choosing between value for money and political objectives, including BEE.
Treasury has taken one major step in the direction suggested in the Report by removing BEE language from the primary procurement regulation, which took effect in January 2023, but the “maximum value-for-money” advice has not yet been realised by organs of state.
In its letter to Treasury, the IRR requests that it establishes how much BEE has cost the country since President Cyril Ramaphosa took charge of the executive. It also asks how much would be saved if the government implemented a maximum value-for-money policy now.
The government is expected to spend R1 trillion in the next budgeted year on procurement alone. The cost imposed by BEE is not primarily which companies are chosen, but rather how they are chosen, within an ambivalent schema of law in which both race and value for money are prioritised, which creates a confusion that is regularly abused.
According to the Report “[t]his unco-ordinated approach leaves a critical question unanswered: is it the primary intention of the Constitution to procure goods at least cost or is the procurement system to prioritise the transformative potential identified in section 217(2)? There is an inevitable tension when a single process is simultaneously to achieve different aspirational objectives.”
The question of what it costs to deviate from the Report’s advice to put maximum value for money as a clear top priority must be answered by Treasury, since one of Treasury’s key functions is to tell the South African public what governing the country costs, and how the costs occur.
Treasury officials have taken their responsibility to be clear seriously before. In 2016 former Chief Procurement Officer at Treasury, Kenneth Brown, said 30% to 40% of government procurement was lost to “fraud and inflated prices”. Procurement was roughly R600 billion at the time.
Also in 2016, then Finance Minister Pravin Gordhan said the “side of this transformation, the rotten product in the gift wrap, is what is called rent-seeking…It means every time I want to do something, I say it is part of transformation. But in the meantime, it means giving contracts to my pals in closets.”
Likewise, in 2018 former Acting Chief Procurement Officer at Treasury, Willie Mathebula, was the first witness at the State Capture Commission. The Report concluded in 2022 that “(indeed), it should be noted that, in explaining the high incidence of procurement irregularities, Mr Mathebula attributed as much as half the problem to misunderstanding or misinterpretation of the applicable Rules and half to intentional abuse”.
How much is being lost, 30%, 40%, 50%, and how much could be saved if the “problem in the legislative design” identified by the Report as fundamentally gearing the country for state capture is fixed?
Said IRR Head of Campaigns Gabriel Crouse: “South Africans deserve to know. What is the official estimate of the cost of BEE in the trillion rand procurement bill? With vegetables going up by 30 -50%, poor people are looking very carefully at what costs what. Treasury’s fundamental job is to control and report what costs what in government, and we encourage them to do exactly that in budget week.”
Issued by Gabriel Crouse, IRR Head of Campaigns, 16 February 2023
