Use MTBPS to grant BEE exemptions, IRR urges Godongwana

25 October 2022

Finance Minister Enoch Godongwana should use his Medium-Term Budget Policy Statement to announce cutting the most onerous red tape hampering businesses in their dealings with the state: racial preferencing.

In a letter to Godongwana ahead of the MTBPS, the Institute of Race Relations (IRR) points out that the Public Procurement Policy Framework Act (PPPFA) grants the Finance Minister the power to cut this red tape in any organ of state that so requests it.

Specifically, Section 3 of the PPPFA states: “The Minister may, on request, exempt an organ of state from any or all the provisions of this Act if … (b) the likely tenderers are international suppliers; or (c) it is in the public interest.”

Public interest questions can be difficult to establish, but earlier in the year legal confusion created a public interest case for granting such exemptions, which the IRR articulated in a letter to Treasury, subsequent to which exemptions were reportedly granted to Eskom and Transnet.

The public interest argument in favour of granting exemptions to any organ of state is clearly spelled out in the report of the commission into allegations of state capture under Justice Raymond Zondo.

The Zondo Commission’s report noted problems in the “legislative design”, commonly known as policy problems or red tape, which facilitated mass exploitation of the fiscus by corrupt actors. Chief among the problems in the “legislative design” was an “inevitable tension” between the competing interests of gaining “maximum value for money” on the one hand, and racial preferencing on the other.

The first challenge that must be overcome, according to the report, is laying out unambiguously which of these two interests is prioritised in public procurement, race or value for money? Whatever the benefits of trying to make both a top priority, the cost is confusion.

“It should be noted,” says the state capture report, “that, in explaining the high incidence of procurement irregularities, Mr Mathebula [the former acting Chief Procurement Officer of Treasury] attributed as much as half the problem to misunderstanding or misinterpretation of the applicable Rules and half to intentional abuse.”

“Ultimately”, the report concludes, “in the view of the Commission 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 IRR echoes that advice and calls on Minister Godongwana to do so as well in his MTBPS, which is meant to be a statement about policy shifts.

South Africa’s total public procurement spend is expected to approach the R1 trillion per annum mark. Various estimates, including those emanating from President Cyril Ramaphosa, suggest that “state capture”, which depletes the fiscus through procurement, may have cost half-a-trillion rand already.

It is necessary to implement the state capture report’s suggestion that “the primary national interest” be served by unambiguously placing value-for-money considerations above all others in the procurement process.

Minister Godongwana currently faces the impossible task of trying to make South Africa investment grade again. Public debt-servicing costs are expected to surpass R300 billion in the next year. Wage negotiations have decoupled the notion of improved delivery from improved payment. Social grants are necessary to support a portion of the population that has now outgrown the tax base.

In this context, the finance minister must bring the kind of practical penny-pinching mentality to bear that most South Africans live by. Independently conducted surveys commissioned by the IRR indicate that 80% of South Africans of all races prefer “merit” to racial exclusion when it comes to job appointments, and the IRR submits to Minister Godongwana that maximizing value for money in public procurement is similarly aligned with what most people want.

In its letter to the finance minister, the IRR concludes that its request for a policy shift to maximise value for money transcends ideology and “is now about saving the South African economy from absolutely crashing. The exemptions will most certainly give the country’s economy much needed breathing space.”

Issued by Gabriel Crouse, IRR Head of Campaigns, 25 October 2022