BEE fiddling could have unintended outcomes

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Black economic empowerment (BEE) has been a viable alternative to the economically disastrous retribution and crude redistribution of wealth that has characterised post-colonial Africa.

South Africa’s vibrant cosmopolitan culture, burgeoning black middle class and the attendant dynamic political and social discourse are important benefits that have ensued. But throughout society there is increasing cynicism about and resentment of the incongruity between the rhetoric of improving the lot of the previously disadvantaged and the reality of a small fabulously wealthy, politically or socially connected and not especially business-savvy BEE elite.

So it’s entirely appropriate that BEE legislation should now be revisited.

However, instead of challenging beneficiaries of BEE to reinvest in value-creating enterprises that yield jobs and grow the economy, the government seems intent on extending ownership requirements for big business to small, micro and medium-sized enterprises (SMMEs) with a turnover of R10 million or more, many of which are entrepreneurial.

Unfortunately, instead of creating economic value and extending the tax base, the new BEE legislation will probably encourage opportunistic and arbitrary “marriages of convenience” in the SMME sector, similar to the perverted entrepreneurialism of tenderpreneurs and rent-seekers, already a sad feature of BEE culture and the rampant corruption that plagues this country.

Detrimental effect

While ownership is essential to capitalism, and increased black business ownership is necessary to make our economy more viable, it is one of the easiest of the BEE “pillars” to fake or manipulate. Having acquired a stake in an established SMME, one has to do little more than show up at meetings and sign documents to comply as a bona fide contributor.

Eliminating window dressing or fronting is apparently a main objective of the BEE amendments. But the government’s social engineering approach, of counting targets, quotas and percentages of ownership, makes it well-nigh impossible to monitor either the quality of contribution or the creation of economic value.

Challenged on the probable detrimental effect of the new legislation on SMMEs, the sponsoring Minister of Trade and Industry, Rob Davies, said that businesses turning over less than R10m a year would be exempted.

He does not realise that this policy will effectively discourage entrepreneurs from growing their business beyond that arbitrary amount; ignoring that small business in particular is widely recognised as the most effective and appropriate way of achieving economic growth.

He either does not understand, or fails to recognise, that the personality, resolve and values of the entrepreneur remain inextricably bound up with his business and its success, providing much of the energy, direction and shape of his company.

Consequently, the decision about if and when to share ownership will be as personal as it is strategic. Interfering in this profoundly intimate relationship can destroy the business itself. The attitude of entitlement of someone who obtained his stake in a business by legislative fiat is especially inimical to an entrepreneurial business. A successful entrepreneur must feel responsible for his own destiny.

Up to now, a small business has been able to choose a BEE approach that best suits its business model. Options include training, appointment or promotion of previously disadvantaged staff, doing business with BEE-compliant companies and so on. Although some manipulation of these codes did happen, there was sufficient flexibility in the regulations to accommodate entrepreneurs’ realities and often idiosyncratic world views and aspirations.

Professional pride and confidence comes from knowing one is making a real contribution. It’s best achieved through meaningful work, benefiting everyone.

Ownership demands no such commitment; especially if the new part-owner knows that the original owner and founder needs them, rather than the other way around. Only the most cynical conception of BEE can be fulfilled with such an approach.

* Jonathan Yudelowitz is a joint managing director of YSA and the author of Smart Leadership.


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