Recent developments regarding the changes in the broad-based black economic empowerment (BEE) legislative framework show that the government is taking a step towards removing the obstacles and impediments stalling the enhanced implementation of broad-based BEE. However, more can still be done.
As 2011 draws to an end, it has been encouraging to see the government announcing at least three important milestones in the implementation of the BEE framework in South Africa. Preceded by the launch of the presidential BEE Advisory Council in late 2009, the redefinition and strengthening of empowerment to redress the prevailing inequalities can only be paramount.
Long overdue, the cabinet recently announced the Broad-based BEE Amendment Act with the emphasis on criminalising fronting and BEE circumvention. The bill will be promulgated soon for public comment and inputs and will be deliberated at Nedlac, the negotiating chamber for the government, business and labour.
Of particular importance in these amendments is the establishment of a statutory BEE commission that will act as the final arbiter on all BEE-related complaints and disputes. While the details of how the commission will work are yet to be outlined, the body is likely to take the form of the competition and national consumer commissions. If properly implemented and regulated, it will lay to rest some of the concerns regarding the nature of broad-based BEE deals and whether these are truly aligned with the spirit and objectives of black empowerment.
Most importantly, the commission will primarily investigate any misrepresentation or circumvention of a company’s true BEE status, which has in many instances been the reason why the public doubted the real progress of transformation as certain companies used their inflated status to benefit from government contracts.
Of particular interest is that amending the BEE legislation will go a long way in creating a uniform approach to applying broad-based BEE across all government organs. The misalignment of legislation, especially the conflict between the codes of good practice on broad-based BEE with the mining charter, has created a serious predicament in the economy and has arguably been the main reason for lack of proactive and creative implementation of transformation in the mining and related sectors of the economy.
The changes in the legislation follow earlier announcements this year by the minister of finance, to the effect that revised regulations on public sector preferential procurement would come into effect from tomorrow, which will make BEE level contribution and commitments to local production and content a prerequisite for doing business with all state organs.
As expected, these revised regulations have already been criticised by some for their inability to bring significant enhancement of empowerment.
This is understandable because minimal preferential points have been allocated towards empowerment companies in the adjudication process – 10 points are allocated to a BEE level 1 bidder for contracts with a value above R1 million and 20 points for contracts up to R1m. The other 80 to 90 points of the evaluation criteria will continue to be used to assess price and functionality of bidders.
Although this was gazetted in June, the Department of Trade and Industry and the Treasury need to be capacitated to provide further guidance to ensure that these regulations are better used to obtain maximum empowerment results. For instance, state-owned enterprises, such as Eskom and Transnet, that prefer to impose stricter rules to enhance empowerment, such as 20 and 30 points for empowerment status, must be permitted to do so.
As a commitment towards industrialisation and emphasis on the New Growth Path, local content and production will be another important feature in tendering for state contracts. Organs of state will, as part of the new regulations, be required to declare certain sectors and products as designated sectors and require that successful bidders comply with certain minimum requirements to have their goods procured locally. This aims to boost the local manufacturing sector.
This therefore presents the mounting of a challenge to ensure that entrepreneurs and suppliers doing business with the state are not only compliant in respect of these requirements, but are fully equipped with business methods that boost their capabilities to remain in business in a rather sustainable and consistent way.
This means the government must continue to focus on training, mentoring and advising these suppliers.
The regulations have also been seen by some as placing an additional burden on small enterprises to comply with an otherwise erroneous and sometimes costly BEE certificate. However, consideration has been made for this as companies with less than R5m annual turnover will still be exempted from full compliance and they can prove their empowerment status by merely submitting letters from the auditors and accounting officers.
The most important aspect of these revised regulations is that from now until the entire Preferential Procurement Policy Framework Act has been repealed, empowerment will at least be central and primary to the procurement agenda, something that the government has not prioritised for many years.
For a change, these regulations will now compel government departments and institutions to be measured in terms of BEE contributions, as such making it compulsory for the state to do BEE.
For its part, the Department of Trade and Industry has already consolidated plans to increase and accelerate uniform standards and norms for the verification of broad-based BEE compliance.
This has arguably been one of the reasons why the alignment of Treasury regulations and the BEE act took longer than envisaged by cabinet when it approved the alignment in 2006. Already, the auditing firms are being approved as verification bodies. This should meet the increased demand for the broad-based BEE certificates once the new regulations come into play.
Thabo Masombuka is an empowerment adviser and executive director for transformation services at Siyakha Consulting.