JOHANNESBURG - Prospects are looking bright for black entrepreneurs who have been attempting to make a breakthrough in the private sector but have been hitting a brick wall.
Their misfortune is on the cusp of being reversed, thanks to the revised broad-based black economic empowerment (BB-BEE) Amendment Act of 2015 and its accompanying BB-BEE scorecard, which measures empowerment progress in the corporate sector. The amended legislation is exerting pressure on procurement and supply chain departments of large corporates to open up opportunities to black suppliers.
The introduction of the legislation is a game-changer and a victory for real black entrepreneurs, who are often overlooked in state procurement in favour of politically connected rent-seekers.
At the same time, South Africa’s private sector has been doing the bare minimum to develop small businesses and its enterprise development (ED) programmes were often sold to the public as models of success. But, on closer inspection, the impact of the private sector ED initiatives has been limited and, in some cases, a downright failure.
Typically, large companies spend money training black entrepreneurs in finance, business management, and marketing, but they refuse to trade with them, because the black-owned businesses are deemed to be sub-standard.
Photo: Svilen Milev
As a result, black entrepreneurs are left with nothing more than a meaningless consolation prize - a certificate that confirms they attended a business course sponsored by a large corporate.
In the end, black entrepreneurs fall through the cracks between a corrupt government tendering system and a distrustful corporate sector.
In return for their trouble, large corporates scored handsome points on their BB-BEE scorecards that gave them legitimacy and allowed them to score lucrative contracts from the state and other major players.
But many large private sector companies have been forced to change their approach to enterprise and supplier development (ESD) after some of their peers suffered a downgrade in their BB-BEE ratings after the introduction of the revised scorecard.
Scorecard
That is because ESD carries a heavier weighting (40points) in the amended scorecard than other elements of the BEE benchmark, namely black equity ownership (25points), management control (19points), skills development (20points), and socio-economic development (5points).
The old scorecard had seven elements with which companies had to comply. These were ownership (20points), management control (10points), employment equity (15points), skills development (15points), preferential procurement (20points), enterprise development (15points) and socio-economic development (5points).
However, the main difference between the two scorecards is that the revised scorecard has three priority elements that companies are expected to concentrate on. These are: ownership, skills development and ESD. Failure to comply with a 40percent sub-minimum in any of these priority elements results in an automatic downgrade in BB-BEE rating by one level in the revised scorecard.
So there is no way that the ESD element can be ducked. The idea behind the ESD is to train black business owners to be competent in running their enterprises sustainably. Once this has been achieved, these businesses are plugged into the supply chains of large corporates to supply goods and services, thereby opening markets previously closed to them.
Overall, private sector-led ESD initiatives will in the long run reduce the dependence of black suppliers on government contracts as the private sector accounts for approximately 80percent of South Africa’s total production and employment.
In 2015, Small Business Development Minister Lindiwe Zulu estimated that private sector procurement is three times the size of public sector procurement. Therefore, it is a no-brainer that the private sector offers greater opportunities for entrepreneurs than the public sector, which is notorious for late payment of invoices, often resulting in cash flow crises that lead to the demise of many small businesses.
Suppliers are paid timeously in the private sector for work delivered. Furthermore, political connections count for nothing in private sector procurement. Large companies are interested in sourcing goods and services from reliable and price-competitive suppliers that can help them operate efficiently, minimise costs and maximise profits.
However, opening the door to untried suppliers poses a risk to the operations of large corporates as small businesses are prone to failure due to a wide range of reasons related to a lack of access to markets, finance, skills, technology, and poor management. The ESD programmes will have to be tailor-made to address the above-mentioned challenges that lead to high business mortality.
In the years to come, black entrepreneurs will have to thank the aggressive lobbying by the Black Business Council, which pushed the Department of Trade and Industry to amend the empowerment legislation to elevate ESD as the vehicle that will promote black entrepreneurship.
Andile Ntingi is the chief executive and co-founder of GetBiz, an e-procurement and tender notification service.