Policy instruments & the need for BEE

In this section we aim to cover the basics of BEE policy – why it exists, it’s constitutionality, whether it will go away, and how all of this leads to very real preferential procurement pressure faced by B2B businesses trading in South Africa.

1. Policy Instruments & the Need for BEE

Broad-Based Black Economic Empowerment (B-BBEE) is a policy framework aimed at addressing the ongoing economic inequalities resulting from South Africa’s apartheid era. The fundamental objective of B-BBEE is to advance economic transformation and enhance the economic participation of black people in the South African economy.

Key policy instruments include:

a) The Broad-Based Black Economic Empowerment Act of 2003 (amended in 2013)
b) The Employment Equity Act of 1998 (revised in 2023)
c) The Skills Development Act of 1998 (revised in 2011)
d) The Public Procurement Act 28 of 2024

The need for BEE stems from the persistent economic disparities in South Africa. Despite nearly three decades since the end of apartheid, the economy continues to be characterized by stagnation and exclusion, with current strategies falling short of achieving meaningful transformation.

2. Constitutionality

The constitutionality of BEE is grounded in Section 9(2) of the South African Constitution, which states that to promote the achievement of equality, legislative and other measures designed to protect or advance persons, or categories of persons, disadvantaged by unfair discrimination may be taken.

The Constitutional Court has upheld the constitutionality of BEE policies, viewing them as a necessary means to address historical injustices and promote equality. However, the implementation of these policies continues to be a subject of debate and legal scrutiny. Please consider subscribing to our newsletter to stay informed of changes and their implications.

3. Is BEE Going Away?

Based on recent developments and policy updates, especially the Public Procurement Act of. 2024, it appears that BEE is not going away in the foreseeable future. In fact, there are indications of strengthening and refining BEE policies:

• The Employment Equity Amendment Act (EEAA) was signed into law in April 2023, introducing new BEE-related requirements for businesses.
• Competition authorities are considering new ways to address ownership and inequality issues through BEE.
• Following the 2024 elections a Government of National Unity (GNU) was formed. Since then, very little mention has been made of scrapping or replacing BEE.
• More recently, a R100B fund has been touted by DTI Minster Parks Tau as an effort to accelerate the transformation of the economy.

While we don’t believe BEE will be going away anytime soon, we know that as a policy instrument it will be adjusted over time.

This means that businesses need to keep informed of changes and also that any ownership deal you do should be unwindable if the law changes.

4. Preferential Procurement Pressure

While BEE isn’t compulsory, Preferential procurement remains a significant driver for businesses to pursue BEE compliance. The Preferential Procurement Act forces government departments and other organs of state to either ‘set aside’ a portion of procurement for BEE recipients and/or ‘pre-qualify’ tenders in favour of black-owned or majority black-owned suppliers and to encourage sub-contracting to black businesses where possible. In turn, this incentivizes companies to improve their BEE status to gain a competitive advantage in securing government and private sector contracts. The ‘trickle down’ nature of BEE means that big companies who deal with government MUST have BEE scorecards. To be competitive they need solid points on their procurement scorecards, which in turn puts pressure on their suppliers to have BEE scorecards (and majority black ownership) and so on. BEE is effectively essential for B2B trade in South Africa.

As Imraan Abdullah and Kelo Seleka put it in this article: “Either way, the retention of the set aside concept and pre-qualification in the Procurement Bill and the ultimate implementation of them once enacted is likely to have a significant impact in respect of the demographic profile of service providers for procuring organs of state and institutions.“

To make the point again: the result of Preferential Procurement is that big companies put pressure on their suppliers to conform to their BEE requirements, especially around their procurement scorecards. Since procurement scorecards are heavily weighted to purchasing from 51%+ BEE-owned companies, it’s effectively the Preferential Procurement policy that is driving BEE ownership deals across South Africa.