new normal

BEE and the new (post Covid) normal

There has been a lot of talk of the “new normal” since Covid-19 started ravaging the globe and wreaking havoc in economies.  The South African economy has declined, off the low base which of a recession even before lockdowns.  In amongst this all, we were hit with load shedding, staggering unemployment, appalling allegations of corruption during lost nine years before and even during the pandemic and an inadequate rollout of vaccines. Government has never looked less competent or more corrupt.

Inevitably South Africans looked for scapegoats and blame has been cast on the health products regulator, the politicians avoiding step-aside rules, Eskom management, SAA’s business rescuers, dividend taxes, broad-based trusts and even the concept of BEE itself.

This is not without reason: aside from well publicized corrupt deals using BEE and emergency procurement legislation, with the continued deterioration of the economy even more BEE schemes went “underwater” (meaning that, mainly because of debt, black beneficiaries were not getting the benefits expected).  So, when President Ramaphosa suggested in early June 2021 that BEE legislation needed an overhaul, there seemed to be an admission that BEE wasn’t working.

While the public perception of BEE is often associated with corruption, behind the scenes it hasn’t been an unmitigated disaster.  After all, the President suggesting the BEE overhaul, is a successful black businessman who used BEE to his advantage.  Most successful black business owners with mansions, luxury vehicles, children at elite schools visiting five-star game reserves have paid for these with hard and ethical work.  Some may have benefitted from the BEE framework, as intended, but they did not do so illegally.  Some may have been advantaged by their race, but not unfairly (as we set out in a previous article BEE is fair discrimination.  So, has BEE completely failed? It’s hard to argue that it has.

Obviously, these are relatively few and far in between examples, and there are many who have not obviously benefitted from BEE.  Far too many South Africans are not active economic participants through no fault of their own.  BEE objectives are still aspirational, and BEE has not achieved what it set out to do.  But it is even more clear that South Africa still needs to achieve the objectives of BEE: a more fair and more inclusive economy. This goal is in line with Global development goals and in line with the thinking of Doughnut economics. It’s, in many ways cutting edge.

At the same time as the President suggested an overhaul of BEE, his cabinet signaled what might not be changed.  The Minister of Tourism (now running our Health Ministry) promoted a Tourism Fund exclusively for black owned establishments.  The Minister of Finance lodged an appeal against a prohibition on government awarding contracts to black owned businesses only.  The Minister of Trade and Industry confirmed that broad-based trusts and employee ownership schemes are key operating in South Africa.  The Minister of Mineral Affairs and Energy awarded contracts to BEE businesses without considering our environment at all.  If anything, these actions confirm that Government puts BEE before all other considerations.

But it is not only national Government.  The Steve Tshwete Municipality (together with the NEF) set up a Fund exclusively for majority black owned SMEs.  And, while sacrificing investor protection (which the President needs to attract the R1.2 trillion he has targeted), the Competition Commission stopped the dilution of black ownership of Burger King, even though competition, job creation and black shareholder votes all indicated the deal was good in every other way imaginable.

While the owners of Burger King (Grade Parade, a BEE entity) have challenged the Commission, it is clear that the Commission must consider black ownership in assessing ownership.  Since 2019 the Competition Act requires an assessment to be made levels of ownership by historically disadvantaged people.  The Commission considered this to be more important than all other considerations.  If a Court agrees, then all three branches of Government: Executive, legislature and judiciary have confirmed BEE to be the most important consideration for our economy going forward. Only in the distant future will we know if this is the right call.

Unfortunately, the most compelling argument for abolishing BEE is how it has been abused in corrupt transactions, and the speed with which Government is moving to address this is the most compelling argument to believe that BEE will not go away any time soon.

Wasted opportunities are rued, but we are where we are, and if we remain here all economic and all empowerment activity is in jeopardy.  So, how should BEE be revised?  We can suggest many changes, but we could also start with using to Government procurement to advantage black businesses.  So, when looking at competitive bids, consideration should be given price, quality and BEE.  BEE should not be the be all and end all, but it should be a factor – whether through pre-qualification of deals (the current route) or through the old 90:10 or 80:20 scorecards.

On this basis South African businesses, especially those forced by Covid-19 on domestic customers, should not think that BEE is not part of the “new normal”. It’s not, as we’ve argued repeatedly, going away.

To paraphrase Darwin: “It’s not the strongest who survive and thrive, it’s the most adaptable”.

If we can help you adapt to BEE ownership requirements, please contact us.