Black Economic Empowerment (BEE) is one of the most highly regulated South African business landscape today. The most recent changes to the regulations have both large corporate businesses and smaller businesses going back to the scorecard drawing board. Terence Gregory, CEO of JSE-listed African financial services company Ecsponent Limited, believes this has contributed to inhibiting economic growth and stunting competitiveness in the industry.
“Instead of creating an enabling environment for large corporate businesses to jump start small enterprises’ economic activity, BEE has been counterintuitive. The current structure often results in conflict between efficient procurement and the drivers of enterprise development and social responsibility in corporate South Africa. The underlying intent of broad-based empowerment is lost from sight.”
It was recently announced that the B-BBEE Commission would oversee new and compulsory reporting requirements that include the submission of an annual compliance report for all JSE-listed companies within 90 days of a company’s financial year-end. It is unclear at this time how non-compliance will be measured.
“This is an example of regulation that is compliance based, using the stick rather than the carrot as motivation. Worse, it further removes the focus from the underlying intention of the social upliftment it wants to achieve. BEE has in many instances led to a strained relationship between corporates and their suppliers. If a business does not deal with Level 1, 2, or 3 suppliers, their own ratings will be prejudiced. The recent changes have held a gun to the heads of many organisations and as a result purchase orders may well be issued to vendors with the correct BEE credentials but with limited ability to supply.”
A combination of lack of funding and skills often results in the vendor failing to deliver, with the operations of the corporate compromised. In addition, margins often must be inflated to provide for what is essentially a middleman in the supply chain. This practice reduces the organisation’s (and ultimately the country’s) competitiveness. This, Gregory says, just adds to the frustrations of large businesses who carry the cost and efficiency burden.
“One of the biggest issues around BEE regulation is a distinct lack of infrastructure and regulatory cohesion supporting historically disadvantaged vendors. An example of this is the National Credit Act, which has effectively and radically reduced the provision of credit to this sector. Access to capital and skills, combined with an understanding of the procurement dynamics are key elements of supply chain success. These elements are co-dependent and a vendor cannot be successful without support in each one.”
Gregory believes that while good governance is essential the shortcomings of underlying BEE infrastructure in South Africa result in on going negative perceptions when it comes to aspects such as skills, corruption, the racial divide, and a lack of true transformation.
“The South African economy has to be inclusive to survive. Large corporate businesses should be able to focus on their core strategies while the BEE procurement cycle is handled by specialists who work with them to truly transform the market in the country. Education, community upliftment, and true empowerment will be the natural result of this with all the stakeholders involved drawing benefit.”