Tender set-asides rather than B-BBEE

Government should overhaul its empowerment policy to reserve a set value of procurement for black-owned businesses.

Promises are the sweetest lies, reads a five-word inscription on my daughter’s WhatsApp profile picture. She is only 14, but this message struck a chord with me when I first saw it, something that caught me by surprise

from the introverted teenager. The message forced me to reflect on a string of broken promises made by our elected politicians under the guise of broad-based black economic empowerment (B-BBEE) policy, which has throughout its various iterations over the past 26 years only benefitted a tiny politically-connected black elite, while widening inequality among the people it was supposed to uplift.

The policy’s failure to deliver on its promise of radically increasing black economic participation is becoming a source of frustration and disenchantment among its intended black beneficiaries. As a result, an opposing view is beginning to emerge that B-BBEE will have to be completely overhauled or scrapped if black participation is to be deepened after the Covid-19 lockdown is lifted and the economy re-opened.

This alternative, anti-B-BBEE view emerged at a recent live Facebook panel discussion, known as Lockdown Convo, which I participated in alongside Thabo Masombuka, a lawyer and former policymaker at the department of trade and industry, and entrepreneur Mxolisi Goodman Buthelezi.

Panellists in the discussion, moderated by Miso Tini, agreed that B-BBEE was utterly ineffective and stuck in the mud. Simply put: The policy is encouraging conspicuous consumption by the black elite instead of aiding black people to be producers and distributors of goods and services.

Therefore, B-BBEE is not contributing to employment creation and industrial development, hence South Africa continues to struggle in eradicating high unemployment and inequality, currently sitting with a Gini coefficient of 0.63, the world’s highest.

First on the attack was Buthelezi, who argued that B-BBEE was anti-black and benefitted mainly white businesses. His argument was premised on the logic that B-BBEE scorecards – used in the evaluation of tenders – heavily favoured large white-owned companies during bidding for contracts in both public and private sectors.

This is because B-BBEE laws are structured in a way that make it easy for white companies to comply, thereby attaining higher ratings on their B-BBEE scorecards to the disadvantage of small black-owned, black-run companies. In other words, white companies end up becoming blacker than black firms. To drive his point home, Buthelezi pointed out that white firms – many of which have been in business longer than black companies – have the advantage of accumulating B-BBEE points on requirements that have nothing to do with their capabilities to execute jobs when bids are evaluated.

On the other hand, a 100% black-owned company that does not train more people and renovate schools or clinics is outcompeted by white companies because tender adjudicators feel that it is doing less to empower communities than the white firm.

Buthelezi is advocating for the unbundling of the policy whereby elements of B-BBEE such as equity ownership, skills development, management control, enterprise and supplier development (ESD), and socioeconomic development are implemented separately and not combined into a single overarching policy.

All three panellists agreed that ESD, which is premised on giving black businesses preferential market access, must be tweaked to introduce tender set-asides, whereby a portion of procurement spend is ring-fenced for blackcontrolled suppliers.

I recommended that 50% of procurement spend in the public and private sectors be set aside for black suppliers that are at least 51% black-owned, controlled, and managed. In addition, about 80% of procurement spend must be placed in the hands of suppliers that directly produce the goods and services – not middlemen, who inflate costs of goods and services that are supplied mainly to municipalities and government departments. Taxpayers bear the brunt of this pillaging, with little or no jobs created by these transactions.

Tender set-asides must be strategically implemented to help black entrepreneurs own the means of production, thereby enabling them to own factories, banks, mines, retail supermarkets, telecoms, farms, and many other businesses that are primary producers of goods and services.

Masombuka, who is also the former CEO of the Construction Sector Charter Council, recommended that corruption in government procurement be dealt with by law enforcement and prosecutorial arms of the state. He agreed with the idea of the implementation of tender setasides and conceded that B-BBEE must be overhauled to uplift the majority of South Africans, not a few people.

But he emphasised that the policy must remain a condition for doing business in our country, just like in Malaysia, where SA policymakers borrowed B-BBEE from. In Malaysia, it was used to increase economic participation of ethnic Malays in a Chinese-dominated economy.

As a start, the state must deploy its R800bn annual procurement spend to circumvent gatekeeping and fronting to reduce barriers to market entry for many skilled black entrepreneurs, who want to be involved in the production of goods and services. Gatekeepers are not only an impediment to economic participation; they are also a drag on employment generation and economic growth.

If our recommendations could be adopted by government, B-BBEE could go a long way towards forcing gatekeepers to be job-creating producers instead of big-spending consumers who instantly buy Range Rovers from merely levying exorbitant mark-ups on goods supplied to the state. ■

editorial@finweek.co.za

Andile Ntingi is the chief executive and co-founder of GetBiz, an e-procurement and tender notification service.