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B-BBEE: your questions and criticisms answered

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By Anees Teladia

Unemployment has become one of South Africa’s most pressing socio-economic challenges, impacting every facet of our society. It’s fitting to say that we have been forced to grow accustomed to this job crisis. However, what might come as a surprise to many – particularly in the Western Cape – is the solution which has been sitting right under South Africa’s nose. This solution has been laughed at, sharply criticised and accused of racism since its legal inception, but it is arguably South Africa’s most powerful and transformative piece of legislation when implemented correctly and appropriately. The solution is Broad-Based Black Economic Empowerment (B-BBEE).

Many readers may very well be scoffing at the introduction to this article already, thinking they know all there is to know about this “reverse racism” piece of legislation which “only benefits blacks and not the coloureds or anyone else”. However, managing director of Qanita Rustin Consulting, Qanita Rustin will through this article highlight exactly WHY B-BBEE is an innovative solution to South Africa’s economic struggles and HOW it serves to benefit ALL citizens when implemented in the right way.

What is B-BBEE?

B-BBEE essentially considers five key elements in the transformation of the economy, namely: ownership, management control (employment equity), skills development, enterprise and supplier development and socio-economic development.

The transformation score [B-BBEE score] of a company is calculated according to the different points earned and allocated through the transformative progress made in each element.

According to Rustin, B-BBEE is a policy of strategic social and economic development and growth that seeks to utilize the economy in the most effective manner possible to achieve the most desirable social and economic outcomes required in a country such as South Africa.

“I believe that if applied properly, it is an essential and effective way we can grow the South African economy – both on a business entity level and on an individual level – in order to progress both small businesses and the individuals within.”

The Economic Development Department of South Africa is aptly quoted below:

“Broad-Based Black Economic Empowerment (B-BBEE) aims to ensure that the economy is structured and transformed to enable the meaningful participation of the majority of its citizens and to further create capacity within the broader economic landscape at all levels through skills development, employment equity, socio-economic development, preferential procurement, enterprise development (especially small and medium enterprises) and promoting the entry of black entrepreneurs into the mainstream of economic activity and the advancement of co-operatives.”

So, how is this broad-based empowerment different from what is known as Black Economic Empowerment (BEE) and where does the concept of affirmative action fit in?

B-BBEE vs BEE vs Affirmative Action

“BEE, as it was before, was a very narrow view of the transformation of a particular business entity, whereas B-BBEE is a full measurement of transformation in five different categories of scoring across the entire business entity. In essence, it is now not only limited to ownership,” said Rustin.

“Affirmative action is a particular scoring aspect within the B-BBEE scorecard that contributes to the total scorecard.”

Therefore, B-BBEE is exactly what it implies – a broader view of transformation that seeks to address issues of inequality by targeting a range of areas within the corporate, entrepreneurial and employment cycle, rather than simply seeking to change and encourage ownership statistics in different entities.

Is B-BBEE “Reverse Racism”? 

No. The term “Black” in B-BBEE does not simply refer to those South African citizens who are racially/ethnically “black” but rather to previously (and by extension currently) disadvantaged individuals.

It is simply a means of correcting a societal and economic imbalance that was institutionally imposed based on race – an imposition which the majority of South Africans still bear the brunt of and which stunts economic prosperity for all.

But only one race benefits…right?

“Who benefits is anybody that is ‘African-black’, coloured, Indian and ‘black’ people with disabilities. So, black incorporates so-called coloured people, Indian people and ‘African-black’ people. Generically it’s simply called black,” said Rustin.

Rustin did, however, add that your race does not immediately qualify you as eligible for B-BBEE status.

“The technicality in it comes with the stipulation that – in terms of legislation – you must have been a citizen before the 27th April 1994 OR you must have been entitled to citizenship before that date. For example: if you were abroad in exile on the 27th April 1994 and did not have South African citizenship, you were technically supposed to have South African citizenship. So, you are also eligible to be recognised as black in the strategy.”

Rustin said there must be a distinction between what is known as ‘African-black’ and the term black described within the B-BBEE legislation because the B-BBEE strategy includes all those who are ‘African-black’, coloured and Indian who fulfil the criteria mentioned.

They are all recognised as black, she emphasised.

“Coloured individuals are therefore definitely included, as long as they fulfil the relevant criteria mentioned…and that would be on an equal footing with ‘African-black’ individuals in terms of legislation. One race does not get a higher B-BBEE level than another when we are referring to coloured individuals specifically,” said Rustin.

Rustin also indicated for individuals with complaints regarding how employment preference is given in accordance with B-BBEE, that the manner in which employment preference is exercised has to be in terms of the relevant legislation.

“In terms of [B-BBEE] benefitting an individual within a company we can talk about that if we want to discuss how preference must be given, in terms of section 20 sub-section four of the Employment Equity Act (EEA), when applied to local businesses as opposed to national businesses and how that affects the promotion and the progress of a coloured versus an ‘African-black’ versus an Indian.”

What about the recent social uprisings by the Western Cape’s coloured community, claiming they are unwanted in employment and are excluded from opportunities, despite being the majority in the province? How does B-BBEE address this?

“There’s been a lot of debate surrounding this question and what must be mentioned is that the debate essentially revolves around the ‘economically active population’ statistics released by Statistics South Africa (Stats SA) in their latest report. The way that B-BBEE is applied is that if you’re a business that operates only in the Western Cape, you should use the economically active population statistics released by Stats SA in your province. You aim to achieve a reflection of those statistics within your entity,” said Rustin.

“If the statistics of the Western Cape say ‘coloured males and females are the majority’, then your internal demographic at all levels and I want to stress that, at all different levels of employment from top to bottom, must reflect the outside Employment Equity Act (EEA) statistics of Stats SA…

If you’re a national business then the Employment Equity (EE) Committee for that particular entity must debate whether they’re going to adopt a national or provincial plan. A provincial plan can be based on provincial statistics and a national plan can roll up into the national EEA statistics of Stats SA.

Alternatively, they can adopt the policy that everybody around the company must try and adopt a national strategy on national statistics…it really depends on how that EE Committee decides what the best way forward for them is and what the growth strategy of that company is.”

Why B-BBEE?

Aside from the nature of inclusive growth and the systematic reduction of inequality that the growth strategy is ideally meant to implement (and that South Africa desperately needs), it is a strategy which could greatly benefit private companies, entrepreneurs and the ordinary citizen – both in the short and long term.

“The pull / domino effect I refer to, is: when government tenders, they are going to want to award the tender to the most transformed and capable company. That, in effect, is going to mean that entity [which was awarded the tender due to its high rating] is going to want to keep its high B-BBEE rating and would therefore want to do business with other companies who also have a high level – either level 1 or level 2 –  so they don’t pull the initial company that won the tender down in points,” said Rustin.

“As you go to do business with more companies [as a private entity], you want to do business with companies that keep your scorecard high. The companies that have a low score bring your score down. The inherent intention of the Act is that you do business with other highly transformed businesses.”

“It’s trying to create a situation where businesses which have transformed will be attractive to do business with…transformed companies invest in entrepreneurs or small businesses and they do business with them – awarding tenders to those small businesses and investing in those small suppliers to build that small business.”

Rustin added that while all these elements of B-BBEE mentioned have for the most part dealt with private entities and the economy, individual skills development makes up one of the core issues that B-BBEE is concerned with.

“Companies MUST put emphasis on skills development,” she added, saying it was necessary in order to maintain a high B-BBEE rating.

I don’t own a business, nor do I work for a private entity. So what does all this mean for me?

The benefits would go even further and add on to what Rustin refers to as the “domino effect” of B-BBEE.

While private entities, entrepreneurs and employees of a company would benefit due to increased tenders being awarded when and where the businesses are transformed and achieving the highest possible rating, the social benefit of this could truly be remarkable.

Aside from the skills development aspect (which itself has an Act called the Skills Development Act), the reduction of inequality and the general growth of the economy would all greatly contribute to a more prosperous South Africa – one in which the employment rate would increase and poverty would decrease.

Youth would have more opportunities for development and education levels would most likely rise. The entire strategy is growth oriented and utilizes economic empowerment as a means for social upliftment and transformation.

Why haven’t we seen results? What’s going wrong?

In short, implementation is the problem.

“From the start, in terms of how tenders are awarded and to the point regarding how the entity goes about its transformation in order to get a higher rating,” said Rustin answering the question of where things are going wrong.

“It’s also about how businesses award tenders. If you award tenders properly, there will be a downward ripple effect…that’s where its falling flat. Both from the government’s side and the business’ side.”

“The way that it has been implemented has not been in the right spirit, i.e. where the highest rated and competent entity is awarded the tender. That is where B-BBEE has been slandered. It hasn’t been implemented correctly.”

Do companies REALLY benefit?

Yes, with proper systemic implementation.

“Companies who will really benefit will be those companies who truly transform on all 5 levels. They would score higher and be rated as a level 1…if government were to award tenders as it should, i.e. to level 1, competent entities, then those transformed companies will be awarded the tender. They will be given the cash-flow and be able to grow and do more business,” said Rustin.

How do we promote B-BBEE and effectively implement this strategy? Who do we hold accountable?

The process starts primarily with the drivers of the strategy – government and big business. There are built-in accountability measures to ensure the B-BBEE strategy runs smoothly, but these measures do at times require input and assistance for optimal efficiency.

Rustin also highlighted that the role media has played with regard to the strategy has for the most part been overly focused on sensationalist negativity.

“The Department of Trade and Industry, in terms of legislation and in terms of implementation and making sure that the strategy is being properly implemented with no fronting and corrupt activity [is responsible]. You also have the ‘B-BBEE Commission’ where you can anonymously make a report as an individual employee, as an entity, if you are at an executive level and even if you are the fronted person.”

“Every year when you [the private entity] are audited, the rating agency would need to raise a flag if they find anything. Should it be found after investigation that the company is in violation, then there are penalties in legislation which stipulate that up to 10% of the total turnover of the entity can be deducted as well as withdrawal of the trading license…unfortunately that has not been properly implemented. That is the part that could be improved.”

“The focus of the media has been where B-BBEE has been implemented incorrectly. If people and the media explain the proper implementation, I think there will be more excitement around the true potential of how the strategy could work,” said Rustin.

“I really do believe it could work.”

In conclusion…

B-BBEE promotes social upliftment, skills development, wealth generation for all disadvantaged peoples and economic growth. The broad-based nature of the strategy seeks to promote entrepreneurship and investment in small businesses by both government and big corporate entities.

The focus is therefore not merely placed on individual jobs or mere technical statistics of ownership, but on a wide range of factors – i.e. the five B-BBEE Elements.

“I want to mention that out of the 100 points (in terms of the B-BBEE scorecard) the majority of the points are allocated to who that entity does business with… you get more points if you do business with black owners (i.e. coloured, Indian, ‘African-black’) and small businesses.”

“If you invest in developing those small businesses, such as when a big company invests in an entrepreneur – which is entrepreneurship at its best – that’s how we are going to grow the economy…If government applied that strategy then it would filter down with a bigger company being encouraged to invest in smaller enterprises and entrepreneurs…that’s how we are supposed to grow the economy. Not by simply looking at individual jobs, but by supporting entrepreneurs,” said Rustin.

VOC


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