Rebuttal – Moeletsi Mbeki wants BEE scrapped

I am most concerned about the reports that Moeletsi Mbeki wants BEE scrapped. The concern is not his opinion but that his comments show a complete lack of understanding of broad-based black economic empowerment (B-BBEE). His comments perpetuate the myth that whites must give their businesses to blacks, that blacks do not have to work for their living, that BEE encourages corruption, cronyism etc etc etc. While some of these ills may occur, it is wrong to blame B-BBEE for this.

In an interview with Reuters (http://af.reuters.com/article/southAfricaNews/idAFLJ51870420090619?pageNumber=2&virtualBrandChannel=0&sp=true ) he theatrically states that if he was elected president the first thing he would do is to scrap BEE. He conveniently forgets that B-BEE is one of many hundreds of government acts and regulations governing economic and social policy. Policies that regulate exchange control, money supply, policies requiring people and businesses to pay taxes, regulations around the environment, labour force, health, education. There are regulations that explain how tenders must be adjudicated and what monetary policies that the reserve bank should follow. There are issues around how to finance and manage HIV/AIDS research and treatment. Somehow he regards the B-BBEE act as the “worst” act in the entire country and in need of the first and greatest remedial action of a new president.

Mbeki seems to think that B-BBEE is only about making certain black people wealthy.

The interview states:

“As part of a push to right the wrongs of apartheid and give blacks a stake of the economy, South Africa requires firms to meet quotas on black ownership, employment and procurement.”

This is so wrong. The B-BBEE act and the Codes of Good Practice do NOT require firms to meet quotas on black ownership, employment and procurement.

He lays out his visions for empowerment as follows:

“Mbeki argues that unless South Africa axes the policy in favour of a broader skills development drive, South Africa’s underclass, crammed into vast settlements of rickety shacks with no water or electricity, will balloon and eventually turn on the elite.”

He is correct in wanting to remedy these aspects, and why I personally support B-BBEE. This is EXACTLY what B-BBEE is all about. It is not about making the odd person a millionaire. The codes do not REQUIRE firms to meet any quotas. The codes specifically emphasize skills development, socio-economic development and enterprise development to help those people currently living in those shacks..

What Dr Mbeki and far too many people do not realize is that the B-BBEE act is not a punitive act. A private enterprise that neglects to implement B-BBEE will not be prosecuted. There is not legal penalty for not obtaining a scorecard. It is therefore incorrect for Dr Mbeki to describe B-BBEE as “REQUIRing firms to meet quotas”.

The only measurement of B-BBEE is via a scorecard. A high score is a competitive advantage over the opposition when your customer chooses to do business with you. If B-BBEE is applied correctly the only issue that counts is the scorecard, or BEE certificate obtained by the enterprise. Regretfully many enterprises and commentators, including Dr Mbeki seem to lay out criticism of BEE at every ill that befalls the country, and blames BEE for issues completely unrelated to Broad-based Black economic Empowerment.

Yes, it is true that some black businessmen have made a lot of money, not that making money is bad. Yes it is true that many ignorant companies announce that they have given their shares to black people in the name of BEE. Yes it is true that the word BEE surfaces every time a tender is won or lost. Yes it is true that even government departments, and some minister make the exact same mistakes or thinking that BEE is about them or their friends retiring and making a lot of money by becoming a “BEE partner” of some company seeking to find such partner. Some people are deliberately sabotaging the B-BBEE policies by taking part in these activities in the false name of B-BBEE. A key point is many people use BEE, when they should be talking about B-BBEE.

What is completely true is that the B-BBEE Act and the B-BBEE Codes of Good Practice do NOT encourage this practice. The codes allow enterprise to earn points on their scorecard on those exact areas to which Dr Mbeki would like BEE changed.

On the scorecard socio economic development is worth 5%. Enterprise development is worth 15%. Procurement is calculated by looking at suppliers’ scorecards, not only black ownership and is worth 20%. Skills development is worth 15%. Dr Mbeki wants a broader skills development drive – what more could he be asking for than training your own staff, supporting other companies that do the same, helping smaller black companies enter the economy and grow and supporting charitable institutions. In addition the scorecard does award 15% based on employment equity targets. There is no QUOTA, only targets, and no legal penalty for not achieving such targets. It should be pointed out that the Employment Equity act, a separate act to the B-BBEE act specifically excludes QUOTAS (para 15(3)).

The above elements represent 70% of the scorecard. The remaining elements refer to management targets and are worth 10% and ownership – the aspect that bears the total brunt of Dr Mbeki’s wrath is worth 20% – one-fifth of the scorecard. It should be noted that enterprises choosing to follow the B-BBEE act can also decide for themselves how they are going to earn points. I do not know of one large (generic) company out of thousands of large companies in the country that has achieved 100% on their scorecard. Very few have achieved above 85%. Most that are working on a scorecard have achieved less than 50%, while the majority of enterprises in this country have made no effort whatsoever to even calculate their scorecard. It is true to say that B-BBEE has not had the desired effect, that the pace of transformation has been very slow. There are many, many reasons for this including government’s own inability to implement and follow its own policies and because so few enterprises have made the effort.

Many enterprises choose to include ownership to earn some points, while others choose to earn points elsewhere. To get on the scorecard requires 30 points so an enterprise that only earns points via ownership is regarded as non-compliant. Some companies and commentators incorrectly believe that ownership is the be all and end all of BEE. How wrong they are!

What many people do not realize is low the targets (not quotas) are. While black people (including coloured and Indian) make about 80-90% of the population, white people own 90% of the assets in the economy. Whites account for about 90% of the directorships of large companies and black have only 10%. This seems inherently unfair. It would probably be unfair to the economy to have a target that exactly switches these proportions around. It is not unfair to suggest that by 2017 the 90% of black people account for 50% of all directorships or that 25% of ownership of businesses be in black hands. In a way it is still recognizing and giving whites more power in the economy by suggesting that the 10% of your population still hold 75% of the value in the economy and that they still hold 50% of all top jobs. Even the targets to junior management jobs suggest that whites should still account for 37%

The companies that earn the most points, i.e that follow the B-BBEE do so by supporting various charitable institutions, by encouraging black owner companies to grow, by supporting those other companies that also follow the broad based codes, by training their employees, by opening their management positions to all employees instead of limiting to only white employees, doing the same with their top management and directors, and finally are open to offers from black people to PURCHASE shares in the business. Those new black shareholders will be helped to find a way to PAY for those shares over the next 10 years.

The previous paragraph is not a pipedream. It is what B-BBEE is actually about. It does appear as if this is what Dr Mbeki would like BEE changed to.

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