Why the slow pace of BEE Implementation?

by Keith Levenstein (2006)

It has been reported that business, the government, even the president is concerned about the slow pace of BEE and transformation in South Africa, and in my opinion they have good reason to be concerned.

The proof given to substantiate this is that only 5 of the top 200 JSE listed companies have black ownership exceeding 50%.

There are many reasons for the slow take-on of BEE.

1) Lack of Communication and understanding of BEE:

In my business activities I get to talk to hundreds of small/medium businesses each month. In most cases the business owner has no understanding of the requirements of the B-BBEE act. Many owners have a sense of relief once they have attended one of our lectures, and the overwhelming reaction is “BEE is not so bad” I wish I had realised this earlier”?. If only the dti had explained what BEE is about to business people over the past year, rather than leaving them in the dark!

2) The Codes of Good Practice are still in draft form:

The minister and his task group have produced an excellent set of codes of good practice. The latest version though is dated 20th December 2005. Many businesses that refuse to implement transformation use this as an excuse. They say they want to wait for the final codes before proceeding. As much as every South African should make an effort to transform, it is difficult to argue with businesses that choose to wait until the codes are finalised. What if some of the actions recommended in the draft codes are not implemented in the final codes? Businesses could conceivably waste a lot of money taking action that do not reward them with BEE points.

I believe that the single biggest reason for BEE not succeeding in South Africa is the delay in implementing and issuing a set of codes that are accepted throughout the country.

3) The draft codes are complicated

Notwithstanding my opinion that the codes are a great way to encourage transformation, they are complicated, until explained properly. Once again the blame must be laid at the dti who have made insufficient effort to educate businesses on the codes.

4) Delays in issuing new codes.

The dti issued draft codes last year, and requested comments on those codes by March of this year. Reports from dti indicated that final codes would be available by July, then August, then September. Based on latest reports, it seems doubtful that anything will be gazetted any time this year. Even the staff at dti’s call centre cannot give any more accurate a date.

5) The charters are delaying implementation.

Many industries had decided to implement their own charter. Recently the draft legal charter was published. It could take another two years before this charter is finalised. By definition the charters can only be finalised after the codes of good practice are complete. Why have a charter for each industry? What is wrong with all, or most industries using the codes of good practice?

6) Incorrect interpretation of the codes by procurement officers

Lack of clarity and finalisation of the codes have resulted in many government departments, government owned organisations, NGOs and businesses implementing their own interpretation of BEE. Businesses have to contend with varying questionnaires from each of their customers. In the case of government itself, they are still governed by the Preferential Procurement Policy Framework Act of 2000. In other words, they require their customers to comply with an act different to the BBBEE act of 2003. How can anyone expect businesses to comply with conflicting acts? Where is the incentive to implement the BEE codes, if government does not give due recognition to companies implementing the codes.

 7) Incorrect interpretation of the codes by the stakeholders.

The Codes of Good Practice emphasise 7 elements to BEE. One of which is ownership, which is worth 20 points on the scorecard. If the Codes are going to be implemented, why is there so much criticism about the lack of black ownership, as opposed to the fact that the overall scorecard of those companies is still too low? If ownership is to be made a big issue, then why do the codes not reflect this?

8) Resistance from white businesses to implement BEE

There is no doubt that many businesses do not want to make an effort. The best way to convince businesses to take this important step is to ensure they understand the codes and to implement them as soon as possible. Many businesspeople tell me that in their opinion BEE will never work and never be implemented. I always tell them they are wrong, but they are right in saying that three years after the act was first passed, nothing has happened.

9) Resistance from black businesses to implement BEE Many black businesses believe that BEE does not apply to them, or that because they own the business, they are already BEE compliant. My point regarding interpretation is relevant. According to the draft codes, a business will be judged on its compliancy based on all 7 elements of the codes. It implies that a business that complies with only one element, e.g. ownership, is NOT fully BEE compliant in terms of the BEE scorecard.

Conclusion

Businesses are losing money due to conflicting procurement policies and this is affecting economic growth. This especially affects small businesses that government has identified as crucial to employment and economic growth.

 Also, many multi-national companies are very concerned about how the codes are going to affect them. The latest codes gave some indications to multi-nationals how they are implement their own form of BEE, but since this also has not been finalised, many multi-nationals are waiting before doing anything about BEE.

I am not for one moment suggesting that BEE should NOT be implemented, as a method of redressing the inequalities of the past. I am very concerned that it is taking so long to finalise something so important. I see no reason why the dti could not have gazetted even the draft codes of last year, and over time have issued amendments to the codes.

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