In 2005, the Institute of Race Relations put out a statement on what was at that point a relatively recently legislated phenomenon: Black Economic Empowerment – or Broad-Based Black Economic Empowerment, as it came to be known.
By Terence Corrigan
The Institute said: ‘The ultimate test of the success of empowerment policy in South Africa will be how many people are extricated from a life of poverty and inequality in the next five years through deals negotiated in terms of empowerment regulations.’
B-BBEE has been on President Ramaphosa’s mind. At the inaugural meeting of his new Presidential Broad-Based Black Economic Empowerment Advisory Council, he declared that inclusive development was critical for South Africa’s future. To get there, B-BBEE was non-negotiable. ‘There can be no inclusive recovery and reconstruction unless B-BBEE is at the centre of our efforts.’
The council, he adds, will be a ‘game-changer’. Interestingly, these words follow on the heels of his reaction to the report of the Zondo Commission, which he described as an ‘opportunity’ to reset the country. In the field of public procurement, these two are intimately related.
Public procurement was central to both B-BBEE and the corruption put under the microscope by the Commission. On the one hand, ‘black businesses’, however those might be defined, would get preferential access to the state spend; on the other, the state spend was an enticing target for the dishonest and unscrupulous. Whether the former has occurred is debatable; that the latter has occurred is not.
As Kgalema Motlanthe said in 2007: ‘This rot is across the board. It’s not confined to any level or any area of the country. Almost every project is conceived because it offers opportunities for certain people to make money.’
The Zondo Commission probably didn’t expose all that much that wasn’t known, at least not in broad terms – though some of the detail would have been chilling. But it put the imprimatur of one of the country’s most distinguished jurists on the condemnation of a litany of abuses. Perhaps he has forced an issue that has been poisoning the functioning of the state.
For this reason, it’s important to look both at the analysis contained in the report, and at its recommendations. The report in its entirety is worth reading, if only to remind oneself of the depths to which the country has fallen, that its failings are not isolated glitches, but have effectively become intrinsic to the system of government.
And what specifically those failings have taken. On B-BBEE, as this column has previously reported, it remarks:
There are of course many cases, one hopes the vast majority, in which the award of the tender satisfies both objectives of the Constitution, but undoubtedly there are other cases, some of which may well be high-value tenders in which one or other of these two objectives must be preferred, and it is in such cases that the [current] legislation fails to give guidance.
In the view of the Commission, the failure to identify the primary intention of the Constitution is unhelpful and it has negative repercussions when this delicate and complex choice has to be made, by default, by the procuring official.
Ultimately, in the view of the Commission, the primary national interest is best served when the government derives the maximum value-for-money in the procurement process and procurement officials should be so advised.
In the view of the Commission – guided by the framework established by South Africa’s Constitution – the efficiency of the spend needs to take precedence over any political or patronage objectives.
The implications of this are starkly on display right now. The exemplar is Eskom, whose ability to supply power to the economy underwrites South Africa’s economic future, and the prospects of millions upon millions of South Africans.
‘Load-shedding’ – the technocratic euphemism for power cuts – remains the shadow, the literal shadow, over that future. It has been for over a decade, and even President Ramaphosa nervously admits that the country’s people have a right to be angry. And he has pledged (not for the first time) to expedite a resolution. It cannot be ‘business as usual’, he said.
Business is the operative concept. If the President is serious about dealing with Eskom’s failings, its procurement regime needs to be reformed. Properly and thoroughly.
B-BBEE needs to go. There is even a precedent for it. Earlier this year, finance minister Enoch Godongwana granted various organs of state – including Eskom – exemptions from BEE provisions for procurement purposes. This is within his power when it is in ‘the public interest’. Eskom CEO André de Ruyter has also remarked – discreetly – that a ‘strong case’ exists to discard provisions that ‘[interposed] non-value-adding intermediaries in procurement.
Prof William Gumede observes that B-BBEE has skewed not only the procurement system, but the country’s entire political economy, with its harm extending not only to questionable service provision, but undermining the development of genuine entrepreneurship. In a recent contribution, he wrote: ‘They often inflate prices, buy the cheapest products, and cut corners – providing non-existing, shoddy services. This is one of the main reasons for the public service failures in the government. Alternatively, these politically connected companies partner with more established companies that have the capacity, through the phenomenon of fronting. The politically connected BEE company would get the government contract and then outsource it to the established local or international company.’
It’s difficult to imagine anything more in the public interest than ensuring a secure power supply.
The Commission’s Report also recommends that procurement be conducted with transparency consonant with the principles set by the Organisation for Economic Development (OECD). As a broad concept, transparency is critical for preventing and combating malfeasance. The OECD’s principles demand that the entire procurement cycle be sufficiently open to ‘promote fair and equitable treatment for potential suppliers’, and to minimise the risks of misconduct.
Read closely, its provisions would be incompatible with at least some of the provisions and practices of B-BBEE at present.
Closed-list tenders, for example, which restrict tendering to firms meeting particular empowerment criteria, are inherently non-transparent and anti-competitive. It excludes particular firms from the outset, and makes it hard if not impossible to determine what the best value-for-money offer might have been.
Indeed, where restrictions on tenders are envisaged, the OECD document warns that these can be ‘misused to exclude firms that may be less favourably disposed towards the decision-maker (e.g. those that will not accept being discriminated against) or that are less familiar with local “practices” (e.g. foreign firms).’
It then makes the following point directly: ‘The most important step in a restricted call for tender is to make a list of candidates, based solely on technical criteria, who could be consulted [emphasis added].’
This is all sage advice. It is difficult, if not impossible to see how all of this could be squared with a process in which race (never mind the addition of political favouritism) features prominently. And it is difficult to imagine how South Africa’s ailing electricity utility will have any chance of recovery unless the heavy hand of empowerment policy is removed. If Eskom cannot function with an ethic of ‘business as usual’, this is necessary step to take.
Whether South Africa’s authorities will take it – whether they are committed to a new approach – remains to be seen.
And perhaps the Institute’s 2005 test should now include a second part. Empowerment policy has not shown itself to be a means for alleviating poverty, it failed that test. The commitment of South Africa’s government to alleviating poverty should rather be viewed in relation to its willingness to change course.
We invite readers to join the Institute’s campaign to get Eskom to discard empowerment in procurement. To do so, go here where you can sign the petition for Minister Godongwana to grant exemptions for a second time in 2022, this time until load-shedding ends.