OPINION - Rewriting the law for a failed system of BEE
DAILY FRIEND - OPINION / 25 JUNE 2020 - 06.00 / ANTHEA JEFFREY
Earlier this week a full bench of the Pretoria high court upheld the use of race as a criterion in the granting of Covid-19 relief to small businesses.
The Democratic Alliance (DA) had challenged the race, gender, and other criteria for obtaining disaster relief the minister of small business development had seemingly laid down. In doing so, the DA pointed out that the relevant rules were too vague. It also argued strongly against an unlawful insistence that small businesses struggling to survive the Covid-19 lockdown must comply with BEE requirements to merit access to relief.
The Pretoria court agreed that the rules were too vague to stand. But it also instructed the minister, in crafting more precise new regulations, to take account of race, along with gender and other demographic criteria.
The court based this decision on Section 39 of the Constitution, which requires the judiciary to ‘interpret legislation in a manner that promotes the spirit, purport, and object of the Bill of Rights’.
The Bill of Rights guarantees some 25 rights, all of which have equal importance under the ‘interpretation’ provisions in Section 39. Yet in making its decision, the court allowed one sub-clause – the ‘affirmative action’ element in the equality clause – to trump all other guaranteed rights.
In the racial context alone, these rights include the right to equality before the law, the prohibition against unfair racial discrimination, and the reverse onus provision which regards any instance of racial discrimination as automatically unfair until the contrary is shown.
Using Section 39 in this way gives the courts an extraordinary latitude to bypass Parliament and ignore the content of existing legislation. In this instance, the Pretoria high court overrode and effectively rewrote both the Disaster Management Act of 2002 and the Broad-Based Black Economic Empowerment Act of 2003 – neither of which authorise the use of race as a criterion in the allocation of disaster relief.
Why was the Pretoria high court willing to usurp the role of Parliament in this way? Because, it seems, of its powerful (and unexamined) assumption that BEE rules are effective in helping poor black people.
That assumption is unfounded, however. The great majority of black South Africans – including the millions living in crowded informal settlements without adequate water or sanitation – have little prospect of ever gaining access to BEE ownership deals, management posts, preferential tenders, or Covid-19 relief funds for formal small businesses.
BEE’s main effect is to enrich, and often re-enrich, a relatively small and politically connected elite making up around 15% of the black population. At the same time, it actively harms and disempowers the remaining 85% of black people by limiting investment, growth, and jobs even as it undermines public sector efficiency and fosters corruption.
In 2017 the South African Communist Party (SACP) pointed out that ‘enriching a select BEE few via share deals…or (worse still) looting public property…in the name of [BEE] is resulting in….increasing poverty for the majority, increasing racial inequality, and persisting mass unemployment’.
The party also identified the ‘intra-African inequality’ that BEE has fostered – as the relatively few grow rich and the millions more remain jobless and destitute – as ‘the main contributor to South Africa’s extraordinarily high Gini coefficient’ of income inequality.
It is, of course, vital to empower poor South Africans and give them real opportunities to get ahead. But this cannot be achieved by BEE. It also requires:
high levels of foreign direct investment, rather than the paltry $3.8bn attracted in 2019;
rapid growth, in place of the 0.2% increase in GDP achieved last year (and the 7% contraction likely to occur in 2020);
expanding employment, instead of the 30% joblessness rate recorded in early 2020; and
sound skills, rather than a roughly 60% drop-out and failure rate from schools.
Helping the millions of black South Africans who lack jobs and often also adequate housing (to name but two key needs) requires a totally different approach to empowerment. One that promotes the investment and growth vital to upward mobility. And one which reaches right down to the grassroots to help the people most in need, rather than the relative elite.
The IRR’s proposed strategy of ‘economic empowerment for the disadvantaged’ or ‘EED’ would meet these needs. A new EED scorecard would reward business for investing in enterprises, employing people, paying salaries, boosting tax revenues, and adding to R&D.
This change would remove the BEE leg-iron from the economy, thereby lifting confidence, increasing investment, stimulating growth, and make it easier for all enterprises to thrive.
EED would also reach down to the poorest by providing them with tax-funded housing vouchers, which business could top up to earn additional EED points. These vouchers would help overcome the many failures of ANC housing policies.
The delivery of ‘RDP’ houses has flagged to the point where the backlog, at some 2.3 million homes, is bigger than it was in 1994 (1.5 million units). The number of informal settlements has soared from some 300 to around 1 200 today. At the same time, the houses supplied by the state – despite a massive increase in the housing subsidy – remain small, poorly located, and often very badly built.
Many homeless people have long urged the government to transfer the housing subsidy directly to them as they could build better houses for themselves with the money. This need could be met by providing them with tax-funded housing vouchers.
The voucher system and the market it would help create would encourage the private sector to build and/or revamp many more houses and flats. Existing homeowners could use their vouchers to expand their houses. People living in informal settlements could move into (improved) backyard structures or start upgrading their shacks.
With the voucher system in place, households could take the initiative in meeting their housing needs. They would no longer have to wait endlessly on the state to provide them with a small and probably defective RDP home.
EED would be far more effective in empowering the poor than BEE will ever be. It would also rely on a means test – rather than the artificial construct of race – to determine who qualifies for help. Almost all its benefits (more than 99%) would nevertheless go to people now classified as black.
EED would encourage the courts to give full weight to the wording of the Constitution, rather than ignoring what it says. In the Covid-19 relief case, it was the Pretoria high court’s ill-considered support for race-based and ineffective BEE that tied it up in legal knots.
This is why the court abandoned established principles of constitutional interpretation – along with the doctrine of the separation of powers – to ‘read into’ the Disaster Management Act a commitment to BEE which Parliament had neither included nor endorsed.
This is also why the court went on to state that the Constitution cannot be construed as ‘a race neutral constitution’ that ‘elides over’ the country’s long history of racial discrimination. But this approach ignores the Constitution’s founding values of ‘non-racialism’ and respect for the rule of law. It overlooks the clear meaning of the text and allows different judges at different times to substitute for the existing wording whatever alternatives they might prefer.
This kind of constitutional perversion is likely to increase if the courts remain determined to uphold race-based BEE rules and expand them into new areas, such as disaster relief. This will fundamentally erode the country’s constitutional order.
It will also increase the harm to the poor black majority. In the Covid-19 context, it will push more struggling white-owned firms to the wall, so reducing employment, earnings, and tax revenues and miring many more people in poverty. In the broader economic environment, it will further erode confidence, investment, and growth, making it still harder for the country to climb out of abyss into which the lockdown has pushed it.
The upshot will be yet more of the joblessness, poverty, inequality, and exclusion that BEE is supposed to overcome.
The Pretoria court seemed to think it had no choice but to ignore the Constitution if it was to address deeply entrenched patterns of disadvantage and ‘bring relief and hope to the widest sections of the community’ (as it cited the Constitutional Court as having said in the Azapo case in 1996).
Fortunately, however, the EED option provides a sound path out of this supposed conundrum. A race-neutral EED approach would not abandon the disadvantaged to poverty and hopelessness. Instead, it would provide the real empowerment that BEE will never bring.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER