BUSINESS LIVE / 25 NOVEMBER 2020 - 15:59 / THABANI NJOZELA
Since the inception of broad-based BEE (B-BBEE), its regulations and inner workings have been the preserve of a select few. For the intended beneficiaries, understanding BEE is on a need-to-know basis, with the majority seemingly not needing to know. But how can the majority benefit from a system they do not understand?
Core to the existence of the ICT (information & communications technology) SMME Chamber is preventing developments where the flouting of BEE policies poses a threat to the development of our members — ICT entrepreneurs. Recent cases in the BEE space warrant attention, especially regarding attainment of level one broad-based BEE status by largely untransformed corporates.
It can be argued that since 2003 more white people than black people have benefited from BEE. Reports from the B-BBEE Commission have shown that fronting and the misrepresentation of BEE data by companies across sectors remain rife. B-BBEE Commission head Zodwa Ntuli was quoted saying more than 80% of the complaints received by the commission relate to fronting. The biggest perpetrators are white companies that claim black ownership. The employment of foreign nationals ahead of South Africans is also a concern.
Ntuli went on to say that the commission receives most complaints of non-compliance in the construction, transport, mining, engineering and ICT sectors. “It is going to take not only the commission’s oversight but also companies to scrutinise their B-BBEE deals to make sure those are not fronting deals.”
One of the key objectives of BEE is to promote investment that leads to broad-based participation in the economy by black people. It seeks to achieve a substantial change in the racial composition of economic ownership, management and the skilled occupations in existing and new enterprises.
It is simply not enough to place black people in high-ranking positions; investment must be made in their upskilling, education and economic inclusion to increase their potential in the ownership pillar. Companies have avoided doing this, thus excluding black candidates from true economic participation and ownership, yet they have still benefited from being BEE compliant.
This plays out where BEE executive candidates are excluded from decision-making forums or paid significantly less than their colleagues. The case of Andile Ngcaba vs Dimension Data is a prime example. Ngcaba, who chaired Dimension Data from 2004 to 2017, is suing the company over alleged racial discrimination and violating an undertaking over equal pay.
In 2016, Ngcaba discovered a pay disparity after an amendment to the Companies Act that required companies to disclose the remuneration of their executives. He found that he had not received the same bonuses as his counterparts during his term as chair and took Dimension Data and its parent company to court, demanding that he be compensated with remuneration equal to that of his fellow executives.
Alarmingly, an Institute of Race Relations study found that BEE benefits only about 15% of the black population, and data shows that while there has been a 113% increase in the number of wealthy black Africans since 2007, this population has shown the smallest growth in actual wealth.
The B-BBEE Commission’s annual report, published in June, reveals a 4% reduction in black ownership of companies, from 29% in 2018 to 25% in 2019, while skills development has remained flat at 49%. On the other hand, management control increased by 6%, suggesting that more black people have been placed in managerial positions but less investment has been made in upskilling and furthering black ownership.
In a recent Supreme Court of Appeal judgment in the case of AfriBusiness NPC vs the finance minister, it was found that the minister’s application of prequalification requirements was largely discretionary. Once the regulations were published, AfriBusiness challenged regulations 3(b), 4, 9 and 10 of the preferential procurement regulations of 2017 and was successful in invalidating three of the four regulations.
The court ruled that the minister had no basis to gazette prequalification requirements that are not within the framework of the Preferential Procurement Policy Framework Act (PPPFA). There was no substantiating framework giving him the authority to determine that an exempt micro-enterprise or qualifying small enterprise that is at least 51% black-owned should be a pre-qualifying criterion, the court ruled.
The minister attempted to publish regulations that were in line with the B-BBEE Act, and after hearing the cries of black South Africans he prematurely published regulations without ensuring there was a framework in place. It could also be said that South Africans, failing to understand the powers of the minister, pressured him to announce pre-qualifying criteria that did not fall within the PPPFA.
While this may be perceived by many as a major blow to B-BBEE, it will help our legislators and the government understand the gaps and loopholes in our legislation.
To introduce transparent BEE data capturing and a common platform for reporting within the ICT sector, the ICT SMME Chamber, together with the State Information Technology Agency, created the SMME Business Efficacy Measure Tool, an online portal to publish all reported BEE activities quarterly and compute their effect.
There is a lack of awareness when it comes to the B-BBEE regulations. To realise BEE’s full potential of reconciling South Africans, we must ensure BEE laws are sound, properly implemented and there is sufficient oversight of processes by agencies.
• Njozela, a corporate/commercial lawyer and alternative disputes resolution practitioner, is founder of Njozela Legal. He chairs the ICT SMME Chamber’s legal & regulatory workstream.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER