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Sheree Bega | 8 June 2023 South Africa’s biggest federation of agricultural organisations, Agri-SA, has said that new draft regulations introducing racial quotas for water use licences place the country’s “tenuous food security at further risk”. The draft regulations require farmers to have 25% to 75% black shareholding for their applications to succeed. They were published for public comment by Water and Sanitation Minister Senzo Mchunu on 19 May, under the National Water Act. The prescribed minimum black South African shareholding requirements of 25%, 50% or 75% for a water use licence to succeed depends on the volume of water abstracted or stored, or the area covered, in the case of commercial forest plantations. Farmers who draw 250 000 to 500 000 cubic metres of water require 25% of black shareholding for their water use licence to be granted, while 50% black shareholding is stipulated to use more than 500 000 cubic metres. To draw more than a million cubic metres of water, 75% black shareholding is required. Fatal consequences Agri-SA legal and policy executive, Jansie Rabie, said while the federation fully appreciates the importance of achieving an inclusive and fairly representative agricultural sector, “the consequences that the draft regulations in their current form will have with respect to agriculture and food production in South Africa will be fatal, as it will essentially force the transfer of ownership of the ability to lawfully use water, commercial agriculture’s most crucial input factor.” Focusing solely on ownership, to the exclusion of all other relevant factors, will “mean the loss, or partial loss, of water resources for numerous currently viable commercial farming enterprises”. The department of water and sanitation has stood by its proposed new rules, saying there is a need to “ensure that there is transformation of water use allocations to address the disparities in access to water use from apartheid”. Massive investments Theo de Jager, chairperson of the board of the Southern African Agri Initiative, an agricultural interest network for farmers, said: “A dam costs you millions. Very often, a dam on the farm is more expensive than the farm itself. Many farmers invested in water storage facilities, but they still owe millions on it, every year they must pay off the loans for that.” It is unclear whether the proposed regulations would mean that the black shareholders will also have to share in the debt that has been incurred on the storage of the water. It’s the same for the irrigation equipment, he said. “The pivot on irrigation land is much more expensive than the land itself. The value is in the fact that you can put water on that land. Now the water will have a different shareholding. Farmers, if they knew this, would probably not have invested in the equipment.” De Jager farms with avocados and macadamias and uses about 5 000 cubic litres of water per hectare a year, “which means that if I have more than 30ha of irrigated orchards, I will be forced to have a partner. But to farm with less than that actually makes me a smallholder farmer. We’re smallholders unless we’re prepared to be forced into a partnership”. Most farmers in the commercial sector are family-owned businesses. “It’s a family farm. You inherit it from your dad, who inherited it from his dad, and you invest in it actually for the sake of your children. How do you BEE [black economic empowerment] a family?” ‘Devastating for the future’ Bennie van Zyl, general manager at commercial farmers union TLU SA, denounced the proposed regulations as “devastating for the future” and the most “short-sighted suggestion and proposal I’ve seen from any government in my life in the world”. “This is not the way to do things so this government should go and rethink what they want South Africa to be when they’re finished with it,” he said. “I think we’ve come to a point in South Africa where the big question that now should be asked is, do we want to eat, do we want food on our tables?” The government’s policy of transformation and how it is applied is “an ideological approach and it should be an economical approach”. What concerns Van Zyl is “that we have a government that doesn’t understand the economics of success, they don’t understand the market forces …. If you don’t make a profit, you’ll go out of business. “Who on earth can BEE in a family farm? Ninety-five percent of our farms are family farms. I’m a farmer, with my son, with my family, now I have to give ownership to someone else? It cannot work like that; it cannot be sustainable and it’s not for the benefit of the country.” De Jager says the government faces a difficult election next year and “I think [the proposed regulations are] a blind populist move, something they will do to appease the rural voters”. “Most of the cities have slipped out of the hands of the ruling party, their strongholds are really the deep rural areas, where the poorest of the poor people in South Africa live, and us, the farmers. And by doing something like this, they appease that part of the voter’s base but they haven’t thought through the process and the consequences.” About 25% of total production of staple foods such as grain, wheat and maize and sunflowers for cooking oil, comes from irrigation. “It is the certain part of our production. The rest is rain-fed — that is the uncertain part of our production.” Most of the jobs in agriculture are on irrigated land. “There’s no way you can do something like this without shaking the very foundations of our capacity to create jobs and to maintain jobs. And, in agriculture we create the jobs where we need it most — in the deep rural areas … for that portion of the population that will not find jobs elsewhere.” Redress The department said that among the purposes of the amendments is to effect reforms in relation to equitable allocation of water use. The National Water Act recognises that water is a natural resource that belongs to all people and should be allocated to all users equitably. South Africa is among the 30 driest countries in the world with limited water resources, and the majority of the catchments are in deficit. It is estimated that 98% of water resources were already allocated by 2004, of which most allocations are through the recognition of old water use entitlements. Comparative statistics drawn from issued water use licences to historically advantaged individuals and historically disadvantaged individuals since 1998 indicate that a total of 412  million cubic metres of water has been allocated among the two groups, it said. Highly skewed Of the 412 million cubic metres of water, 313  million cubic metres (75.93%) has been allocated to white people, while a “modest” 99  million cubic metres (24.07%) has been allocated to black people, the department said. The same analysis for water allocated by means of existing lawful water use shows that a total of 5.83  billion cubic metres of water is allocated, where 5.74  billion cubic metres (98.54%) is allocated to white people and only 90 million cubic metres (1.46%) to black people. “These statistics indicate that water allocations remain highly skewed towards the historically advantaged individual group. Hence, the department should make efforts to improve this situation,” the department said. The revised regulations have introduced proposed thresholds of abstraction volumes of water against the level of black ownership in applications submitted for new water use allocations. “This is done to ensure that there is transformation of water use allocations, to address the disparities in access to water use from apartheid.” Sandile Ndlungwane, the African Farmers’ Association of South Africa’s North West executive, told Farmer’s Weekly that his organisation supported the idea behind the proposal. “We seriously need water reform in the country, as most of the water allocated to the agriculture sector is allocated to white farmers,” he said. “I don’t think the intention is to take existing water rights away, but rather to ensure that the remaining water and new water that becomes available as new dams are built go towards transformation.” Radical, sweeping Marais de Vaal, AfriForum’s adviser for environmental affairs, said the government has a constitutional duty to manage and protect the country’s water resources in a sustainable manner. “While South Africa is a water-scarce country, water infrastructure is crumbling across the country and we are heading for a crisis. Transformation is being used as a smokescreen behind which the [department of water and sanitation’s] failures hide.” Agri-SA said the proposed regulations are seen as the department’s most “radical and sweeping effort to date” toward changing the demographics with respect to water use in the country, with the agricultural and forestry sectors appearing to be the “primary target”. The agricultural sector accounts for about 60% of South Africa’s total water use and the proposed regulations exempt mining companies, the state and state-owned entities, as well as 100% black-owned entities. “What the proposed regulations seek to achieve is to make BBBEE [broad-based black economic empowerment] the sole consideration for granting licences,” Rabie said, noting how water is the “most vital input for the sector” and if farmers lose the lawful use of this input, “the impact will be catastrophic”. The proposed regulations are open for public comment until 18 July. ‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’. https://mg.co.za/news/2023-06-08-race-based-water-licence-allocations-draw-ire-of-farmers/

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Staff Writer | 6 June 2023 Draft regulations that will determine access to water based on skin colour will have a catastrophic impact on food security and employment in the agricultural sector in South Africa. This is the warning from Agri SA in response to the proposed water licensing regulations gazetted by the Department of Water and Sanitation (DWS) in May 2023. According to the draft regulations, certain enterprises applying for water use licenses to take or store water will, in the future, have to allocate shares of up to 75% to black South Africans for such water use licenses to be granted. According to the department, this consideration is to achieve equity and redress past racial discrimination. The prescribed minimum black South African shareholding requirements of 25%, 50%, or 75% required for a water use license to succeed depends on the volume of water abstracted or stored or the area covered. The shareholding requirements are given in the table below, as outlined by the department. The proposed regulations also exempt mining companies, the state and state-owned entities, and 100% black-owned entities. According to the draft, “the responsible authority may, subject to the availability of water resources, support black people with water licences before a final decision is reached on their applications.” The proposed regulations are seen as the DWS’ most radical and sweeping effort to date toward changing the demographics concerning water use in South Africa, said Agri SA. It noted that the agricultural and forestry sectors appear to be the primary target of the proposed regulations, accounting for approximately 60% of South Africa’s total water use. According to the organisation, the consequences for food security and the sustainability of the agricultural sector should these regulations be passed in the current form cannot be understated. “They would have a devastating impact on the sector and its ability to provide the country with a secure food supply. “This is because focussing solely on ownership, to the exclusion of all other relevant factors, will mean the loss (or partial loss) of water resources for numerous currently viable commercial farming enterprises,” it added. Concerningly, the draft regulations would seem to be attempting to replace the current suite of considerations which apply to granting water licenses with ownership demographics. Regarding section 27 of the National Water Act, the DWS must consider all relevant factors when issuing a water use license. This already includes the need to redress the results of past racial and gender discrimination, noted the organisation. Legal and policy executive at Agri SA, Janse Rabie, explained that Section 27 of the National Water Act contains at least ten other considerations that the DWS (the responsible authority for granting water use licenses) must consider before granting any application for a water use license. “What the proposed regulations seek to achieve is to make BBBEE the sole consideration for granting licenses, essentially forcing the transfer of ownership of the ability to use water lawfully,” he said. Furthermore, he noted that these regulations are also unlikely to achieve the goal of further transformation in the sector and would threaten the employment of 800,000 South Africans. “Achieving transformation will require creating an environment conducive to growth and investment in the sector, providing meaningful support for new entrants. This will encourage the opposite,” he said. Rabie stressed that this effort by the government could not have come at a worse time for the sector and the economy, which is already reeling from the impact of load shedding, rural crime and deteriorating public infrastructure. These considerations remain important and are especially so when considering the sector’s foundational role in food security and employment, as well as the very significant headwinds farmers are currently facing. “Water is the most vital input for the sector, and if farmers lose the lawful use of this input, the impact will be catastrophic,” said Rabie. ‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’. https://businesstech.co.za/news/government/693843/farmers-sound-the-alarm-on-race-quotas-for-water-in-south-africa/

Neesa Moodley | 5 June 2023 The broad-based black economic empowerment transaction involves 7% of the total Absa Group shareholding, comprising 3% for South African staff and 4% for black participants in selected CSI programmes. Shareholders approved Absa’s R10-billion broad-based black economic empowerment (B-BBEE) deal at an extraordinary general meeting last week, paving the way for black ownership of the bank to push the 25% envelope. The deal value (R11.2-billion in April this year) highlights how the bank’s share price has fallen over the past three months, plummeting 21% from a high of R199.50 on 6 March to close at R158.23 on Monday. Hopefully, the price will pick up by the time employees and participants in Absa’s corporate social investment programmes become shareholders. The deal is structured so that employees in other countries where Absa has a presence will have the opportunity to participate through cash-settled plans, subject to local approvals. Half of the transaction will be for the benefit of participants in corporate social investment (CSI) programmes. Group chief executive Arrie Rautenbach says the B-BBEE transaction involves 7% of the total Absa Group shareholding, comprising 3% for South African staff and 4% for black participants in selected CSI programmes. Absa anticipates that the SA staff scheme will be implemented on 1 September 2023, allowing thousands of Absa employees to become shareholders when the shares vest five years from the implementation date – or in September 2028. On implementation of the transaction, Absa will also allocate shares to a CSI Trust which will distribute its significant dividend income to its beneficiaries, who will be mainly black participants in CSI programmes that focus on education and youth employability. The SA staff scheme will include about 26,000 eligible permanent staff members of Absa Group companies in South Africa, regardless of race or nationality. However, the SA staff scheme will be structured to enhance the participation of 20,500 eligible South African black (African, Indian and coloured) staff members who will receive an additional 20% allocation relative to staff who are not black, which means about 82% of the SA staff scheme will benefit black staff. ‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’. https://www.dailymaverick.co.za/article/2023-06-05-absa-shareholders-green-light-r10-billion-b-bbee-deal-as-share-prices-plummet/

Ina Opperman | 5 June 2023 If you have a well-paid job, should you not stay where you are and count your blessings instead of starting a business? Why would someone quit their well-paid job to start their own business, especially in a challenging economic environment? Because they have the determination needed to keep their business afloat. According to the Global Entrepreneurship Monitor South Africa report, the country’s climate for conducive entrepreneurship is one of the lowest but there is hope on the horizon with entrepreneurs like Fikile Khiva, CEO of Kamva Capital, a management consulting firm. Khiva started Kamva Capital to drive transformation, financial literacy, entrepreneurship development and investment facilitation. “I voluntarily resigned and sacrificed a well-paid job to pursue my calling as an entrepreneur. “Growing up in poverty-stricken rural villages, I have always been driven to make a real difference; not only to myself but to entrepreneurs and other communities trapped in poverty.” Giving back to the community While he was still working for another company, Khiva started a plough-back initiative in his community in the Eastern Cape in 2008 and witnessed the impact it had on the lives of people. After 10 years of his professional career at Accenture and J.P. Morgan Chase, he resigned and founded Kamva Capital. For Khiva, starting his own company presented an opportunity for him to execute sustainable community development projects on a wider scale. But what motivates him in tough economic times? “What motivates me is knowing that, if I put energy into my company, I can make a positive change within myself and my reach.” Today, Kamva is a 100% black-empowered company that specialises in delivering business development solutions to various sectors, such as financial services, energy infrastructure, agriculture, digital and ICT and property. However, it was not all sunshine and rainbows, he says. “The uphill part of entrepreneurship is dealing with ongoing challenges in various aspects of the business and stakeholders, as well as family and just people in general.” Getting capital is difficult He says a difficult aspect of entrepreneurship is gaining access to capital. Kamva has been able to grow by partnering with Inyosi Empowerment, a South African enterprise and supplier development funding provider. Inyosi provided various resources for Kamva Capital. The most recent was funding for motor vehicles to ensure the safe transport of its employees. “From a job creation point of view, it is encouraging that Kamva is planning to create jobs in the Eastern Cape which is currently the province with the highest unemployment in SA. “We share Kamva’s passion for uplifting communities by investing in businesses which have a positive impact at a local level,” Evan Jones, founder of Inyosi Empowerment, says. Inyosi Empowerment provided much-needed access to funding, markets and skills for Kamva Capital and many other SMEs. ‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’. https://www.citizen.co.za/business/personal-finance/why-quit-well-paid-job-start-business/

A B-BBEE Verification is based on a sampling of evidence and an element of risk. In other words, the process of analysing less than 100% of the evidence supplied. The procedure provides a Verification Analyst with a reasonable basis on which to conclude that all evidence provided is true and accurate. However, posing a challenge is a Learnership claim where the Learner is no longer employed. If that particular Learner is chosen as part of the sample, the B-BBEE Rating Agency will need to interview them for an organisation to claim its points. As per Clause 18.3.1.3 (e), the SANAS R47-03 document states the following: " (e) As part of the Verification process, the Verification personnel shall interview a sufficient number of black persons at all levels of the Measured Entity to provide assurance that the information gathered is sound. For the avoidance of doubt, interviews shall be conducted for the Skills Development element. This does not exclude the sampling of white persons or others who do not meet the definition of 'Black'." Therefore, an organisation must ensure that it has up-to-date contact details of Learners no longer employed or other pieces of corroborating evidence. B-BBEE Verification Support Services are available to assist Members to prepare for B-BBEE a Verification.

The liquidity of an Enterprise Development Beneficiary matters. A long-term Enterprise & Supplier Development Strategy more often than not incorporates future Bonus Points for elevating a Beneficiary from Enterprise Development status to that of Supplier Development. However, core to successfully claiming these points is that the Enterprise Development Beneficiary remains in business. In other words, claims only qualify if an Enterprise Development Beneficiary’s business is liquid and actively trading. Therefore, organisations must put measures in place to track the performance of their Beneficiaries. Enterprise & Supplier Development Services are available to assist Members with Enterprise & Supplier Development strategies.

Those driving Preferential Procurement Strategies must bear the following in mind when an EME, QSE with more than 51% ‘Black’ Ownership or a Start-up Entity opts to tender outside their financial threshold. EMEs tendering for contracts of R10m and above must be verified using the QSE Scorecard; QSEs tendering for contracts of R50m and above must be verified using the Large Enterprise Scorecard; and Start-ups that qualify as EMEs that want to tender for contracts of R10m and above must be verified using the QSE Scorecard. Certificate Collection Services are available to clarify the validity of any B-BBEE Credentials.

Sandile July & Nonkosazana Nkosi | 5 June 2023 Dismissal for the purpose of meeting the regulations’ numerical goals would violate the Labour Relations Act. The publication of the employment equity (EE) regulations last month has caused much controversy. While a vibrant contestation of ideas is the lifeblood of a healthy constitutional democracy, public discourse must always adhere to the factual and legal reality that informs it. As the Constitutional Court so eloquently put it in SA Police Service v Solidarity obo Barnard, the objects of EE are to “redress the effects of past discrimination to achieve a diverse workforce, representative” of the SA populace. These objectives are enveloped in and should promote the equally important ideal that “beneficiaries of affirmative action must be equal to the task at hand” and “efficacy and competence” should not be sacrificed at the altar of “remedial employment”. These ideals are the cornerstone of our EE regime and serve as a guiding light as we navigate the seas of economic and social transformation in the workplace. Alarm has been sounded that employers may be compelled to dismiss employees or reduce their workforce by targeting non-designated people to meet the numerical targets. Considerable unease exists regarding the potential enforcement and implementation of numerical targets in an exclusionary manner that unjustly marginalises individuals outside the designated groups. This raises the question of whether numerical targets are a threat to our labour and employment regime. The answer is no. Regardless of the perspective from which you approach the interpretation of the EE regulations, it is highly unlikely to reach the conclusion that the regulations permit dismissals. Dismissal for the purposes of meeting the numerical targets would be in violation of the Labour Relations Act. Lawful dismissals still have to meet the traditional misconduct, incapacity and operational requirement parameters. As the labour court intimated in Robinson & others v PWC, “affirmative action is not and never has been legitimate ground for retrenchment”. Rigid enforcement Applying and enforcing the targets as a threshold rather than a benchmark, leading to the systematic exclusion of individuals outside the designated groups, would also be unlawful. Our intentional and strategic approach should aim to work towards these targets as goals, rather than rigid thresholds that result in exclusion. These concerns may reasonably materialise through the rigid enforcement and implementation of the numerical targets, which disregards the rights of individuals outside the designated groups to dignity, fair labour practices and freedom of trade, occupation and profession. However, as things stand the numerical targets are in the form of percentages categorised in terms of population groups and gender, applicable over a five-year period for 18 identified economic sectors. They are divided between national and provincial targets for the economically active populations. Mainly, the intention is to roll out the targets at top management, senior management, professionally qualified and skilled occupational levels, including reforms for employees with disabilities. Employers are also required to apply their chosen economically active population (either national or provincial) to semi-skilled and unskilled occupational levels. Again, the devil is in the detail of how these percentages are applied by employers and enforced by the department of employment & labour. As the Constitutional Court noted in Barnard, the distinction between numerical targets and quotas “lies in the flexibility of the standard”. It is presumptuous to label the introduction of percentages as quotas or to assume that they will be rigidly applied and enforced. Make submissions There is an intention to promote and uphold flexibility. For instance, designated employers have the option to comply either with national or provincial targets. They therefore have to think strategically given the areas in which they operate and consider which targets will give them the most flexibility. It may also be crucial to make submissions on whether the proposed percentages offer adequate flexibility, whether at national or provincial level. The department should provide a comprehensive explanation for the methodology used to determine the percentages. This is particularly significant given that certain categories of population and gender groups have been consistently allocated a 0% representation across multiple sectors. Employers may present reasonable grounds for noncompliance with the targets. We believe the justifications for noncompliance present employers with an opportunity to craft EE plans that progressively implement the targets over the five-year period based on availability of qualifications, skills and expertise or financial feasibility. It may be essential to incorporate a provision that expressly permits progressive implementation. Public comments must be submitted within 30 days of the date of publication of the EE regulations. When engaging with the numerical targets one must consider whether the targets strike the critical balance between promoting representativeness and retaining meaningful flexibility. • July is director and head of employment, and Nkosi senior associate, at Werksmans Attorneys. ‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’. https://www.businesslive.co.za/bd/opinion/2023-06-05-sandile-july-and-nonkosazana-nkosi-jobs-unlikely-to-be-lost-when-applying-employment-equity-targets/

Ravi Naidoo | 7 June 2023 OPINION: Maybe we all need to focus less on lamenting about unemployment and instead on what we can do to create employment. We need to spend less time complaining and more time taking decisive action. Youth Day 2023 needs to be a day of introspection and not a celebration. We should use the day to take stock of how much more we need to do to create a better future for our youth. Truth be told, the achievements over almost three decades of democracy have been severely underwhelming. Yet, paradoxically, we remain on the cusp of many breakthroughs that can dramatically boost employment. We all know by now that South Africa’s unemployment rate for those under 35 years old (how we define youth in this country) is a staggering 57%. In actual numbers, 4.8 million young people are looking for jobs, and a further 2.4 million have lost hope (the so-called ‘discouraged work seekers’ that perversely then get dropped out of the StatsSA official unemployment figures). We also know what is causing unemployment. Unemployment is primarily caused by the lack of economic growth – and South Africa has had little of that for the last 10 years. With no expanding local markets, businesses do less hiring. But even if companies want to hire, there is a skills deficit, stemming from four out of every five children in primary school being unable to read for meaning. The failure of our education system to educate and our economic policies to grow the economy has caused dangerous levels of joblessness that now threaten social stability. Fortunately, neither of these are terribly difficult problems to solve if we had the will to do so. The South African economy is large and remains surprisingly resilient, despite global challenges and self-inflicted injuries. It was interesting to see that even under very adverse conditions, it created 258 000 jobs in the three months to March 2023. With the right policy choices, we can quickly accelerate economic growth and employment. Sure, load shedding has no quick fix (minimum two years), though, even there, we can collectively rise from the ashes and emerge as a leading global exporter in renewable technologies and ‘green jobs’. More than that, South Africans are resilient. I notice people are going about their business with a grim determination and wartime humour. At the Youth Employment Service (YES), we find thousands of youth in our programmes, most from the country’s poorest households, remain positive and determined to make the most of their chances. In fact, maybe we all need to focus less on lamenting about unemployment and instead on what we can do to create employment. We need to spend less time complaining and more time taking decisive action. Funded 100% through the private sector, YES last year provided stipend salaries to 32 500 youth. Since 2019, as one contribution to youth employment, YES has created 112 334 youth jobs (paying R6 billion in salaries), and 75% of these youth went to work in more than 1 400 private sector companies. This is the largest jobs programme in the country that is fully private sector funded. Unlike public works, our focus is to enable talented youth from disadvantaged households to, on and themselves, become the game-changers and job creators that South Africa needs. For example, former YES Youth, Mawanda Faniso, took part in the first YES Drones Academy programme at the Genesis Hub in Saldanha in 2021. He left the academy with a remote pilot’s licence accredited by the Civil Aviation Authority, which allows him to fly drones, as well as a repair and maintenance technician licence, which allows him to fix and work on drones. Today, he works full-time as a drone pilot. In the YES drones programme, the largest in the country, almost a thousand youth pilots have qualified or are in the pipeline to become pilots or even drone company entrepreneurs. They will play a catalytic role in many sectors. Thousands of YES Youth are being placed in positions like data capturers, business process outsourcing roles, cyber security agents, digital artisans, drone pilots, content creators and software developers. Many of these youth will become professionals in these future-facing sectors and help South Africa emerge as a leading nation in an age of technology. Critical is the need to support and expand the informal economy and small businesses. While township economies are largely informal, they’re also far bigger than we realise. Starting a micro-business can be the first step you need to get into the mainstream economy. At YES, we have found that 15% of youth in our work programmes have small businesses or “side hustles” to supplement their income and pursue future careers. This is great news and shows that many youth are entrepreneurial. If we cut red tape and offer more support, there could be an explosion of jobs in small businesses. Together, South Africa is more powerful than it thinks it is and can achieve much more than it has until now. * Ravi Naidoo is the CEO of the Youth Employment Service (YES). ‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’. https://www.iol.co.za/news/politics/opinion/right-policy-choices-will-accelerate-growth-employment-31cd2ed8-c16b-4719-8f72-44eb1f6da96d

Ronnie Siphika | 4 June 2023 There is no single large scale body that represents both industry and clients across all types. We are going nowhere fast. The government is disorganised, and the SA construction industry and the clients that rely on it are at a critical juncture. Perhaps right now could be the time to review the seriousness of the outlook. The same deep-seated problems have existed for many years and are well known and rehearsed by most industry associations, yet despite that there appears to be a collective reluctance or inability to address these issues and set a course for improvement. One of the mandates of the department of public works and infrastructure is to provide competent leadership to the SA construction and property industries while ensuring their transformation and regulation. While distinct but related to the role of the government in general, the highly fragmented nature of leadership and decision-making in the industry has become a serious problem that requires attention. There is no single large scale body that represents both industry and clients — public and private — across all types. While there have been attempts to form such organisations, such as the SA Property Owners Association (Sapoa), Construction Alliance SA (Casa) or Black Business Council in the Built Environment (BBCBE), their focus almost always becomes narrow and more focused on the commercial interests of their constituency, be it employers, contractors, consultants, suppliers or commercial property owners. While Casa might be an exception as attempts have been made to align divergent interests, there has essentially been a lack of joined-up strategic thinking that brings together government, clients, major contractors, specialist contractors (across both building and engineering) and relevant professional bodies, including regulars such as the Construction Industry Development Board. A more recent development has been how the small and emerging businesses with the industry have organised themselves as business forums in local communities. Even the phenomenon of the “construction mafia” has emerged in SA to describe groups of people, ostensibly business forums comprised of emerging contractors from local communities, who demand a share of construction contracts by employing illegal and disruptive methods. This issue has become quite serious in recent years and has had a significant effect on the construction industry. The focus to date has been on leveraging the government’s role as a client through adoption of best practice and attempting to influence wider and priority policy adoption such as BBBEE, preferential procurement, local content requirements and professionalisation. However, the government’s role as a client is itself fragmented, with different implementing agents at national, provincial and local municipal level across a range of economic and social infrastructure, including transport, hospitals, schools and housing. Despite a large infrastructure led pipeline through the new created Infrastructure SA (ISA), which was led by the current electricity minister Kgosientsho Ramokgopa, about 75% of all output is not in government’s direct control and there is not enough co-ordinated engagement with private clients of the industry, including real-estate developers, investors, developing occupiers and to a large extent housebuilders. This is a structural issue that limits the ability for overall strategic change to be achieved other than in pockets, often in isolation from other parts of the construction sector. Unless the whole spectrum of private and public clients are involved in effecting change, it is suggested that the industry will not be able to transform itself in response to client demand changing. Directly linked with the issues of leadership and fragmentation discussed above is the nature of the commercial returns model seen across industry. The high level of insolvencies and financial failures of major JSE listed firms in the industry over the past 15 years since the 2010 World Cup continue to indicate that blended margins, especially when viewed on a long-term trended basis across economic cycles, are thin relative to many other industries, such as financial services, agriculture and automotive. Low profitability is a long-standing problem for the industry and is not unique to SA. The industry as a whole is underachieving and invests too little in capital, research and development and training. In the coming years the financial position of major firms remains uncertain despite the industry emerging from recession. During periods of growth such as the build programme towards the 2010 World Cup, some parts of the industry’s supply chain — such as materials, plant and equipment suppliers — saw a substantial increase in profit margins. This is typically because there's a high demand for their specific goods or specialised type of services that required the expertise of major contractors and not enough supply to meet it. However, this temporary profit boost doesn't change the longer-term profit structure, especially when you consider times when capacity isn't fully used and the risk of financial loss. Such losses can occur due to fluctuating market prices for their input materials or due to failures in delivering their products or services after setting a price. The use of competitive tendering is widespread throughout the industry and there appears to be low usage of more collaborative and integrated design, procurement and construction delivery models promoted elsewhere. Clients tend to fixate on lowest initial tendered price, and this is often perpetuated by consulting firms, which in a traditional procurement model are implicitly employed (at least partly) to manage a fixed and adversarial transactional interface between clients and industry. The least cost-based procurement model often hinders the ability to focus on value, outcomes or performance if appropriate weightings are not made. Adoption of more collaborative or incentivised commercial engagement models appears could be more suited to clients such as Transnet, Eskom and Sanral that have either large-scale infrastructure projects or a delivery programme where longer-term outcomes and benefits are driven by harnessing process improvement and distributing the benefits of large-scale demand that can be committed to with a reasonable degree of certainty. The reality is that many clients, especially with government departments, municipalities and smaller state-owned entities that are simply conditioned to operating in an adversarial and hostile way with industry, do not see a case to move to more collaborative and integrated approaches for fear that a lack of commercial tension will affect their own financial outcomes. • Siphika is CEO of the Construction Management Foundation. ‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’. https://www.businesslive.co.za/bd/opinion/2023-06-04-ronnie-siphika-sas-construction-industry-faces-leadership-and-profitability-crisis/

Thank you for attending the session we hope to see you again soon. for upcoming events follow this link https://www.bee.co.za/training