I never bought into the claim that South Africa’s Black Economic Empowerment legislations needed to enrich a few previously disadvantaged individuals to serve as “role models” to the many. That’s a pathetic argument when judged against the potential benefit of a broadly based, education-focused approach. But companies went ahead anyway, and today a relative handful of people are super rich simply because they had the correct skin colour and connections at the right time. As a society, South Africa is paying heavily for this, primarily through an entitlement philosophy which white ants efforts at sustainable growth built on the only thing that makes it so – effort. We hoped these lessons would be learnt and applied in the new BEE codes. Seems from the interview with Wayne van Rooyen, the new rules will have the unintended consequences of just adding a few more snouts to the feeding trough. Yuck. – AH
To watch the video of the interview on CNBC Africa’s Power Lunch click here
GUGULETHU MFUPHI: There is currently a BEE Summit taking place here in Johannesburg, where new proposed changes to BEE codes. To give us his view is Wayne van Rooyen from Grant Thornton. Wayne, it seems as though the big issue coming through from the summit is the fact BEE fronting is a major problem in South Africa. It has been going on, potentially, since the inception of BEE in South Africa. Just how serious is the situation exactly?
WAYNE VAN ROOYEN: Fronting is a very serious issue and it has been on government’s agenda for a long, long time. We’ve see in the creation of advisory councils, various mechanisms to create penalties and monitor fronting. The company that is found guilty of fronting can go to jail for up to ten years and suffer a further ten-year penalty of not being able to do business with government, so there are serious consequences to fronting one’s BEE status.
ALEC HOGG: We had Dr Thami Mazwai from Wits Business School on air this morning saying that he’s cock-a-hoop by the role that government is taking in this. Are you?
WAYNE VAN ROOYEN: Yes, it’s wonderful that government is taking this seriously and that they’re doing something about it. The trouble with BEE legislation in the past, is that there’ve been wonderful scorecards and measurement tools, but no real teeth to implement those who are not following it.
GUGULETHU MFUPHI: How do you balance the scales between equitable distribution of wealth amongst members of the BEE…well, formerly-disadvantaged community, as well as making it worthwhile for businesses?
WAYNE VAN ROOYEN: Well, I think that’s the big balancing act that government has to play, and we’ll know in a few years whether they got it right. But the big concern now is that you can only push business so far in terms of providing targets for them to achieve. But if you don’t stretch them, what happens to the underlying social development? So what we’re seeing is a move that focuses on the development of Black people and specifically an emphasis on Black ownership in the economy which was a somewhat diluted focus over the last five years.
ALEC HOGG: Long overdue, because it was a random selection of certain individuals who became mega-rich.
WAYNE VAN ROOYEN: Correct.
ALEC HOGG: On the understanding that…well, they’d be role models, but they didn’t work did it?
WAYNE VAN ROOYEN: Yes. But I think one of the negative consequences of that is; when we move back into an ownership focus, we tend to lose some of the grassroots empowerment, and I’m not sure whether we’ve got the correct balance yet. It seems to me that we’ve moved away from broad-based empowerment into a narrow-based empowerment again.
ALEC HOGG: Again?
WAYNE VAN ROOYEN: Again. But the benefit that has, is for the Black-owned businessman. He now qualifies as a level 1 or a level 2 contributor, whereas before he was required to make all of the same contributions expected of other organisations in the other six elements.
ALEC HOGG: Wayne, any change for the under-50 employee businesses?In other words, those guys who really do the employment in the economy – the small businesses?
WAYNE VAN ROOYEN: There’s no real change related to the number of people that are employed, but there is a change in relation to the turnover of those companies. So companies with under R50m in revenue, previously would have been measured on the ordinary codes of good practice. They’re now measured on the less strict QSE codes of good practice.
ALEC HOGG: So they’re fully-empowered, in other words?
WAYNE VAN ROOYEN: Well, not quite and we’re not certain how much of an advantage they’ll have in the new codes, but we expect to see some.
GUGULETHU MFUPHI: With regard to that, I think it’s rather interesting that you raised the issue of grassroots level, because there’s no point in having a powerful businessman on the top when students coming through from the education system don’t even understand what a share price is or how to even start up a business. Could we see that being proposed with members of the Education Department?
WAYNE VAN ROOYEN: Well, there’s a very strong emphasis on skills development in the new codes. There was talk initially of increasing the target from three percent to six percent. That’s the amount of money that companies must spend on training. We don’t know if that will come through. We’ll wait for the final codes to see if that happens. But there’s certainly an emphasis on skills and bringing those people through.
