Just last week, the National Assembly adopted the Employment Equity (EE) Amendment Bill of 2020. As the IRR’s Head of Policy Research Anthea Jeffery writes, the National Council of Provinces is expected to endorse the aforementioned bill so it can be signed into law by President Cyril Ramaphosa. Jeffery notes that he should not place his signature on the bill as it’s “unnecessary” and “deeply damaging”. Below, the Cambridge-educated Jeffery goes through, in great detail, the consequences the bill would have on South Africa. “Education, investment, growth and jobs are the keys to upward mobility and must be strongly fostered – not further undermined.” – Jarryd Neves
Why Ramaphosa should veto employment ‘equity’ bill
By Anthea Jeffery*
Last week the National Assembly adopted the Employment Equity (EE) Amendment Bill of 2020 (the Bill). The National Council of Provinces is now expected to endorse it so it can then be signed into law by President Cyril Ramaphosa.
The president should decline to do so, however. The Bill is unnecessary as well as deeply damaging. Its real aim is not to provide redress for apartheid injustice but rather to advance the national democratic revolution (NDR) by further crippling the capitalist economy en route to a socialist nirvana.
Core provisions of the Bill
The Bill has two core provisions. The first empowers Thulas Nxesi, minister of employment and labour (and national deputy chair of the SACP) to set racial quotas for all businesses with 50 employees or more in specified sectors of the economy. The second bars such businesses from contracting with the government unless they have complied with the minister’s quotas or ‘justified’ their failure to do so on ‘reasonable’ grounds.
Unrealistic EE racial quotas have already crippled the capacity of the public sector, filling it with a host of unqualified and unaccountable people, many of them intent on self-enrichment. Preferential BEE procurement has already excluded many of the businesses most capable of efficient and cost-effective delivery and opened the door to fraud and inflated pricing on a massive scale.
Under the Bill, both problems are set to become far worse. Business will lose the limited autonomy the EE Act has left it to base job appointments and promotions on merit, rather than skin colour. Fraudulent tenderpreneurship will increase as many more firms with a sound record on delivery find themselves excluded from state contracts.
The Bill is unnecessary
Mr Nxesi claims that ‘self-regulation’ under the current EE Act has not worked. Instead, it has allowed many businesses to ‘covertly fight the implementation of employment equity while paying lip service to the need for transformation’.
Is business ‘covertly fighting’ to exclude black people from senior posts, as the minister claims? And is this evidence of its desire to keep ‘treating workers like glorified slaves’, as Cosatu emotively adds?
Laws should be based on fact, not propaganda. And the facts show that business pushed strongly for black advancement even in the apartheid era and did much to help achieve this long before the EE Act came into force.
The business role in black upward mobility
Black upward mobility in the apartheid era accelerated after the late 1960s, when a decade of rapid growth made it clear that the white minority was too small to meet the needs of the economy. As the skills shortage worsened, business repeatedly urged the National Party (NP) government to ease restrictions on black employment and advancement. In 1973 prime minister John Vorster finally yielded to this pressure, saying his government would no longer stand in the way of blacks moving into higher jobs. This resulted in considerable advances for black South Africans and a significant narrowing of racial inequality.
This skills shortage also helped push the NP government into embarking on a series of reforms. From the early 1970s onwards, it improved the quality of ‘Bantu’ education, expanded black trade union rights, abolished influx control, and encouraged black home ownership in urban townships. These policy shifts reflected the increasing economic interdependence of black and white South Africans and helped pave the way for the transition to black majority rule.
After 1994 the private sector had still more reason to embrace black advancement in the workplace. By September 1997, shortly before the initial EE bill was published, 90% of the 150 large employers surveyed by a human resources consultancy, FSA-Contact, had affirmative action programmes in place, even though this was not required by law.
Within these firms, the proportion of black people in senior management had already increased from 5% in 1995 to 12% in 1998 and was projected to rise further to 21% in 2001, an overall increase of some 325%. Among middle managers, the proportion of black people had increased from 10% to 21% in the same period and was expected to rise to 29% by 2001.
However, the skills shortage was so acute that more than 60% of companies complained of the ‘poaching’ of their black managers by firms willing to pay significant premiums to lure them away. This level of poaching, backed by the payment of premiums well above normal salaries, testified to an enormous unmet demand for black managers in the private sector – not a racist refusal to employ them.
There was thus no need for legislation to force the private sector to hire blacks, as the IRR commented in 1998. The real obstacle to black advancement lay not in race discrimination but rather in the huge skills deficit in the country. Hence, the key requirement was to increase black skills through excellent education, while fostering rapid rates of economic growth. The faster the economy grew, the more demand there would be for skilled people of all colours.
Bad schooling and other barriers to black advancement
South Africa spends some 7% of GDP on education, which is high by international standards. However, the state’s centralised and top-down delivery system is so mismanaged that outcomes are extraordinarily poor.
Recent assessments have shown that roughly 78% of South Africa’s Grade 4 pupils cannot read for meaning in any language, while 61% of Grade 5 pupils are unable to add and subtract whole numbers. This helps explain why some 60% of pupils either drop out of school or fail their final examinations. Of the relatively few who manage to pass matric, only a third do so with grades good enough to go to university, while a mere 22% pass mathematics with 50% or more.
Completion rates at universities are dismal too, averaging a mere 17% for undergraduate degrees in 2019. Completion rates in STEM subjects are particularly low: 12% for computer and information sciences in 2019, 13% for mathematics and statistics, 17% for physical sciences, and 21% for engineering.
Other barriers to upward mobility for black South Africans range from anaemic growth and escalating joblessness to:
- high rates of often violent crime;
- an increasing dependency on social welfare;
- the erosion of family life and a preponderance of absent fathers;
- a mistaken reliance on EE and BEE, which benefit a relative elite while harming the great majority; and
- the ANC’s flawed assertion that ‘demographic representivity’ is the norm in all heterogeneous societies and would be evident in South Africa as well were it not for racism in the private sector and elsewhere.
Demographic representivity is never ‘the norm’
According to Thomas Sowell of Stanford University’s Hoover Institution in his 1994 book on Race and Culture: ‘The even distribution or proportional representation of groups in occupations or institutions [is] an intellectual construct defied by reality in society after society.’ Moreover, the ‘imbalances’ evident cannot be attributed to ‘employer discrimination’, as this ignores ‘the manifest effects of differences in educational achievement, family upbringing, cultural traditions, [and] marital patterns.’
Age is also a key variable, says Professor Sowell, as the people appointed to senior management posts generally require both qualifications and long years of experience. Where members of a group are mostly young – and roughly half of black South Africans are under the age of 25 – demographic representivity is even more difficult to attain.
The underlying reality is that people are not ‘blank slates’. Since they are not all essentially the same, they cannot simply be slotted into any position regardless of age, education, aptitude, experience, and capacity for leadership.
Adds American analyst Samuel Kronen: ‘Virtually no two ethnic groups in history have ever achieved equal outcomes on all measures, anywhere, ever. Equal outcomes and proportional representation are the exception, not the rule’.
Great damage to the public sector
According to the Employment Equity Commission established under the EE Act, black people made up 79% of top managers in national government in March 2021. Black representation at other levels is similar too, so demographic representivity has largely been attained. The upshot, however – given the age and skills profile of the black population – has been a crippling loss of knowledge and capacity.
The resulting malaise is everywhere apparent. Private low-cost housing provision has slowed dramatically because bureaucrats take three to ten years to complete ‘land-to-stand’ procedures. In public healthcare, most hospitals and clinics are so poorly administered that only about 15% meet minimum standards on such essentials as infection control and the availability of medicines.
The negative effect on state-owned enterprises (SOEs) has also been acute. At Eskom, for example – which repeatedly resorts to rolling blackouts to stop the grid collapsing – human error accounts for some 40% of breakdowns. Pravin Gordhan, minister of public enterprises, has acknowledged that many of the problems at the parastatal stem from the fact that ‘good people were lost and incompetent people put in their place’.
At the municipal level, an EE-induced exodus of engineers from many municipalities has crippled their capacity to manage their wastewater plants. Hundreds of these plants have broken down, while some 4 billion litres of raw or partially treated sewage are discharged into the country’s rivers and dams every day. Along the Vaal River, sewage has long been spilling ‘at record levels’ into ‘townships, suburbs, central business districts, schools, clinics, council buildings, apartment blocks and roads’, as a local business chamber has commented.
The same phenomenon is evident throughout the floundering public service – and poor black people are the ones who bear the brunt of this. The majority of black South Africans cannot escape to private sector provision, so have no choice but to rely on failing state schools, state hospitals, state electricity, state housing, state sanitation, state policing, and the like. EE in the public service has thus further disadvantaged them, not helped them to get ahead.
Business has much to fear from the Bill
Unlike the public sector and SOEs, business cannot rely on tax revenues to bail it out of trouble as its efficiency declines. It also faces heavy fines under the Bill for any failure to comply with the minister’s race quotas (or ‘targets’, as Mr Nxesi prefers to call them). Penalties begin at R1.5m or 2% of annual turnover for a first ‘offence’ – and may rise to R2.7m or 10% of turnover (whichever is the larger) for a fifth similar offence within three years. Fines of this magnitude could bankrupt many firms.
Organised business has nevertheless been reluctant to oppose the Bill – perhaps because it fears the racist slur. The Banking Association of South Africa (Basa) has instead endorsed it, though it wants industry to be involved in setting the targets for different sectors. But banks and other big businesses will have consultants, lawyers, and large resources to help cope with the increased burden, which small and family enterprises will not.
The Bill will further damage the already struggling economy. GDP shrank by 6.4% in 2020 and more than a million jobs were lost. Consumer spending remains generally subdued and inflation is on the rise. The July riots fractured business confidence in the government’s capacity to counter further unrest. Corruption is widely seen as having worsened in the past three years, and a major flight of capital and skills is under way. Fixed investment is down to a paltry 12% of GDP and public debt (despite a mining revenue bonanza) is unlikely to be brought under control.
Why the president should ‘veto’ the Bill
That the Bill is unnecessary and harmful is not enough for the president to ‘veto’ it by declining to sign it into law. Under the Constitution, he can do so only if he has ‘reservations about its constitutionality’. Fortunately, the Bill more than meets this criterion.
Among other things, the Bill contradicts Section 1 of the Constitution, which expressly identifies ‘non-racialism’ as a core value of post-apartheid South Africa. It also infringes the equality clause (Section 9), which prohibits unfair discrimination on racial (and other listed) grounds and states that any discrimination on a listed ground ‘is unfair’ unless the contrary is proved.
The Bill is also inconsistent with Section 195 of the Constitution, which calls for a public administration that is ‘broadly representative of the South African people’. The ‘demographic’ representivity required by the Bill is far more rigid than the ‘broad’ representivity thus sanctioned. In addition, the Constitution’s call for ‘broad representivity is expressly confined to the ‘public administration’ and cannot justify the minister’s imposition of racial quotas on the private sector, as the Bill envisages.
Relevant too is Section 9(2), which authorises the taking of ‘legislative…measures designed to…advance [those] disadvantaged by unfair discrimination’ and so ‘promote the achievement of equality’. This clause makes no mention of racial targets or the racial classification these inevitably demand. Nor does it endorse the flawed objective of demographic representivity.
What then does Section 9(2) require? According to the Constitutional Court in the Van Heerden case in 2004, the measures it envisages must comply with three tests: they must (1) target the disadvantaged, (2) be designed to advance them, and (3) promote the achievement of equality.
How does the Bill measure up against the last of these three tests, to take but one example? The EE Act, which the Bill will significantly tighten up, has been in force for more than 20 years but has done little to ‘promote the achievement of equality’.
On the contrary, income inequality as measured on the Gini coefficient has increased in this period. This is largely because EE rules have widened inequality within the black majority by helping a small group to forge ahead, even as 10.7 million black people remain jobless and mired in destitution.
The Bill is not only unconstitutional but also deeply damaging to most South Africans. Instead of allowing it to proceed, the president should decline to sign it into law. Education, investment, growth, and jobs are the keys to upward mobility and must be strongly fostered – not further undermined.
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- Dr Anthea Jeffery holds law degrees from Wits, Cambridge and London universities, and is the Head of Policy Research at the IRR. She has authored 11 books, including People’s War: New Light on the Struggle for South Africa and BEE: Helping or Hurting? She has also written extensively on property rights, land reform, the mining sector, the proposed National Health Insurance (NHI) system, and a growth-focused alternative to BEE.
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