The newly formed 14-member Presidential BBBEE Advisory Council, established by President Cyril Ramaphosa this month, will need to address a number of problem areas in such legislation if SA’s economic transformation is to be accelerated.
The 2022 Sanlam Gauge Report highlights a number of issues with the legislation. Chief among them is that transformation is happening too slowly, is not meaningful at ownership or management level and, after 28 years of democracy, it is time to reassess BBBEE framework and address areas that are not working effectively.
The report, produced by Intellidex, in partnership with Sanlam, KhumaloCo and Business Times, is the largest independent survey of transformation in SA. Based on the BBBEE scores of 10,336 companies, it found all industry sectors combined are achieving 87.16% of their BBBEE targets.
The biggest challenge the council will need to address, says the report, is improving black management control, the lowest-scoring element for the second consecutive year.
This scorecard component achieved only 55.9% of its target, with black ownership achieving 74.8%, despite each sector’s management control score theoretically correlating with that of ownership.
After management control, enterprise and supplier development was the next lowest at 64.5%, while skills development came in at 74.4%.
Socioeconomic development was the highest-scorer, exceeding the target by 160%. It, however, receives the lowest weighting, averaging 6.4 points across sectors compared with the much higher weighting given to skills development and management control at 20 and 20.6, respectively.
Report and industry experts speaking at the report’s launch earlier this month pointed to the complexities of the codes as a challenge, with not all of them keeping abreast of the changing needs of their sectors and not all charter councils being appropriately funded.
For example, the Construction Sector Charter Council’s proposed funding model is yet to be approved. The report says in the absence of funding, volunteer associations in the sector are doing their best to keep the council going, but lack of funding is making it difficult to track, measure and drive transformation.
“Government created an institution, but hasn’t bothered to figure out how that institution will be funded,” said Gregory Mofokeng, an executive committee member of the Construction Sector Charter Council at the launch. He added that this has meant the council has not been able to appoint a CEO.
The Financial Sector Transformation Council is also not appropriately funded, said its CEO, Pumla Ncapayi.
She also raised concerns about the code, saying it only measures quantitative areas rather than qualitative ones.
“As a sector we have considered a qualitative management approach, unpacking the diversity of the various elements of the scorecard.”
Ncapayi said the financial sector is not as transformed as it should be and called for a legally binding and enforceable framework to accelerate transformation because simply naming and shaming companies that failed to meet their targets is not working.
Mofokeng agreed a mandate to enforce black ownership, in particular, is required. He added that only companies with a level 1 or 2 rating should be allowed to do business with government.
The state’s preferential procurement regulations, however, pose their own challenges, given they are fraught with policy uncertainty and legal challenges, says the report.
The government and state-owned entities procure R2-trillion in products and services each year, making it an important vehicle for transformation.
The preferential procurement system’s recent shake-up, says the report, has its roots in a 2020 high court application by Afribusiness, now known as Sakeliga, to review and set aside the 2017 preferential procurement regulations on the basis that then finance minister Pravin Gordhan acted beyond the scope of his powers and the regulations were invalid.
Though the high court dismissed the application, the Supreme Court of Appeal (SCA) upheld it, declaring the regulations inconsistent and invalid, a decision with which the Constitutional Court agreed.
The BBBEE Commission and National Treasury previously stated the BBBEE Act does not hinge on the Preferential Procurement Policy Framework Act or the Preferential Procurement Regulations.
As the report points out, while Treasury prepares final preferential procurement regulations, there is much confusion and anxiety at a time when SA desperately needs clarity on state contracting.
Despite the challenges facing BBBEE, the report says it is important not to brush aside positive elements, with industry stakeholders in most sectors detailing success stories, skills development programmes that have produced positive results and other empowerment initiatives that have been meaningful.
• This article was paid for by Sanlam.
