The Black Business Council has urged the government to quickly finalise the preferential procurement bill and tighten criteria for black ownership and localisation as the new tender regulations issued last week could be detrimental to its members.
The regulations, which give municipalities, government departments and state-owned entities (SOEs) the power to set out procurement requirements, have drawn criticism for their apparent removal of requirements for black ownership and localisation of products to qualify for government tenders.
National Treasury has dismissed that perception, with acting director-general Ismail Momoniat saying on Tuesday: “There is no policy change. The government is still committed to ... transformation and reconstruction and development programme objectives.”
The regulations come after a Constitutional Court ruling, in favour of business organisation Sakeliga, that scrapped the 2017 preferential procurement regulations on the basis that the minister did not have the power to make procurement policies for state entities.
Black Business Council CEO Kganki Matabane said the new regulations are a “big blow” to black-owned businesses.
“Already public procurement is not working in favour of black businesses; it’s only a handful that are benefiting,” Matabane said. “The majority have to compete with big businesses which have scale and can easily reduce prices. It will be difficult for black business to participate in the economy and this could lead to retrenchments and the closing of some companies.”
The primary reason some black businesses have been able to play an active role in the economy has been through government regulations. Therefore, if the government now introduces regulations that are contrary to the empowerment and advancement of black businesses, it [means] we are ... placing them on the back foot
— Black Management Forum (BMF) acting president Esethu Mancotywa
“The solution now is to speed up the public procurement bill to ensure [it] includes localisation, ownership for disadvantaged groups. In the meantime, between now and the new legislation [the procurement bill], we are on our own and unemployment will increase,” he added.
Black Management Forum (BMF) acting president Esethu Mancotywa said the regulations mean many black businesses that rely on the state as their means or source of trade will be out of business.
“The primary reason some black businesses have been able to play an active role in the economy has been through government regulations. Therefore, if the government now introduces regulations that are contrary to the empowerment and advancement of black businesses, it [means] we are ... placing them on the back foot,” she said.
Finance minister Enoch Godongwana said the regulations are a “place holder” while the ministry finalises the bill, which will empower the minister of finance to set preferential procurement.
Godongwana doesn’t expect the requirements to have a negative impact on black-owned businesses that are doing or want to do business with the government.
The new regulations stipulate that where two or more tenderers score equal points, the contract must be awarded to the tenderer that scored the highest points for “specific goals”, including contracting to historically disadvantaged people and meeting the requirements of the Reconstruction & Development Programme.
Matabane said the wording regarding the goals also poses a problem. “By saying state-owned entities ‘may’ include historically disadvantaged people ... while the minister says BEE has not been replaced, causes confusion. It should say ‘must include’. Once you say ‘may’ ... some of the entities will choose what they want and some may end up doing nothing.
“Organs of state depend on the National Treasury for guidance. [Each] having their own (procurement) requirements will be very expensive for business as they need to comply with different requirements. It will not be ideal,” Matabane added.
Momoniat said there was no impediment on the department from guiding entities in complying with the law. “It is important we get a more uniform or harmonised approach.”
Matabane said the council is lobbying for the bill to have specific criteria on BEE requirements and localisation. “For us those are critical. We have to find ways of creating jobs,” he said.
Commenting on what the regulations mean for service delivery, Godongwana said that by defining their procurement needs, government entities should be able to improve service delivery as they are not required to seek Treasury’s approval.
The government is still responsible for setting monitoring standards to ensure corruption doesn't take place, he added.
“In any policy implementation there is always a risk ... so colleagues who exercise political oversight should keep an eye on those risks ... it is important for us to keep our eyes on the ball,” Godongwana said.
Sakeliga CEO Piet le Roux said on Tuesday that preferential procurement, in particular BEE and local content, “are harmful policies resulting in misallocation of funds away from maximum value for money for the public. They have done immense harm since being promulgated in 2011 and bolstered in 2017.”
Regardless of future regulations or changes to national legislation, organs of state have had and still have a constitutional discretion not to apply preferential procurement, he said.
“They can free themselves from the enormous misallocation of resources required of them in terms of illegally imposed preferential procurement measures,” Le Roux said.
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