Four recent developments should serve as models for implementing BEE, but they were overshadowed by controversial comments from Eskom board director Mteto Nyati about the harmful impact of BEE on the state-owned electricity generator.
African Bank, which is 50% owned by the SA Reserve Bank and run mainly by black executives, completed an R80m acquisition of low-income lender Ubank, exactly five months after it acquired business lender Grindrod in a R1.5bn transaction.
The African Bank-Ubank deal coincided with news that Patrice Motsepe’s fast-growing TymeBank had received the go-ahead from competition authorities to buy small business financier Retail Capital.
The good news kept rolling in when former Vodacom executive and SAA CEO Vuyani Jarana announced he had launched Ilitha Telecommunications, an internet service provider that offers affordable broadband to townships, peri-urban and rural communities.
Then Amadlelo Agri became the first black-owned and managed company to sign a milk supply agreement with French multinational food company Danone, which will see Amadlelo supplying about 10% of Danone’s milk requirements annually.
These announcements signal the beginning of a positive trend in which black South Africans are becoming business operators and significant investors in scalable commercial ventures.
The trend, though in its infancy, must be embraced by the black business community as it could serve as a blueprint for implementing BEE, one whose foundation is entrepreneurship. It is a sustainable alternative to the patronage-based BEE we have seen in the past 25 years in which a tiny, politically-connected black elite quickly enriched itself by accessing lucrative government tenders and acquiring minority stakes in JSE-listed companies.
However, instead of celebrating what African Bank, TymeBank, Ilitha and Amadlelo had achieved, South Africans bickered over comments made by Nyati, who is serving on the Eskom board as the business operational performance committee chair.
Two weeks ago, he told Business Times in an interview that BEE regulations that were hampering Eskom’s performance must be removed if the debt-ridden and financially distressed parastatal is to be turned around.
In the interview, the highly regarded corporate executive and turnaround specialist, who has had successful stints at MTN, Microsoft and Altron, took specific issue with preferential procurement and employment equity regulations. These regulations are aimed at developing local industrialists, supporting black suppliers and catapulting black people into senior management positions across various sectors of the economy.
Nyati drew the ire of pro-BEE commentators when he suggested Eskom be exempted from regulations that forced the parastatal to procure equipment from local or black suppliers, most of them middlemen that are not the original manufacturers of the services needed. In some cases, middlemen supplied Eskom with pirated spares, resulting in the breakdown of power stations and electricity blackouts.
Although Nyati did not call for blanket scrapping of BEE and merely suggested that the policy be amended, he was mercilessly criticised by pro-BEE commentators and black business lobby groups
Nyati was quoted as saying: “Procurement rules are not as agile as they should be, including rules which say you cannot use suppliers that are not local. When the supplier of equipment is an international company … you have to use middlemen to satisfy the localisation rule.
“There’s no place for those kinds of practices now. We need to remove costs from the equation. We need to make sure we are connecting directly with the people who have the knowledge that will get us out of this crisis as soon as possible.”
Although Nyati did not call for blanket scrapping of BEE and merely suggested that the policy be amended, he was mercilessly criticised by pro-BEE commentators and black business lobby groups, with the Black Business Council (BBC) leading the charge. Some critics went as far as labelling him a “traitor” who was kicking down the “BEE ladder” after climbing it.
Criticism of Nyati was so vociferous that Eskom had to release a statement saying he was misrepresented and the parastatal was committed to implementing BEE.
In my view, Nyati should have stuck to his guns because his observations about the harmful effects of preferential procurement at Eskom have merit, irrespective of how unpalatable his views may be to BEE supporters.
In 2016, former chief procurement officer at National Treasury Kenneth Brown revealed that 40% of the government’s R600bn annual spending on goods and services was being lost to fraud, in the form of inflated prices from suppliers.
Brown noted that suppliers — mostly middlemen inserted into transactions due to procurement laws — were selling goods at huge markups, which would not have been possible if the government bought the products directly from factories and stores.
In this instance, preferential procurement laws were used to enable industrial-scale looting of taxpayers’ money. This is one of the biggest injustices of post-apartheid South Africa, a country with the most unequal wealth distribution and the highest unemployment rate in the world.
Nyati’s critics stopped focusing on him after finance minister Enoch Godongwana vindicated him by gazetting new procurement rules that will effectively exempt government entities from preferential procurement regulations. These regulations, a product of a five-year litigation process by business group Sakeliga, will prevent state organs from disqualifying suppliers that are not BEE-compliant from bidding for tenders. Sakeliga’s litigation has effectively overturned the enforcement of preferential procurement regulations gazetted by previous finance minister Pravin Gordhan in 2017, which disqualified bidders not compliant with BEE.
Government entities, including Eskom and Transnet, will now procure goods and services on a competitive and cost-effective basis. They are no longer required to buy from local or black suppliers if those suppliers are not able to compete on price and quality.
If implemented properly, this policy shift could curb wastage and save taxpayers billions of rand. However, this must not be interpreted as the end of BEE. It means that local and black suppliers must now compete on price and quality.
National Treasury is drafting a Public Procurement Bill that is expected to be unveiled next year. Supporters of BEE will be better served if they lobby the government to introduce tender set-asides to ensure a portion of procurement spend is ring-fenced for black-controlled companies.
I recommended that at least 30% of procurement spend in the public sector be placed in the hands of black suppliers that are at least 51% black-owned, controlled and managed. In addition, these suppliers must be the primary producers of these goods and services, not parasitic middlemen or politically connected gatekeepers that inflate costs with no value added or jobs created.
Tender set-asides must be strategically implemented to help black entrepreneurs own the means of production, thereby enabling them to control factories, banks, mines, supermarkets, telecoms, farms and many other businesses that are primary producers of goods and services.
If tender set-asides can be implemented by government, BEE could go a long way towards developing job-creating black-owned businesses instead of big-spending middlemen who enrich themselves through exorbitant mark-ups on goods supplied to the state.
• Ntingi is the founder of GetBiz
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