SOE’s don’t have to abide by B-BBEE: Why preferential policies have not worked?

Sindile Vabaza, an aspiring economist and an avid writer, is a contributing author for the Free Market Foundation.

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This article was first published on Bbrief on 2 February 2023

SOE’s don’t have to abide by B-BBEE: Why preferential policies have not worked?

After years of sustained pressure especially from organizations like Sakeliga, the government relented in November last year and promulgated regulations stating that state-owned enterprises (SOEs) no longer have to comply with B-BBEE requirements when awarding government contracts. Finance Minister Enoch Godongwana promulgated new preferential procurement regulations that do away with the controversial qualification that has been in place since 2017.

The repealed regulation – known as the Preferential Procurement Regulations 2017, or gazette number 40553 of 20 – states that a tenderer must submit proof of its B-BBEE status level of contributor. A tenderer failing to submit proof of B-BBEE status level may not be disqualified, but may score zero points out of 20 for B-BBEE for contracts between R30 000 and R50 million. The new legislation to come into effect in January repeals the regulation.

In 2017, Sakeliga went to court to challenge regulations put out by then Finance Minister Pravin Gordhan that made it possible for state entities to pre-emptively exclude bidders based on their B-BBEE or local content status. In February this year, the Constitutional Court (ConCourt) ultimately found the minister had no powers to prescribe to entities of the state what their preferential procurement policies should be. That discretion resides with entities themselves.

This was followed in April last year by National Treasury issuing an “instruction note” that effectively relaxed and exempted Eskom from key principles of the Public Finance Management Act supply chain management (SCM) processes - a tacit acknowledgement that corrupt middlemen and tenderpreneurs. who added no real value to Eskom, abused preferential procurement policies such as the enterprise supplier development programme. This has ultimately created a gravy train which has hobbled Eskom at every step and threatens to sink the economy.

B-BBEE is not the solution to poverty or inequality
Considering some very disturbing data points around food security, education and basic reading and math skills in the country, it is rather unclear how B-BBEE will broaden and deepen economic inclusivity and redress the racist policies of the past. There is a pipeline of deprivation in South Africa which needs urgent attending, that starts in the womb for many black and coloured children.Data suggest that at least 4 in 10 pregnant women in this country go to bed hungry at least twice a week. Food insecurity correlates highly with antenatal maternal depression, IPV and childhood trauma. Studies have shown a link between food insecurity and poor pregnancy outcomes, including low birth weight, gestational diabetes, and pregnancy complications. In addition, young children in food-insecure households have poorer general health, increased probability of being hospitalized, lower levels of parent–child attachment and increased developmental delays.

This deprivation carries over into the school system where chronic problems with teacher absenteeism, poor teacher content knowledge, a lack of institutional know-how and a lack of parental involvement mean that many of the problems that begin in the womb are exacerbated rather than ameliorated by the education system.

Is it any wonder then that only half of all pupils finish high school and 78% of Grade 4’s in the country cannot read or write for understanding?

How exactly does B-BBEE broaden black participation in an economy and reduce inequality and poverty where half of all people don’t graduate high school and are likely not functionally literate or numerate?

More so in an economy that needs to be a low wage, low skill and job intensive economy to match the labour force in the country, but where the government consistently chooses to place barriers of entry into the workforce through onerous labour legislation.

The reality of B-BBEE
At its very core B-BBEE is not a value creating mechanism but rather a redistributionist one. For that reason it cannot really drive innovation and investment and therefore the economic and job growth our society really needs to start solving the many social problems which bedevil us. It is the classic scenario of a small pie being shared amongst more and more people, rather than the creation of a bigger pie or more pies. Even by a redistributionist measure South Africa’s inequality remains largely untouched, with a Gini coefficient of 0.62 compared to one that was 0.68 in 1996 and the much touted black middle class is highly indebted and with the exception of those in Gauteng tied into the fortunes of our fiscally hamstrung state.

The real tangible solutions to South Africa’s woes which will both broaden black participation and deal with racialised inequality are to address the root causes that make this pipeline of deprivation possible and couple that with policy that encourages investment and job creation and good governance which will eventually root out the corruption and malfeasance which have come to symbolise South Africa.

Freedom has never been tried seriously in this country.

Sindile Vabaza

Sindile Vabaza is an economics associate at the Free Market Foundation.

Publish date: 17 February 2023
Views: 24 814

Sindile Vabaza, SOEs, B-BBEE, government, regulations, Economic freedom / Growth

The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation. This article may be republished without prior consent but with acknowledgement to the author.

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