Affirmative procurement remains a potent way of promoting broad-based empowerment and economic development. A few companies such as African Oxygen and Bidvest spend a lot of their procurement budgets on empowered companies. (See table on Affirmative Procurement & Enterprise Development.)
On the whole, though, the private sector is still weak on affirmative procurement. But the potential to empower a wide range of small to medium-sized businesses has been shown by state-owned entities . Many had implemented preferential procurement strategies before the department of trade & industry's BEE scorecard was promulgated.
The big three parastatals - Eskom, Transnet and Telkom - accounted for R45bn of BEE procurement in the past five years. Government, through public enterprises minister Jeff Radebe, has driven the initiative. Of its total discretionary procurement budget, Eskom spent 37% on BEE last year. Telkom spent 24% and Transnet 39%. By contrast, the private sector managed to report only R15bn in procurement spend during 2003. That has a long way to go - most empowerment commentators put the recommended threshold for affirmative procurement at 50% of total purchase spend. Based on the current spending by listed companies, that would amount to R515bn in revenue for black companies.
However, for many companies, the process of measuring their affirmative spend has been frustrating. Most start by assessing the degree of BEE in their current supplier bases. But, one services firm told the FM, suppliers have been resistant to providing information on their own empowerment criteria. A questionnaire sent to suppliers had only a 14% response rate. In addition, there are few formal auditing processes and fronting or outright fraud is commonplace.
Some big procuring companies, particularly in the mining and liquid fuels sectors, which were the first to operate under a charter, have established industry-wide procurement databases that are routinely authenticated and supported by each company. But for smaller companies, the job of identifying and auditing potential BEE suppliers has been an onerous task and many are far from compliant with the BEE Act.
And feeling the pressure are smaller companies, which are now expected to meet BEE criteria to qualify to supply larger companies. SA Chamber of Business CEO James Lennox says small and medium-sized companies have been left out of the BEE debate.
"Why should the large companies that are subject to charters have five to 10 years to comply while smaller companies are expected to deliver immediately?"
The attitude of government is that small companies can transform faster because the numbers are smaller. Also, with procurement thresholds of 50%, there is a flow-through that gives smaller companies more time.
The companies that have performed well in procurement are generally in the industrial sector where, significantly, local suppliers can be sourced. Sekunjalo, a diversified industrial group focused on fishing and pharmaceuticals, is far ahead, with 64% of its spend going to black empowered companies. Second is IT group Dimension Data at 40% - an impressive figure considering that much of its input needs to be imported.
Though government policy moots broad-based empowerment, a lack of data on the effect of BEE hampers objective analysis of BEE's effectiveness in poor communities. Procurement spending tends to flow into urban businesses. Also, as large listed businesses qualify as empowered companies, the trade between them will make it far easier to reach procurement targets.
Enterprise development is another important criterion under the secondary empowerment banner. This includes companies' investments in partners to develop black business. Ahead of the pack is Adcorp Holdings, with 40,8% of its assets invested in empowered companies. These are staffing and communications subsidiaries that have separate black shareholders.
Creating empowerment subsidiaries was a common theme to the first wave of empowerment during the early 1990s. However, with substantial pressure from the BEE Act and various charters to introduce shareholders at holding-company level, most now prefer to include black partners at the top. In addition, the scorecard points attributable to enterprise development are far less than those for ownership.
