The most potent tool for black economic empowerment (BEE) is procurement. By ensuring that the supply chain shifts to include empowered businesses, a multiplier effect can boost empowerment throughout the economy.
It is therefore an important signal of the progress of BEE that this year's procurement figures show substantial improvement on last year's. On average, the top 10 in this year's table spent 55% of their procurement on black suppliers compared with 31% last year.
The department of trade & industry's (DTI) codes of good practice for BEE contain a proposed formula for calculating the scores that companies can receive for spending on black companies, though the full details on preferential procurement and other types of indirect empowerment are still to be announced. Weightings are applied for spending that goes to companies according to their black influence. Those spending more than 50% of their procurement budgets on suppliers rated "excellent contributors to BEE" score full marks for preferential procurement.
Empowerdex has attempted to mimic the DTI's proposals in calculating its scores, but the complexity of assessing the degree of black empowerment in suppliers means that calculating scores is not exact. The development of measurement systems to track spending still has some way to go before companies can accurately assess their spending on empowerment. That is the reason Empowerdex has included a weighting for the existence of a stated procurement mechanism, which acts as a quality check of the procurement scores.
Good procurement spending is easier to achieve for some companies than others. Despite a challenging operating environment, brought on by drought and the strong rand, Illovo has surged ahead in its procurement achievements. It takes top spot this year, after rocketing up from 21st last year (partly because the methodology for compiling the tables changed, but mainly because its spending on black suppliers has quadrupled). Its procurement score was a key factor in helping Illovo to sixth place overall in the Top 185 table.
Illovo has achieved its top spot through a combination of concerted efforts to promote and develop black sugar farmers and because the nature of its business allows it to procure substantial commodity inputs from black suppliers. At the time of its last annual report, Illovo had sold 26,5% of its land to black farmers, who in turn sell their produce back to the company, boosting Illovo's procurement statistics. It then concluded a deal to sell its Gledhow mill to empowerment group Grand Bridge Trading 40 for R335m and is negotiating to sell its Umfolozi mill to another group. Those deals have created significant black suppliers to Illovo. It also supports other black farmers and procures their output for processing. Its outward focused empowerment efforts have also helped Illovo to second place for enterprise development (see "A difficult factors to measure").
Telkom has also dramatically improved its position from last year. It has arguably had a greater challenge than most because its procurement rests largely in high value added goods. It has applied a rigorous preferential procurement policy developed over the past decade.
