On February 9 2007, the BEE Codes of Good Practice were quietly published in the Government Gazette. Unlike the publicity and excitement over the various draft codes over the past three years, their final gazetting was almost a nonevent.
At their core, the codes propose an exciting model of conscientious procurement to encourage behavioural change. Their potential is remarkable when compared with other government interventions aimed at changing economic behaviour.
- They do not require interventions such as expropriation and nationalisation which Zimbabwe and Bolivia used to force change.
- They do not rely on costly mechanisms such as the tax rebates some governments use to coerce change.
- They do not create parallel economies based purely on race.
The existing procurement models practised in the US (for minorities), Malaysia and SA through the treasury's preferential procurement legislation create parallel economies.
The current PPPFA model (Preferential Procurement Policy Framework Act) divides the economy into black-owned and white-owned businesses and assigns preferences or penalties based on the skin colour of shareholders. On the other hand, the codes assign procurement preferences based on what a company does rather than focusing solely on the colour of its shareholders.
The new model allows for decentralised government action on BEE, as every procurement officer wields power to drive change in the economy. This differs from the treasury centralisation model used for carrying out tax rebates or incentives. Though many have raised questions about the effectiveness of this, the results of the TEC survey clearly show the codes' principles in action.
Black ownership on the JSE has increased from a low 1,2% a decade ago to almost 10,4%. With the run in the market, the net equity interest (minus the impact of debt) still shows more than 5% in black hands. Though this drops to 6% and 3% respectively after removing the effects of indirect ownership exclusions, it still represents unrealised equity interest of more than R240bn in the hands of black interests.
There are still two major stumbling blocks that can frustrate BEE: PPPFA and the practice of fronting. Government support for the use of codes to drive BEE is merely theoretical if it does not amend the PPPFA. Retaining a pure ownership basis for BEE measurement in the PPPFA will create a scenario which can potentially harm BEE.
Even if the measurement criteria are changed to the broad-based scorecard, the use of the 90/10 and 80/20 principles would dilute the codes.
The lack of emphasis on uprooting the practice of fronting will make BEE a mechanism to support individuals and companies who dare to try.
Given these main obstacles, the quiet gazetting of the codes now seems intentional, a s government may be asking too much of the private sector's social conscience and voluntarism to act on BEE.
We hope the long-awaited co-operation between all government departments, state organs, provinces and municipalities on the issue of BEE can be realised in 2007.
Without resolution on over of the PPPFA and fronting issues, the codes will remain an interesting experiment of a multi-tier procurement model, and bring little benefit to all South Africans. More important, a lack of resolution and co-operation will mean everything that has been achieved through the codes and charter will no longer be sustained.
Chia-Chao Wu is the executive director of Empowerdex
