Any colour, as long as it`s black

Are mountains of paperwork and red tape hindering the implementation of true BEE? Not all government departments concur.
1 November 2006

That governmental red tape and inaction is standing in the way of black economic empowerment (BEE) objectives is a sentiment that is well supported by industry.

Andile Tlhoaele agrees especially. He is head of Inforcomm and a member of the ICT Charter steering committee. In fact, he says that certain stakeholders in the industry have questioned the need for a charter at all.

Tlhoaele says that companies are often confused and swamped in paperwork, a problem exacerbated when multinationals are unfamiliar with regulations and red tape of the South African variety. He argues that there is not a single consistent message in terms of BEE. As a result, government is "missing its own targets". The impact of this is that multinationals see BEE as a deterrent and not a means to growth; they view the implementation of BEE as bureaucratic.

"In some areas, we are losing the goodwill of BEE," he says.

Moreover, Tlhoaele says that some companies are being penalised by government for not being able to afford to implement BEE as they are losing out on government contracts. The solution to this debacle, he says, is not to view legislation such as the Department of Trade and Industry's (DTI) Codes of Good Practice as a "one size fits all" solution. Instead, he advocates alternate forms of agreement within industry.

Tlhoaele says that the ICT Charter, which industry hopes to see gazetted before year-end, has made provision for a certificate of non-compliance in terms of selling equity, which would exempt fo-reign companies from selling ownership.

Despite the ICT industry's ability to agree on issues such as these, government has too many sticks in the fire, each attempting to legislate around BEE. And then there are some aspects of the codes - such as preferential procurement - that cannot be adhered to, necessitating a charter, as the codes are not a one-size- fits-all solution. Tlhoaele says that, in some instances, IT firms simply cannot procure all their items from a South African BEE company, as these items are just not available.

Tick, tock

The private sector is lax... responsible for only 2.1 percent growth in promoting black people to top management in the last five years.
Mokgadi Pela, Dept of Labour
Charters, he says, should be industry's contribution to BEE. However, in some areas, departments are running the charters. Tlhoaele says this should not be the case.

"Sometimes it feels like we are targeting changing goal posts. If government departments were working together, they would have published the codes a long time ago."

Moreover, laws such as the one promulgated under the direction of Treasury deal with procurement conflict with the BEE Act. However, as Treasury is government's de facto payout point, its objectives are placed higher on the priority list than others, leaving broad-based BEE targets in the dust.

Tlhoaele argues that instead of charters and codes, dealt with in different departments, the DTI should have sector specialists within the department. This could result in, for example, charters dealing with those aspects that each sector is not in a position to fulfil.

For example, he says, the ICT sector could have a charter dealing only with ownership equity, preferential procurement and other aspects that it is not in a position to fulfil. "I do feel that departments are working past each other," he says. However, the Department of Communications, involved in constructing the charter, believes differently.

Chairperson of the ICT Charter steering committee Norman Munzhelele, who is also chief director of policy in the department, says that the various government departments have harmonised the process as much as possible.

In addition, he does not see any problems in implementing the charter, especially from a multinational perspective, as "extensive consultations were held". He has, however, previously stated that the ICT Charter is ready to go, barring only DTI's gazetting of its Codes of Good Practice. The DTI was approached for comment, but had not responded at the time of writing.

Confusion reigns supreme

Empowerdex, a private company that offers commercial BEE certification services, says that empowerment has been "largely misunderstood by corporate South Africa and the general public alike, primarily because of the amount of uncertainty surrounding the requirements of BEE". Empowerdex measured the level of BEE in the ICT sector for the Department of Communications and helped draft the ICT Charter.

On its website, it says that government departments responsible for structuring the process of corporate transformation, including the DTI, have been in "consultation with various stakeholders to iron out flaws in the process".

Empowerdex expects that, as the DTI's Codes of Good Practice are introduced, the process of determining who stands where on the empowerment ladder will become clearer. However, until then, multinationals are likely to remain concerned about equity ownership. Research by Empowerdex indicates that having to sell off ownership is a disincentive to investment.

"While multinationals, represented by German, French and English embassies, were not saying they should be exempt, they believed the [BEE] codes were very inflexible," Empowerdex states.

It quotes embassies as stating: "The codes, as they are at the moment, are a big disincentive to invest and will probably lead to a decrease in foreign investment, not only from large enterprise, but also small enterprises."

The same embassies warned that South Africa should remember that companies usually look at the cost of operating in a particular country. If costs appear inflated, they simply divert their investment elsewhere.

No comment

None of the multinationals Brainstorm  approached would comment on the record about this sensitive issue other than to state that they were in support of BEE. However, an insider close to one of them said that companies would rather pull out than explain equity ownership to Nasdaq, for example.

"Certain companies are probably in more trouble than others. Some just can't sell equity. There is a huge disconnect between departments," said the source. He added that often the messages received were contradictory. "They need to sort out communication strategies and execution."

A recent Ernst & Young investigation into the matter found that over half the respondents interviewed have global policies that restrict the sale of equity. Despite this, less than half of the multinationals in the survey have looked for other alternatives.

Almost 76 percent of the respondents in its BEE and foreign-owned multinationals study favoured exemption from equity ownership requirements. Tellingly, not one of these companies was in the ICT sector, suggesting that the industry had chosen not to respond.

Department of Labour spokesperson Mokgadi Pela concedes that communication between departments is tricky. "It will be interesting to read the DTI codes in conjunction with the report. [Liaising between departments] can be hell on us."

Letting BEE down

The department, which is responsible for measuring equity within job functions among local companies, has not compared employment equity rankings between local and international firms. However, Pela says that the private sector is letting BEE down. "The private sector as a whole is lax. It is responsible for only 2.1 percent growth in promoting black people to top management positions in the last five years."

Labour Minister Membathisi Mdladlana, on introducing this year's report in Pretoria in September, stated that this rate of increase painted a bleak picture. "If we continue at this pace, we would most probably reach equitable workplaces only in 40 to 50 years from now."

Growth, he says, has largely been seen at state entities. Over 24 companies have requested meetings with top officials at the department to clarify their employment equity status. In excess of 1 000 companies were named and shamed for allegedly not submitting their reports on time; another six companies were lambasted by Mdladlana for having deplorable employment equity statistics. Despite companies stating on the record that they had submitted on time, the department remains adamant that they are at fault. However, instead of following up the matter in a judicial setting, it will now convene a high-level meeting between several companies and the minister. Pela says that companies will be able to explain why they have been shoddy in submitting reports, and in changing equity levels.

"As I speak to you today, for the first time, DG reviews are in the process of being conducted on six employers whose representation levels fell under the unacceptable category."

Just excuses

Department of Labour's Pela says that the companies are not confused by the requirements of the various departments, but are rather trying to skirt them through creating subsidiaries with less than 150 staff - the department's cut-off point for reporting. "They are not confused. It's an attitude problem. They are looking for an excuse."

Regardless of whether companies are confused or trying to dodge government's BEE requirements, the net result is that multinational companies could pull out of SA, even if a June 2005 Empowerdex study indicated that BEE quotas would not deter foreign direct investment in the country.