‘It’s time to call a halt to BEE’

Are the black economic empowerment (BEE) codes of good practice here to stay or have the stringent new regulations paved the way for their early demise? FTW has heard rumblings that a number of businesses are simply choosing not to comply, with some experts suggesting BEE policy be replaced with an alternative that focuses more on skills development. “It’s time to call a halt to BEE, which needs to be replaced by a new focus on economic empowerment for the disadvantaged (EED). Instead of breaking down property rights in pursuit of a socialist nirvana, EED would emphasise all the right ‘Es’, from economic growth and excellent education to employment and entrepreneurship,” said Anthea Jeffery, head of policy research at the Institute of Race Relations. “The new codes, which make ownership a priority element for large and small businesses, are seen by many as just another ‘stick’ for the government to leverage against business,” said one business owner contacted by FTW. He questioned the efficacy of the codes and whether they could make a real difference to the economically disadvantaged or whether they could actually end up hurting South Africa’s already fragile economy. While the new BEE codes currently call for a minimum 25% of total ownership, the government is using the revised codes to increase that level to 51% – the same figure advocated by the Zimbabwean government – said Jeffery. In a recent thought leadership article, she warned that this could be seen as indirect expropriation. “It is likely to become a still more potent barrier to foreign direct investment (FDI),” she said. Kyle Mitchell, chief adviser at BBBee Wise, told FTW that it was possible that BEE codes of good practice could have a shelf-life. “There is less and less buy-in from businesses around the issue of BEE, especially since the new codes include far more stringent compliance issues around the ownership and supplier and enterprise development sub-elements of the code,” he said, adding that in his experience, companies were often opting out of having a BEE certificate. A study conducted by KPMG in 2013 indicated that 75% of the business owners who responded were anticipating a decrease in their rating of compliance to the new codes. This was confirmed to FTW by Colin Anthony of financial services research company, Intellidex, who said most companies’ BEE rating would be “rebated downwards” if scored against the new codes. BEE deals generate over R300bn in value Black economic empowerment deals undertaken by the Johannesburg Stock Exchange’s (JSE) 100 largest companies since 2000 have generated R317 billion in total value attributable to beneficiaries, said research company Intellidex in its June 2015 report, ‘The value of BEE deals’. Co-author of the report, Colin Anthony, told FTW that the mining sector had been the largest generator of value, with a total of R101 billion over the past 14 years, followed by banks (R57bn) and industrial companies (also R57bn). 2014 was a record year for the value of maturing deals, with R59.8bn of value delivered to beneficiaries, said Anthony. INSERT & CAPTION Increased level of ownership is likely to become a still more potent barrier to foreign direct investment. – Anthea Jeffery