Empowerment vs Tenderpreneurship

Jack Bloom says the current system of BEE breeds abuse

I have a friend whose family was classified as Indian under the laws of apartheid. They run a successful transport company. In the old days they had to employ a white person to get government business. He was paid well, and was their front when dealing with government agencies or conservative whites in large companies.

Nowadays, they have a BEE shareholding and use a black person to assist in winning government tenders.

In both cases, there is deception and an extra cost that is passed on to customers. It's not as bad, though, as the company running the Soccer City stadium whose major empowerment shareholder is a former security guard who lives in a poor faraway township.

He was cited as a "human resources executive" with a 26% shareholding in the tender documents that led to a lucrative 10-year contract with Johannesburg Metro Council.

There are plenty of other examples where domestic workers or gardeners are dressed up as "empowerment partners" only to be dumped once the contract has been won.

Larger companies have complex schemes whereby black partners may only come to own a share after many years of dividend payments or a rise in the share price that may not happen.

The recent economic downturn exposed the financial weakness of many of these debt-funded schemes.

President Jacob Zuma recently bemoaned the "unintended consequence of fronting", but it was entirely foreseeable just as white fronts were used by black businessmen under apartheid.

There is an iron economic logic at work here that no amount of heavy-handed policing will eliminate.

Seventy five percent of private companies still do not comply with the Broad Based Black Economic Empowerment Act six years after it was passed.

This is because of a natural resistance to handing over a sizeable shareholding to people who have had no hand in building up the business and may bring no obvious added value.

It often only makes sense if those who are brought on board are politically connected and can win government tenders.

Some companies that previously got work through Broederbond connections adapted quickly and landed lucrative state tenders because of their new BEE partners.

An engineering company that profited greatly from the old Transvaal Provincial Administration transformed its political contacts and now benefits from the Gautrain and other state projects.

The tragedy is that some black entrepreneurs have been diverted from creating new companies by the easy pickings of lending their name and contacts to an established firm.

The focus on more black directors is also why the Black Management Forum is hostile to schemes that bring in employees as shareholders, rather than the small elite that they represent.

DA-controlled Cape Town has shown the way to real empowerment by scrapping the ANC's toughened BEE rules that benefited the favoured few.

The result is that supplies from historically disadvantaged individuals and small and medium enterprises (SMMEs) rose from 40% in 2006 to 80% at the end of last year.

Everyone has benefited, including city residents who get the best service at the best price.

Rational incentives and a corruption-free tender process are the best way to broaden opportunities for those who were previously excluded. Otherwise, expect more window-dressing and backroom deals that don't grow the economy or create new jobs.

Jack Bloom, MPL, is a DA Member of the Gauteng Legislature. This article first appeared in The Citizen.

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