Last week the portfolio committee on employment and labour (the committee) heard oral submissions on the Employment Equity Amendment Bill of 2020 (the Bill).
The IRR was among those invited to speak – and used the opportunity to elaborate on the criticisms of the Bill it had already set out in its written submission.
Why the Bill matters
The Bill aims to extend to the private sector the rigid racial targets that have already crippled the capacity of the public service and key state-owned enterprises (SOEs). Yet business, unlike state entities, has no tax revenues to fall back on when unrealistic quotas cause its competitiveness to crumble.
Non-compliant companies will also face damaging fines – ranging from 2% to 10% of annual turnover – that are big enough to drive many into bankruptcy. This will further limit investment, curtail growth, jeopardise employment, and inhibit economic recovery from the Covid-19 lockdown.
Non-compliant companies will also find themselves excluded from government tenders. This will undermine their sustainability, while helping to clear the field for BEE firms often notorious for charging inflated prices in return for defective delivery. This will bring yet more harm to the millions of jobless black South Africans who depend on the government for water, sanitation, education, healthcare, and other vital goods and services.
What the Bill says
The Bill seeks to amend the Employment Equity Act (the EE Act) of 1998 by empowering the minister of employment and labour minister, Thulas Nxesi, to set ‘numerical targets’ for designated employers (those with 50 or more employees) in different sectors of the economy.
As Mr Nxesi stressed back in 2019, this additional power would allow him to come down ‘very hard’ on companies that failed to meet his targets for ‘no justifiable reason’. Such firms would not only risk ‘prosecution’ and heavy fines but would also be barred from doing business with the state. This, said Mr Nxesi, would give the state ‘the force it needs’ to deal with recalcitrant companies.
Now that the Bill has been put before Parliament for adoption, it is clear that Mr Nxesi’s wishes have been followed to the letter.
The discretion he has been given to set targets (quotas in all but name) for employers in different sectors, sub-sectors, and regions is largely unfettered. The relevant rules are thus likely to be contradictory, unpredictable, and subject to rapid change outside of Parliament’s purview. The minister’s discretionary power also undermines the rule of law – which requires clear and certain legislation – and so conflicts with the Constitution.
The myth of demographic representivity
The Bill, like the EE Act itself, is based on the false assumption that ‘demographic representivity’ is the ‘norm’ – and that, in the absence of race discrimination, black people would automatically fan out into the workplace in accordance with their share of the economically active population (EAP).
Since black people make up 79% of the EAP, this is the target that business will in time be expected to meet under the Bill. However, a 79% target assumes that all black people who are defined as economically active – because they fall within the 15-64 age group and either work or wish to do so – are automatically eligible for all management, professional, and other senior posts. But this ignores the fact that roughly half of black people are under the age of 25, while only 5% have the degrees often required or advisable at senior levels.
This age and skills profile, along with other relevant variables, raises questions as to how the 79% EE target has been met in the public service, where black people make up 77% of top management in national departments, for example. This can only have been achieved by appointing black people without the necessary experience and qualifications.
Crumbling capacity within the public service
Inappropriate appointments to the public service have been facilitated by a clause in the EE Act that allows black people to be appointed on the basis of their ‘potential to acquire…the ability to do the job’.
According to Professor Peter Franks of the School of Public Leadership at the University of Stellenbosch, ‘this [rule] has become the favoured loophole behind which kin, friends, and comrades have been favoured over more competent applicants’. This in turn has resulted in ‘a perfect storm…of poor management, deficient and partial decision-making, excessive staff turnover, and high levels of…corruption’.
EE has also helped to drive skilled managers and engineers out of SOEs and municipalities and replace them with individuals lacking the same capacity. As Professor William Gumede of Wits University commented in January 2019: ‘The best people are often not recruited or promoted [to SOEs]. Senior management and boards are often appointed for patronage, political and corrupt reasons rather than for competence. Incompetent boards and management often appoint family, friends and allies to middle and lower management, cascading the zone of incompetence downwards in the organisation.’
At Eskom – which has been crippled by unsustainable debt and inadequate maintenance – human error accounts for some 40% of breakdowns at its ageing fleet of coal-fired power stations. Public enterprises minister Pravin Gordhan has acknowledged that much of the malaise stems from the fact that ‘good people were lost and incompetent people put in their place’.
An EE-induced exodus of skilled managers and engineers from many municipalities has been particularly serious, as it has crippled their capacity to manage their wastewater plants. Hundreds of these plants have broken down, while close on 4 billion litres of raw or partially treated sewage are being discharged into the country’s rivers and dams every day.
Sewage spills have been especially severe in the Vaal Dam area, where a recent investigation by the Human Rights Commission (HRC) blamed the Emfuleni Municipality for ‘the flow of raw sewage on public streets, paths, and into homes’. The HRC also criticised the municipality for having failed to appoint sufficient skilled people when it knew that ‘the necessary skills were available in South Africa’.
Pushing the private sector down the same destructive path
The EE Act and its unrealistic racial targets are clearly the main reason for the collapse of capacity in the public service and many other state entities. Yet despite the massive damage that has been done, the Bill seeks to compel private companies to follow the same destructive path.
However, as Manufacturing Circle executive director Coenraad Bezuidenhout has pointed out, businesses – unlike state entities with access to tax revenues – do not have budgets that ‘automatically get replenished every year’. Many firms could thus be driven into bankruptcy by the ‘low productivity’ that unrealistic EE targets are likely to generate. This could ‘kill off businesses and employment growth’.
Fines for repeated non-compliance with the minister’s unrealistic targets could be set as high as 10% of annual turnover, which could also bankrupt struggling companies. As the government’s own regulatory impact analysis earlier warned, net profits generally run at well below 10% of turnover – so fines of this magnitude could contribute to ‘company contraction and retrenchments, and even company closure, resulting in job losses and negative impacts on economic growth’.
An unconstitutional ‘bait-and-switch’ ploy
Against this background, why do so many commentators keep endorsing the EE system, or decline to recognise the obvious unconstitutionality in both the EE Act and the current Bill?
The race-based targets in these measures clearly contradict the Constitution’s founding value of ‘non-racialism’. In addition, both the Act and the Bill fail the three tests for ‘authorised remedial measures’ laid down by the Constitutional Court in the Van Heerden case in 2004. This is because they:
- help only the most skilled and politically connected within the black population;
- fail to ‘advance’ the great majority of black people, who have been greatly harmed by EE over the past 20 years; and
- undermine the ‘achievement of equality’ by widening the gap between the small black elite that benefits from EE and the 10 million black people that unrealistic EE rules have helped to render unemployed and destitute.
At the heart of this unconstitutionality lies a cynical ‘bait-and-switch’ ploy. As renowned economist Thomas Sowell has written, ‘race-based set asides amount to no more than a cruel bait-and-switch game in which the conditions of poor blacks are used to garner preferences that ultimately benefit upper-income blacks’.
There is little redress, social justice, or equal-outcome ‘equity’ in this for the woke to proclaim.