New BEE laws another shot in the foot for South Africa
Every rand spent on complying with South Africa’s bureaucratic transformation legislation is a rand not spent on service delivery, says Business Leadership South Africa CEO, Busi Mavuso.
And when the country needs to focus on growing the economy to build businesses and boost jobs, the government needs to conduct proper impact analyses of its policies before imposing them on industries.
Writing in her weekly newsletter, Mavuso took aim at draft procurement regulations published in April.
While these regulations are long overdue—since the courts invalidated the existing regulations in 2022—they are raising many red flags.
According to Mavuso, one of the biggest problems is extensive “set-asides” for 100%-black-owned businesses, where contracts of certain values must be kept aside for these businesses.
All tenders under R20 million are set aside exclusively for 100% black-owned suppliers.
For tenders of R20 million to R100 million, suppliers must prove they procure 40% of their inputs from 51% black-owned suppliers or 30% from 100% black-owned suppliers.
For tenders above R100 million, 25% of subcontracting must go to 100% black-owned businesses.
Additional targets apply for black women-owned enterprises, women-owned enterprises and other categories.
Mavuso said that, while transformation is “certainly an important goal”, and procurement is a powerful tool the government has to achieve it, no one seems to have asked what these regulations will cost.
“Treasury has not produced an economic impact analysis showing what this will cost or how effective it will be,” she said, adding that transaction costs matter for growth.
Not only do companies have to pay to comply with transformation regulations, but the rules themselves may also apply in sectors where they are simply not feasible.
In sectors with many qualifying suppliers, the BEE procurement rules may not have much impact. However, in specialised areas, there may simply not be any suppliers who can do the job.
“Think wastewater treatment, high-voltage electrical infrastructure, advanced engineering systems, and enterprise IT,” the CEO said.
“What happens when a municipality needs to tender for a water treatment plant, and there aren’t enough 100% black-owned firms with the technical capacity to bid?”
Either the project doesn’t proceed, or costs escalate dramatically as the limited qualifying suppliers recognise they face little competition, she said.
More work for everyone involved
Mavuso said the regulations add to the cost burden—not only on the companies and businesses involved, but also on the entire South African economy.
“Every rand spent on compliance bureaucracy is a rand not spent on actual service delivery,” she said.
“Every month a project is delayed because qualifying suppliers can’t be found, is a month of continued infrastructure deterioration.”
“Every inflated contract price, because of restricted competition, is money that could have funded additional projects.”
Mavuso reiterated that the issue is not transformation itself, but rather the cumulative effect of a tiered, mandatory, percentage-based procurement system.
This system will affect efficiency and project costs and may create a limited supplier pool across the economy.
She noted that the regulations also assume administrative capacity that doesn’t exist, adding that the state’s monitoring and infrastructure requirements are simply not available.
“We cannot design regulations for the public sector we wish we had rather than the one that exists,” she said. “There are more effective ways to drive transformation.”
She posited that creating incentives for established firms to develop black-owned joint venture partners is a much better way of achieving similar goals.
“Set ambitious transformation targets but allow procurement officers flexibility in how to achieve them based on market realities,” she added.
This would ensure black-owned firms have access not only to domestic markets but also to international markets.
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