EU businesses and investors raise concerns over South Africa’s BEE laws

The EU-South Africa partners for growth project has published a new study looking at the effects of Black Economic Empowerment (BEE) in South Africa and the impact these policies have on international investment.

The study, which was funded by the European Union, found that South Africa offers many attractive assets for foreign investors, such as its diversified and advanced economy, its abundance of natural resources and its well-developed infrastructure.

Unfortunately, investors remain concerned about the lack of clarity concerning policy and structural reforms, the group said. They added that the policies often elicits a ‘deer-in-the-headlights’ response from even the most seasoned investors.

“As the proponents of B-BBEE sought to increase the regulatory and measurability aspects of B-BBEE, the policy, primarily effected through the B-BBEE Codes of Good Practice, has become rather convoluted and complex, often frustrating businesses rather than encouraging transformative practices.”

Participants in the study represented a sample of EU investors of diverse profiles, ranging from medium-sized enterprises to large multi-nationals, extending across various industry sectors from manufacturing to services.

Some of the key findings include:

• Respondents displayed a sound awareness of the imperatives of B-BBEE.

• The effects of B-BBEE implementation on the company are far-reaching, extending beyond the resourcing for a mere administrative exercise. The frustrations experienced in implementing B-BBEE range from ‘too many ambiguous and often-changing rules’, to trying to stay focussed on business imperatives whilst attending to the intricacies of B-BBEE compliance.

• Costs incurred through B-BBEE were highlighted as a key challenge experienced by the businesses. Interviewees provided candid responses to the expenses related to B-BBEE and the resulting concerns about the financial viability of these costs, as well as the concerns around the sustainability of their businesses.

• The Equity Equivalent Programmes (EEP’s) and the Youth Employment Service (Y.E.S) initiative have not taken off in the way the South African government had intended. The EEP’s processes are generally viewed as being complex and once again, ill-affordable to even large businesses. Businesses tend to shy away from the Y.E.S initiative, as they remain cautious to the staffing and placing commitments which are an imminent component thereof.

• Discussions on the aspect of skills development contributions rendered the most robust responses. EU companies have evidently gone beyond simply embracing the skills element of the B-BBEE scorecard, offering skills development, often in specialised areas of study which, the current education system cannot be expected to deliver on. These skills initiatives add significant value to the respective learning candidates as well as to the respective industries; however, these initiatives are not always acknowledged through the current B-BBEE policy.

• The EU businesses interviewed have called for skills development to have a more prominent seat in the B-BBEE landscape.

Changes incoming

In May, the Department of Employment and Labour said it will amend and enact changes around South Africa’s employment equity regulations to address issues around equal opportunities and inclusion.

Employment and labour director-general Thobile Lamati said that this will include a push for further transformation changes at senior levels across South African businesses.

Citing the government’s 2018-2019 Employment Equity report, Lamati said that black Africans currently constitute 23.2% and 40.2% at the senior and middle management levels as reported by designated employers.

He said government will now push for at least a 2% annual increase in the representation of black Africans in senior and middle-manager levels.

He added that the Department of Labour plans to set sector targets to bring this to at least 50% within the next five years (2024).

Lamati said that the department also plans to amend the existing Employment Equity Act to help it meet these transformation targets within the same time frame.

In July 2019, Labour minister Thulas Nxesi announced a planned amendment bill which will regulate the setting of sector-specific employment targets to address the gross under-representation of blacks, women and persons with disabilities.

It will also ensure that an employment equity certificate of compliance becomes a precondition for access to state contracts.

Read: New data shows the make-up of South Africans with jobs