Businesses not meeting transformation targets in South Africa – report

 ·27 Jul 2022

Businesses are not meeting their B-BBEE scorecard targets, collectively achieving only an average of 87.16% of their contribution targets, according to the 2022 Sanlam Gauge Report.

“This year’s report drills down into the hard facts of economic transformation, what’s working, what is not working and what needs to change with South Africa’s B-BBEE policy,” said Andile Khumalo, co-founder of the Sanlam Gauge Report.

“I am particularly proud of the fact that in our second year of research the study’s sample size has more than trebled, this year investigating the B-BBEE scorecards of more than 10,000 companies grouped in 11 sectors. This increased sample size provides the research with even more credibility and provides a valuable benchmark for organisations to measure themselves against.”

The 2022 Sanlam Gauge Report found that, with the exception of the socioeconomic development pillar, most sectors are struggling to meet their targets. For the second consecutive year, management control poses the biggest challenge to the newly reconstituted B-BBEE Advisory Council, achieving only 55.9% of its target in this year’s report.

Enterprise and supplier development (ESD) is the next biggest challenge, achieving only 64.5% of the target. If done correctly, this element of the scorecard offers huge potential for inclusive economic growth based as it is on encouraging procurement from small black-owned businesses, in the process providing them with support to grow and develop.

Black ownership achieved 74.8% of target, a slight drop from last year.

Socioeconomic development was once again a standout pillar with companies in this year’s database exceeding the target by an average of 160%. Although some companies do use this pillar as opportunity to ‘tick the box’ by throwing money at it, other often larger companies are making an effort to ensure their contributions make a meaningful impact on beneficiaries.

Given that targets are not being met, there is a school of thought that says that the overall B-BBEE strategy needs to be adapted – or even overhauled completely – to measure qualitative as well as quantitative areas in order to better reflect transformation on the ground, said Khumalo.

Ray-Anne Sedres, chief transformation officer at Sanlam said what the report very clearly reveals is that there is still a great deal of work to be done as far as transformation is concerned. “To reach their targets, businesses will need to collaborate. We challenge all businesses to prioritize this critically important journey.”

“Despite all the challenges surrounding B-BBEE – of which there are many – I am convinced that there is no other policy that can alleviate poverty, reduce inequality and create jobs to the same extent. Therefore, we have no choice but to make BEE work – our very future depends on it,” Khumalo said.

A report by the Banking Association South Africa (BASA) out this week found that banks continued to meet many of the empowerment and transformation targets set in the Financial Sector Code (FSC), despite the severe economic contraction of 6.4% experienced in 2020, which reduced opportunities for job creation and inclusive economic growth.

Until the South African economy recovers from the years of state capture, maladministration, political uncertainty and a lack of urgent economic reforms, sustainable Black Economic Empowerment (BEE) will be hampered, said BASA managing director, Bongiwe Kunene.

Kunene said that banks however remained committed to meeting and exceeding the transformation targets set out in the FSC.

In 2020:

  • Black ownership of banks was slightly above target with black people holding 28.4% of voting rights in banks, against a target of 25%. However, black economic interest was at 23.6% against a target of 25%. Black ownership of banks is likely to continue to drift down as bank BEE deals have vested and black investors are now free to sell their shares and benefit from their profits.
  • Black management control of banks fell short of their targets at all levels. However, the percentage of black managers and directors in banks increased, at all levels, every year for the past three years and this is expected to continue because of the strong pipeline of black managers at all levels. Banks spent R4.7 billion on skills development for black employees.
  • Banks procured 82% of their goods and services – worth R137 billion – from BEE compliant businesses, against a target of 80%.
  • Banks provided R271 billion in empowerment financing, including R34.5 billion to small black businesses.
  • Banks provided access to transaction points to 88% of South Africans in low-income households, against a target of 85%; and provided 20 million products that contribute to financial inclusion, against a target of 15 million.

“The findings of the Transformation in Banking Report, show in hard numbers, that the narrative that banks are falling far short of their FSC targets is based on an incorrect interpretation of the numbers as guided by the FSC. This can distort facts and discredit the contribution of banks to the transformation of the financial services sector and economic empowerment in South Africa,” said Kunene.

She said that banks are acutely aware that South Africans who face increasing daily economic hardships are growing impatient with calls for responsible, sustainable reforms that seem to do little to improve their lives.

“The faster implementation of announced economic reforms will create more opportunities for transformation and empowerment in the economy, which will be supported by the banking industry. Banks will continue to work with government and business to fast-track inclusive economic growth.”

The FSC itself makes the point that “the stability and soundness of the financial sector and its capacity to facilitate domestic and international commerce is central to the successful implementation of broad-based BEE”.

Kunene said that the report also demonstrates how banks and other financial institutions have been central to transformation in the energy sector by financing the Renewable Energy Independent Power Producers Programme (REIPPP). “With the right conditions in place and an enabling regulatory framework, banks can play a similar transformative role in other sectors of the economy, which will achieve much beyond the targets set out in the FSC.”

Read: Ramaphosa wants to push transformation in South Africa to a ‘higher gear’

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