Proposal for tougher BEE laws in South Africa as compliance dwindles

The Broad-Based Black Economic Empowerment Commission (B-BBEE Commission) has published its annual broad-based black economic empowerment (B-BBEE) trends report for2021, showing a decline in compliance and a drop in black ownership of businesses in South Africa.

The report is based on data derived from annual compliance reports submitted to the B-BBEE Commission by JSE-listed entities, organs of state, public entities, and Sectoral Education and Training Authorities (SETAs).

According to legal firm Webber Wentzel, the commission saw fewer compliance reports submitted in 2021, with the current data uploads decreasing by 76% from 5,818 in 2019 to 1,373 in 2021.

The B-BBEE Commission said that this downturn in the submission of compliance reports was due to the fact that the Broad-Based Black Economic Empowerment Act does not adequately cater to the consequences of non-compliance with the Act’s requirements.

The B-BBEE Commission has therefore recommended that the B-BBEE Act be amended to include consequences of non-compliance in the form of administrative penalties and criminal sanctions. It also wants to provide quicker resolution of B-BBEE violations by establishing a specialised tribunal.

“The B-BBEE Act, according to the B-BBEE Commission, should also provide for mandatory uploading of B-BBEE certificates by B-BBEE verification agencies on the B-BBEE Commission’s certificate portal,” Webber Wentzel said.

Other significant trends reflecting the state of economic transformation revealed in the report include:

• Black ownership has decreased by 1.10%;
• Black women ownership by 2.17%;
• The average growth of black women’s ownership is lower than black ownership;
• The Agri-BEE, Financial, Property and Marketing, Advertising and Communication sectors did not achieve their sector targets on black ownership and black women ownership;
• The Construction sector did not reach its black women ownership target;
• The percentage of black South Africans holding directorships has decreased overall from 57% in 2020 to 51.6% in 2021, whereas black South Africans holding directorships in JSE-listed entities has increased from 28% in 2020 to 39% in 2021;
• Contributions towards skills development, enterprise and supplier development and socio-economic development also decreased in 2021. The contributions ranged between an average of 54.8% and 46.5% in 2021, but in 2020 the contributions ranged between an average of 60% and 61%.

In its concluding remarks, the B-BBEE Commission said that South Africa has not made serious inroads in addressing inequality. It suggested that the B-BBEE Act and the Preferential Procurement Policy Framework Act be amended to ensure that preferential procurement was effectively implemented.

The B-BBEE Commission concluded that to accelerate the pace of transformation, the B-BBEE Act should be amended to include administrative penalties for non-compliance.

Pushing transformation into high gear

Addressing the inaugural Black Industrialists and Exporters Conference in July, president Cyril Ramaphosa said that more needs to be done to expand and support black-owned businesses in South Africa.

While progress around broad-based black economic empowerment (BBBEE) has been made, Ramaphosa said that the transformation agenda needs to “shift to a higher gear”.

To reach the goals set out on the transformation agenda in the country, the president said there needs to be a focus on cutting bureaucratic red tape and addressing other obstacles within the state. However, he stressed that the responsibility also falls on the private sector.

“We want a frank conversation about impediments to the expansion of black business, not just from government, but from the private sector as well,” he said. “We need to talk about private sector procurement, about value chains, about access to financing for emerging black business and about how existing systems militate against emerging black business.”

In June 2022, Ramaphosa appointed the country’s new BBBEE Advisory Council, responsible for guiding the government on the ‘intensified transformation’ of the economy.

Subsequently, the government has made two big transformation moves in the events and legal industries in South Africa.

The Department of Sport, Arts and Culture is holding national consultations on a new BBBEE sector code for the Events, Technical and Production Service Industry, focused on transforming the events industry which has historically lagged behind BEE targets in the sector.

The formation of a BBBEE sector code for the events industry comes after Ramaphosa’s cabinet approved the publication of the Draft Legal Sector Code (Draft LSC) for public comment.

The legal profession does not currently have a sector code to guide it in addressing the imbalances and inequalities in the profession.

Transformation was also a key topic in recent discussions held between the government and some of the large media houses in the country, where there was “an in-principle agreement on what needs to be done” in the industry.

The biggest transformation push, however, comes through the new Employment Equity Amendment Bill, which is expected to be the vanguard of a new transformation push for the country.

It will allow the Employment and Labour minister Thulas Nxesi to set employment equity targets for different business sectors. The minister can set targets for different occupational levels, sub-sectors or regions.

The amendments would also require the government to issue contracts only to firms that have been certified as compliant with this law. The government is expected to conclude the legislative process for the bill in September 2022.

Read: Businesses not meeting transformation targets in South Africa – report