According to the leader of South Africa’s premier program for Black economic empowerment, more rewards and possibly even sanctions would be added to encourage corporate involvement and prevent abuse of the system designed to address the extreme inequality in the nation.
The African National Congress is under tremendous pressure to better the lives of Black people who have been deprived by decades of white minority rule. The party had ruled without opposition for 30 years before losing its parliamentary majority in the May elections.
The empowerment law, which was passed in 2003, established a scorecard system that offers tax benefits and government contracts to businesses, incentivizing them to hire and advance Black individuals.
Twenty years later, Black people’s unemployment is five times higher than White people’s, and economic inequality is the worst in the world, according to the World Bank, and critics say the empowerment policy has not worked.
The director of the Broad-based Black Economic Empowerment Commission, Tshediso Matona, told Reuters that “no society can be viable with this level of inequality.”
Companies receive points under the voluntary initiative in areas like black ownership, managerial control, and skill development.
But according to Matona, some businesses raise their ratings by putting Black persons as managers on false pretenses; this is a practice known as “fronting” in South Africa and is illegal.
Since 2017, 1,348 accusations of fronting have been received by the commission, which reports cases of infringement to state prosecutors, according to Matona. He went on to state that no one had been found guilty of fronting thus far since the criminal justice system was “still figuring out how to work,” without specifying the number of cases that had gone to trial with the B-BBEE regulation”.
Listed companies in South Africa are required to disclose their Black empowerment status in annual reports, but fewer companies are doing so. In 2022, only 141 of about 400 listed companies submitted a report, and President Cyril Ramaphosa has said he wants to focus on showing companies the advantages of Black empowerment, but if they refuse to comply, penalties would be needed. Matona aims to enhance company incentives for compliance while “naming and shaming” and possibly fining those which fail to submit the reports.
President Cyril Ramaphosa has described racial inequality as an “existential challenge” for South Africa and he is unequivocal in his commitment to addressing it. He believes incentives could focus on increasing recognition for companies that invest in skills and enterprise development and should not be too obsessed about ownership in existing businesses. He hopes to have amendments to the law tabled in parliament within 12 months.
A common criticism of the affirmative action system is that it made a small number of political insiders extremely wealthy through shareholding deals, especially in its early years. Economicist Duma Gqubule found that Black ownership of the 50 biggest firms listed on the Johannesburg bourse was barely 1%, far below the official average figure of about 30%. Matona blamed a lack of oversight of independent agencies which issue Black empowerment scorecards and said the industry needed regulation.
To get skills points, companies must pay for training courses for Black people, but they don’t have to hire them. Some engage a consultancy to find disabled people to train, because these earn more points. This often leaves Black job seekers in a cycle of training.
While some political and economic analysts agree with Matona’s approach to pushing for more compliance, others want the law repealed, saying it adds unnecessary bureaucracy, increases business costs, and deters foreign investment.
(Reuters)
