Black business slates new law

2011-12-17 11:23

The government and organised black business are heading for a showdown over the newly gazetted procurement regulations.

The Black Business Council (BBC) has threatened to call for President Jacob Zuma’s intervention should Treasury fail to address the council’s concern.

BBC’s president Patrice Motsepe complained that the Preferential Procurement Policy Framework Act in its current form disempowered black and emerging enterprises.

At issue is a clause in the act – gazetted last week – stating that companies bidding for government tenders valued at above R1 million should award 10% of their stake to black companies.

Firms bidding for tenders valued at less than R1 million should award 20% of their stake to black companies.

This means that big and small companies will score 90% and 80% for capacity respectively, while the remainder is for empowerment when bidding for state tenders.

BBC argued:
» Established companies bidding for tenders above R1 million would no longer be required to take empowerment seriously;

» The regulations placed a greater burden on small companies – which are generally battling for survival and have no proper management systems – to practise more empowerment than big companies; and that

» Treasury did not consider BBC’s input when finalising the regulations.

This is the first time that the BBC has complained to government about policy since it broke away from Business Unity SA in August.

In a December 1 letter Motsepe addressed to Finance Minister Pravin Gordhan, SA’s richest man revealed that BBC representatives met Gordhan on November 2 to “draw attention to the negative consequences that would impact on emerging black business, were the regulations to be promulgated in the amended form”.

Motsepe wrote: “We sought your urgent intervention on this issue due to the fact that the date of implementation of the regulations is gazetted as December 7.”

The meeting also acknowledged that the regulations would lead to the demise of Broad-Based Black Economic Empowerment (BBBEE).

“Currently, white companies score a higher BBBEE rating compared to black companies even without factoring in black ownership,” he wrote.

The BBC delegation that met Gordhan reported to the steering committee on November 30 on the outcome of the meeting.

“The meeting was not satisfied with a process that would only review these regulations after implementation.

The BBC resolved that it would be “prudent” to suspend implementing the regulations until the review process was concluded.

“The negative consequences of implementing these regulations are quite serious and damaging to the entire procurement reform process, to the advantage of white-owned business. This should not be allowed at this stage of our democracy,” he wrote.

Motsepe “implored” Gordhan to consider suspending the implementation of the regulations while the review process was under way.

“The BBC is currently consulting a wide range of stakeholders to solicit support for the suspension of the imple-mentation as proposed.”

Treasury spokesperson Bulelwa Boqwana confirmed that Gordhan had received Motsepe’s letter.

Boqwana said: “BBC did indeed send the letter. We have agreed that they should write a proposal highlighting the PPPFA issues that they are uncomfortable with. We will then meet with them to discuss their proposal.”

Thami Mazwai, director of the Centre for Small Business Development at the University of Johannesburg, agreed with Motsepe, saying the preferential procurement act should be amended to make empowerment a precondition.

Mazwai said: “It is very straightforward that if businesses bidding for government tenders are required to dedicate 80% and 90% to capacity, it will not be necessary for them to
be empowered.”
 
“Established businesses will end up winning contracts purely by fulfilling the 80% and 90% capacity requirements, while black emerging businesses will lose out on state tenders because they will struggle to meet the capacity requirements,” he said.

“Hence I believe that though government could keep the 80% and 90% formula, empowerment should be made compulsory. No company should win government tenders if it is unempowered,” said Mazwai.

Ajay Lalu, the director of rating agency Black Lite, agreed with Motsepe’s letter. “We should set aside 40% of government tenders for companies that are 100% managed by black people. Countries like Brazil, India and Malaysia set aside a portion of tenders for natives and that is why these countries have thriving economies that are driven by small businesses,” said Lalu.

“The problem is that many big corporates have good BEE structures in place but there are no incentives for these companies to procure goods and services from small businesses. Even government is not incentivised to procure from black business.”

Democratic Alliance finance spokesperson Dion George agreed with BBC. “The government should make it easier for people to participate in the economy by reducing the barriers to entry for small companies. The BBC is right that the PPPFA might result in big business not focusing on true empowerment.”

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