BLSA CEO questions whether changes to BEE will grow South Africa

Business Leadership South Africa CEO, Busisiwe Mavuso, has expressed her views about the proposed amendments to the broad-based black economic empowerment (B-BBEE) laws, particularly the procurement regulations.

The amendments were published by the Department of Trade, Industry and Competition (the dtic) earlier in the year.

Mavuso has questioned whether these proposed changes will grow the country’s economy, a question she says has not been answered.

BEE rules need to grow the country

“Are our policies as a country pro-growth?” she asked in her weekly newsletter published on Sunday.

“So, it should be essential that the first question we ask of every new policy proposal is how it will affect growth. Too often, this question isn’t asked,” said Mavuso.

“Last month’s draft preferential procurement regulations are a case in point.”

She emphasised that growth is the only way for the country to deal with challenges such as unemployment, poverty, and inequality.

100% black-owned businesses to benefit

Mavuso noted that not all of the proposed regulations are questionable. She said the regulations contain positivity, such as “greater transparency, better tools to tackle organised crime in procurement, and value-for-money assessed across the life-cycle rather than price alone, which enables evaluation of quality and delivery capability.”

What she finds questionable, among others, is the proposed regulation to “allocate more procurement toward 100% black-owned businesses”.

Mavuso highlighted that procurement is a powerful tool the government has to achieve transformation. Still, it is important to ask how “effective these regulations will be and what they will cost”.

She said Treasury has not produced any analysis that provides answers to the question.

Here’s what the regulations propose

The proposed regulations are as follows:

• All tenders under R20m are set aside exclusively for 100% black-owned suppliers.
• For tenders of R20 million to R100 million, suppliers must prove they procure 40% of their inputs from 51% black-owned suppliers or 30% from 100% black-owned suppliers.
• For tenders above R100 million, 25% of subcontracting must go to 100% black-owned businesses.
• Additional targets apply for black women-owned enterprises, women-owned enterprises and other categories.

Hypothetical scenario

Mavuso said the proposed regulations may have a limited impact in sectors with deep pools of suppliers. But noted in specialised areas, such as wastewater treatment, high-voltage electrical infrastructure, advanced engineering systems, enterprise IT – the pool of qualifying suppliers is shallow.

“What happens when a municipality needs to tender for a water treatment plant and there aren’t enough 100% black-owned firms with the technical capacity to bid? Either the project doesn’t proceed, or costs escalate dramatically as the limited qualifying suppliers recognise they face little competition,” she said.

“Imagine an example. A metro needs to upgrade its electricity distribution network – a R150m project. Under these regulations, R37.5m of subcontracting must go to 100% black-owned businesses.

“But high-voltage switchgear installation, protective relay systems, and network control infrastructure require specialised skills and certifications. If only two or three firms qualify, they can name their price. The municipality faces either paying inflated costs or not upgrading critical infrastructure. Neither outcome serves growth or transformation.”

Concerns with the regulations

Mavuso highlighted that the proposed regulations assume administrative capacity that doesn’t exist.

“Smaller suppliers must not only ensure appropriate ownership structures but also build substantial administrative capability to navigate complex compliance requirements,” she said.

“The public sector will face much higher costs from the extensive bureaucracy required to apply and monitor these rules.

“The regulations assume data-driven procurement planning, contract performance monitoring and ICT infrastructure that most municipalities simply don’t possess. We cannot design regulations for the public sector we wish we had rather than the one that exists.”

Money spent on compliance bureaucracy

Mavuso added that transaction costs matter for growth. “Every rand spent on compliance bureaucracy is a rand not spent on actual service delivery,” she said.

“Every month a project is delayed because qualifying suppliers can’t be found is a month of continued infrastructure deterioration. Every inflated contract price, because of restricted competition, is money that could have funded additional projects.”

She urges Treasury to conduct a proper economic impact assessment before finalising the proposed regulations.

“What will compliance cost the public and private sectors? How will restricted supplier pools affect infrastructure project costs?

“What are the implementation risks in municipalities that lack basic procurement systems? What alternative transformation approaches could achieve better outcomes at lower cost?”