In my opinion black economic empowerment as a policy has about three years to live from April 2015. It will survive in certain areas but as far as the general business population is concerned it will be a non-event. Yes there is a great concern about the policy that Rob Davies has published – but in fairness to Rob, every one of his policies are cause for concern. His love of red tape is the stuff of legend. In some cases he is going to seriously hamper any form of economic growth, in other cases like that of BEE it will just fade away – just like the memories of Zuma, Davies and cronies.
The changes seem to have some wondering whether South African business is worth the trouble of complying. One source familiar with the thinking of U.S. companies in South Africa requested anonymity but emailed, "The new Codes that will be implemented in April 2015 are seen as very difficult to comply with. Ownership will be a mandatory requirement…the new Codes are going to have the effect of firms looking elsewhere to set up office.
As damning as this paragraph is, it's not something that we haven't seen before. I suspect that this is probably closer to the last straw. BEE in itself is not the biggest concern that foreign businesses have; they worry about labour issues, currency volatility, political instability and the Promotion and Protection of Investment Bill. Regarding the latter, EU Trade Commissioner Karl De Gucht said
You have unilaterally put an end to bilateral investment agreements. This is bad policy. You need investment. This is not the way to do it. We, the EU, are the biggest investors in South Africa. Our investment is going down.
Perhaps echoing the sentiment that many US companies express Millman writes of ownership
Some approaches to compliance with B-BBEE can put companies at risk of non-compliance with the U.S. Foreign Corrupt Practices Act. Companies often achieve ownership targets through up front share grants to black partners, with the purchase price paid out of subsequent dividends. "It is almost a government-enforced slush fund," said one Washington D.C. based international trade attorney. "The requirement to cut in black South Africans basically invites companies to find a mechanism to transfer wealth to a select group.
It's clear that foreigners have had enough of Davies and his rules. Soemone said to me that he needs his head read, it's already red.
What then about those who are going to be left having to comply with BEE once everyone has stopped bothering. Certain companies have contractual obligations to meet a certain BEE level in order to retain licences. Gambling is one- they have to stick to a level 2. Liquor licenses (which fall under the DTI) are the next to do this. But that's not all, the Manufacturing Competitiveness Enhancement Programme (MCEP) requires companies to be a level four contributor or show how they will become so within two years. Those who apply for this will need to consider that the revised BEE codes kick in in April 2015 and a level 4 (under an impossibly onerous scorecard) is now 80 -90 points. Do those who want to apply for grants under this programme know what they are getting themselves in to?
In each of Davies' policies it appears that he thinks that people WANT to go through all these hoops. He uses the word "incentivise" often – but offers no incentives at all, just red tape.
There is an upside. I think that BEE has run its course, I also believe that those connected professional blacks led by Sandile Zungu know this too. They've devised a policy that allows them to milk the system (akin to a licence to loot) for three years. By then they've sown up all the government business and have retired extraordinarily wealthy. They probably also know that political patronage is a fickle game – when your meal ticket has left the building you are thrown out with them. It'll be like the fall of the Berlin Wall, the BEE soldiers will turn a blind eye and companies will stop complying. The trick now is to be the correct lip-service to the policy so that it appears as though you are "committed" to it in the interim.
As to where the poorest of the poor who live because of donations under SED are going to go for money – that needs to be seen. I expect a great deal of hunger and dissatisfaction from these people.
What then are we burying, BEE or South Africa? The answer is very obvious under the Zuma government.