Paul Janisch

Chinese are black

It's just been announced on News24.  It's not like me to post a complete article - but they say it best.  I think it's the department of labour who have their work cut out for them - they are going to have create a separate column in EE reports for Chinese people.  I wonder how long it's going to take them to update it.

Chinese qualify for BEE
18/06/2008 11:18  - (SA) 

Pretoria - The Pretoria High Court on Wednesday granted a landmark ruling that Chinese South Africans are to be included in the definition of "black people" in legislation designed to benefit previously disadvantaged groups.

Judge Cynthia Pretorius granted an order in terms of which Chinese South Africans are included in the definition of "black people" in the Broad-Based Economic Empowerment Act and the Employment Equity Act.

Both laws cover Africans, Coloureds and Indians.

None of the government departments cited as respondents in the case, brought by the Chinese Association of SA (Casa), opposed the application and also accepted liability to pay the legal costs.

Eight-year struggle

The ruling is the culmination of an eight-year struggle by Casa to obtain clarity from government as to whether Chinese South Africans - who were classified as "coloured" during the apartheid era - qualify for the benefits in terms of the two Acts, designed to restore historical injustices in the country.

Casa's chairperson, Patric Chong, was overjoyed at the judgment. He said the community would like to make use of this newfound freedom to create even more jobs for the unemployed.

"As Chinese South Africans we were officially classified as 'coloured' during the apartheid era and suffered under the same discriminatory laws prior to 1994.

"The logical inference was thus that Chinese South Africans would automatically qualify for the same benefits afforded to the "coloured" group, post 1994.

"However, this was not the case and the Chinese South Africans have suffered a second round of unfair discrimination by not being sure of their status under the two Acts," he said.

Casa's lawyer, George van Niekerk, said justice has now been served for Chinese South Africans - one of the country's most politically marginalised communities.

He said although the two Acts did not specifically exclude Chinese South Africans, the fact that they were not mentioned by name led to a lot of confusion in the marketplace.

"For example, one commercial bank would, given the historical considerations, classify Chinese South Africans as 'black' for the purposes of the Employment Equity Act and the Broad-Based Black Economic Empowerment Act whereas another commercial bank declined to do so.

Unsure of status

"The net result was that Chinese South Africans were never sure of their status," he said.

Casa has attempted to get a definitive answer from the South African government for the past eight years, even making formal representations to parliament's Labour portfolio committee in 2004, but when repeated letters and enquiries received no response, they had no other option but to turn to the court for clarity.

Although the Ministers of Trade and Industry, Labour and Justice and Constitutional Development initially filed a notice to oppose Casa's application, they eventually conceded the merits of the case in April this year.

Well-known human rights lawyer, Advocate George Bizos SC, represented Casa in court.

Who's failing who

This is a post I've been wanting to write in a while and it is linked to my last post. In the last one I looked at how to implement a few of the elements in an economic slowdown without incurring excessive expense.  In researching that post I re-read many of the codes again and discovered that we have a very serious problem - the codes are not going to survive an economic slowdown. 

Their design flaw lies in the fact that in order to succeed there has to be a consistent investment in the process.  Failure to invest means that you are penalised. There is no reward for alternative methods of empowerment. In short - BEE has failed business.

The minister seems to be upbeat about the process.  He told an extended committee of the National Assembly a few weeks ago that B-BBEE transactions last year involved R96bn across a range of sectors.  I'm not sure whether this report only focuses ownership successes and does not speak of the elements.  I suspect that this is all the minister spoke about.  Ownership is the only success story within the BEE fold - and it has to be because empowerment has been measured this way since '94.  It is so important that it occupies 22 out of the 92 pages that make up the codes (the enterprise development and SED codes occupy a combined 11 pages).  But if you go speak to any M&A person at any of the big banks operating within South Africa, they will tell you that BEE deals have all but dried up - and it's not because there are no more deals to do.  It has everything to do with the Mbeki camp decamping and no-one really knowing who the new players are going to be. Where is the desire in doing deals? I would suggest that it does not exist and that deals are a matter of expediency.  I was told that most big companies do deals because it takes an element of political pressure off them.  I am still firmly of the opinion that deals do not empower they only create an elite - and there is strong evidence that the recent spate of deplorable xenophobic attacks are linked to this situation.

If the codes are to survive then I think we need to seriously look at making these changes.

Equity Equivalents

Equivalents are a fantastic vehicle for multinationals to make up ownership points.  The stumbling block here is the "global practice" which is defined on page 90 as

a globally and uniformly applied practice of a multinational, restricting alienation of equity in or the sale of the business in its regional operations.

I spoke to Jeffrey Ndumo about this, I asked him if we would accept a large cheque from a multinational that would invest in a suitable project in South Africa, even though that multinational did not have a global policy.  He said no, that multinational would be depriving local people of an ownership opportunity. This is ridiculous. It's not Jeff's fault, he is interpreting the codes.  But ownership can never impact the same number of people that a well coordinated equity equivalent project can (I include the SASOL deal in this equation).

We need to remove this global practice requirement and encourage multinationals to get involved in these projects.  In fact we need to go one step further and recognise established investments as equity equivalents. 

Skills Development

All of us in the industry know that in order to get the first six points you need to spend 3% of payroll on the training of black people.  I mean SPEND (Afrikaans word is spandeer).  This is somewhere close to impossible, especially in an industrial environment.  Everyone one of my clients who manufacture simply cannot afford this money - the opportunity cost is far too great.  But this does not mean that their staff members are not being trained.  On-the-job training is how you learn your job.  When my son was being born I asked the gynaecologist how much of his profession he had learned on the job.  He reckoned about 80%. 

The codes need to recognise on-the-job training as legitimate training.  They should expressly allow companies to create standard operating procedures for each job and take each employee through this process and provide them with a qualification at the end of it.  The chances are that this qualification won't be SAQA approved, but it will be a piece of paper that a person has that proves that they can perform a function.  I know that this is not going to work in all circumstances - but it will go a long way to start the process of skilling up a workforce. A similar thing should happen with learnerships.

Preferential procurement

I'll call this a mess.  All this code has done is to entrench the mafiosi nature of ABVA (by the way Roger Latchman is the new chairman, all the best Roger).   It's spawned a lucrative call centre industry and screwed over legitimate business.  The imports rule has to go - most importers I know employ and skill up a lot of people.  But they get the wrong end of the cue inserted in an uncomfortable place.  An alarming article in the Business Day a few days ago highlights this exact issue.  The author, Mathabo le Roux, relates how many legitimate South African manufacturers are losing business to black owned importers.

Local manufacturers across the spectrum increasingly complain that they are losing out to empowered suppliers who import products and then rely on their empowerment credentials to secure contracts in the private sector.

She argues that there is no local content feature within preferential procurement.  She is not quite right here, technically speaking the BEE scorecard of these importers would score nothing under procurement. By not complying with that code then these companies would not be  "black owned professional service providers and entrepreneurs".

Enterprise Development

Where the hell does this benefit factor matrix come from?  Why are banks and other lending institutions charging interest on their loans and the matrix states that you as a private entity get no points for loaning money at prime.  This is devoid of logic and is certainly not based on sound business sense.  We all know that it's very difficult for a black business to raise finance, but what is the benefit to them if they can go to companies and ask for handouts without any consequence.  What happens to that company when they are able to secure a loan from a lending institution and they suddenly discover that there is a cost to borrowing money in the real world.  The matrix has to go.

Enterprise development beneficiaries should not be limited to black owned businesses, which they in fact are limited to.  Any business that employs people should be allowed to be a beneficiary.  This country needs more employment and any company that is able to deliver on this should be entitled to be a beneficiary.

And most importantly, if ED is to succeed then handouts should be banned.  The ED beneficiaries should be regarded as investments that will bring about a return.

That's it!!

The codes are not delivering, and they won't if they take the stick approach.  A business-centric method that provides incentives for a successful implementation has the greatest chance of success.  The DTI has a string of failures and half-baked attempts at initiatives left in its wake - there is too much invested in BEE and it cannot afford to allow it to fail.