Paul Janisch

PAJA attack on the codes

Governments have a right to pass unpopular laws, as long as they follow due process, are rational and comply with the constitution. The factor that has been missing in South Africa for the past 20 years is political consequences — there have been few or none as far as the ANC is concerned. But that is changing as the electorate wakes up to the truism that the price of freedom really is eternal vigilance, a role provincial governments and the National Council of Provinces have shirked for too long.

via www.bdlive.co.za

Such an apt quote. Even though it refers to etolling it resonates very well with the BEE codes. The codes are unpopular but I have my doubts whether they are rational. Their constitutionality is also open to question. I've spoken about the constitution and BEE a few times on this blog. In that post I wrote

The DTI bases the new codes on section 9(2) of the constitution as read with section 9(5)

To promote the achievement of equality, legislative and other measures designed to protect or advance persons, or categories of persons, disadvantaged by unfair discrimination may be taken.

Discrimination on one or more of the grounds listed in subsection (3 – see below) is unfair unless it is established that the discrimination is fair.

This is fair enough, there are a number of statutes that derive their legitimacy on this section. The Employment Equity Act is but one. However section 9(3) states

The state may not unfairly discriminate directly or indirectly against anyone on one or more grounds

Suddenly the new codes start taking on a sinister and anti-constitutional vibe when section 9(3) is taken into account. Even with section 9(5) the discrimination proposed cannot be seen to be as fair.

The fairness of the codes will only be tested in a procurement environment. The easiest test is state procurement and the PPPFA. 100% black owned companies turning over less than R50m are automatically level one contributors, which could provide them with either a 20 or 10 point advantage over their competitors in a state bid. Those competitors would need to spend 6% of payroll on training, develop complicated ED programmes, sell off portions of their business to black people (which normally is an expense that the company has to absorb), ensure that their workforce is representative of EAP targets etc. All of this is a costly expense that will take a lot of time. If this was a marathon then the black competitors would start at the same time as everybody else but would only need to run the last two metres whilst everyone else slogs through the race.

Is this fair in terms of section 217 of the constitution?

The fairness test can be extended to asking the question why 100% black-owned businesses (or 51% black-owned businesses) turning over less than R50m should be absolved of the responsibility of ED, skills development, employment equity etc. This is not only unfair it's also irrational.

What do we do then? Percy phoned me yesterday and told me to read the Promotion of Administrative Justice Act, 2000 (Act 3 of 2000). The preamble of the act states

WHEREAS section 33(1) and (2) of the Constitution provides that everyone has the right to administrative action that is lawful, reasonable and procedurally fair and that everyone whose rights have been adversely affected by administrative action has the right to be given written reasons

Section 5 clarifies this

5. (1) Any person whose rights have been materially and adversely affected by administrative action and who has not been given reasons for the action may, within 90 days after the date on which that person became aware of the action or might reasonably have been expected to have become aware of the action, request that the administrator concerned furnish written reasons for the action.

(2) The administrator to whom the request is made must, within 90 days after receiving the request, give that person adequate reasons in writing for the administrative action.

(3) If an administrator fails to furnish adequate reasons for an administrative action, it must, subject to subsection (4) and in the absence of proof to the contrary, be presumed in any proceedings for judicial review that the administrative action was taken without good reason.

What we will do is submit an application in terms of section 5 requesting written reasons as to why he chose to ignore the comments he received that opposed many of the new provisions. Also he must take into consideration what his target market said about these codes. It is not fair, rational or reasonable to say that there was overwhelming support for the codes from black business who are exempted from them and hence not the target market. This is apartheid-style legislating. It's the same as asking 10 year olds to submit their opinions on the age of airline pilots – they are too young to be pilots. Speak to those people who are old enough to be pilots.

This doesn't mean that Rob will comply.

(4) (a) An administrator may depart from the requirement to furnish adequate reasons if it is reasonable and justifiable in the circumstances, and must forthwith inform the person making the request of such departure.

If he chooses not to (as I'm sure he will) then it will have to go under judicial review (section 6) of the act.

Returning to Dave Marrs' opening paragraph.  I think the tide is turning. There will be political consequences for such irrationality and perhaps the greatest consequence is private sector apathy which will see the entire empowerment process fading away in a short space of time. Nobody wins under these circumstances.

Related articles

BEE and the constitution

Submission to the DTI about the revised codes - feel free to cut and paste from this

Blacklite’s out

Udge's greatest contribution to matters BEE has got to be that moustache. Best moustache in BEE, it must make most cabinet ministers turn green with envy. Like all BEE consultants Mr Lalu has sent out an email to his clients which was forwarded to me from two different sources. It's full of the usual yada about discounted rates and more complicated targets, hectic requirements. You've got to love the DTI approved rationale for the codes, viz

The key objectives of the revisions to the Codes are as follows:

1. To create productive assets in the hands of black people;
2. To facilitate truly broad based empowerment;
3. To develop the skills of black people and black women in particular; and
4. To support the creation of black owned and black women owned suppliers.

Options 1, 3 and 4 make sense. Number two is patent rubbish. Broad-based is the last intention – this is about black ownership and nothing else. Anyway, that wasn't the thing the caught my eye. I was most fascinated by this

Black Lite Consulting is proud to say that many of our comments have been taken into account in the final version of the Revised Codes.

Huh, you proudly contributed to this mess!!.  Exactly what did you contribute, the only difference between the codes for comment and the final codes is the dropping of one level for priority elements and the introduction of empowering suppliers. Did Ajay make those two suggestions or did he comment on the occasional typo here and there? He can't take any credit for the withdrawal of the SED code because that was mostly my work.

And therein lies the ultimate conundrum. The new codes are not business friendly. At their very best they are a tax, at their worst they are a drain on human and financial resources with little or no reward. If I was making use of a BEE consultant I would want someone who perhaps took an objective view on the codes and identified them as the nonsense that they are. That is not the kind of thing that the New Age publishes.

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Davies' new BEE codes could destroy the nonprofit sector Nov 14, 2012 | Paul Janisch

The DA is not taking these codes lying down

Speaking of the devil.  My post over the weekend asked whether the DA would tolerate these codes.  Apparently they won't.  Wilmot James published a release on Politicsweb yesterday.  In the release he pretty much echoes what most businesses are asking.

DTI clearly has not applied its minds to comments received on the draft Codes published in October 2012. 

During the proposed meeting the DA will ask that the Minister provide details on the comments received by DTI on the 2012 draft Codes, how they were considered and whether DTI consulted any third parties in drafting the latest version of the Codes.

We will also request a full regulatory impact assessment on the implementation of these Codes.

Business and civil society raised serious principled and technical concerns around the 2012 draft Codes. It is clear that these concerns were not seriously considered by DTI. 

This is a severe and worrying example of a misuse of basic legislation which gives extensive powers to the Minister to push through regulations without appropriate consultation.

Then he lists a few concerns (which seem so logical to me)

There is a very real risk that the cost of compliance with the Codes published will have a number of unintended consequences, including:

• Businesses may choose to withdraw from the empowerment process entirely;or
• Disinvestment in the South African economy, resulting in thousands of job losses. 

And then concludes with

The Codes, in their current form, will not result in the building of an inclusive economy.

We will do everything in our power to get the Minister to amend them.

All the comments I read regarding these codes were largely in disagreement with them.  Why would business agree to something that is patently counter-productive.  

There is another consideration that has not been taken into account - there are a number of concerned people who would like to see BEE legislation decared unconstitutional.  When you have a document that is so patently unfair, unreasonable and are not a reflection of the will of the people who have to implement them then you have a very clear constitutional challenge ahead of you.  As EfVee once said

But Mr de Klerk said that the constitution did not allow unfair discrimination and if affirmative action and BEE were implemented in a way that constituted unfair discrimination, then it was wrong and unconstitutional.

These codes are wrong.

 

 

 

 

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Will the DA take the new BEE codes lying down?

Will the DA take the new BEE codes lying down?

Is it strange that these codes come out six months before a rather critical election? An election that could show the ANC up for the bungling party that it is. It's common cause that the black middle class is wavering when it comes to casting their vote in favour of the ANC. These BEE codes are designed to put black people first. But it's not all black people that are destined to benefit from them. The definition of black remains consistent, Africans, Coloureds and Indians. And as far as black business owners are concerned this definition remains.  Black employees are a different story, the EAP targets kick in and you'll clearly see that black upliftment is effectively limited to African people. It's possible that Coloureds might benefit in the Western Cape using regional EAP statistics but that's not guaranteed because many government departments use national statistics on a regional basis. This then puts Indians and Coloureds in rather a precarious position because their blackness will only contribute a handful of points in comparison with their African co-workers. And then there are ridiculous requirements for each element that defy the commonly understood principle that is contained in the BEE Strategy document which srequires that "BEE must be implemented within the context of sound principles." These codes are empowerment uber alles.

Why then should I involve the DA? Simple, the DA believes in BEE but follows a simple rule (page 16 of the DA Green Paper on    Economic Inclusion)

In terms of the rest of the scorecard, including the proposed changes to the scorecard for Broad-Based Black Economic     Empowerment     and the Codes of Good Practice that support it, we will continue to apply our simple test: does a proposed measurement serve to broaden opportunities, or will it enrich a connected few.

It doesn't take much to show that the new codes focus entirely on ownership and place this far above any of the other elements. In fact it's likely that is this is designed to appeal to a small class of black entrepreneurs who are critically aware that other companies will never be able to compete with them on an empowerment level. And just to ensure that they don't they've insisted on a scorecard that they are exempted from that will decrease the likelihood of those companies ever competing with them – certainly when it comes to state business. When you see it in this context you understand why it is so important for the likes of Zungu to insist on the PPPFA being scrapped. The PPPFA has this annoying requirement that if a primary bidder outsources more than 25% of the contract to another service provider then that service provider has to have an equal or better score than the primary bidder. This is a major problem for rent activities where you have a level one bidder fronting for a non-compliant bidder (actually it's a problem for both parties). Remove the PPPFA and you can front at will and charge a sizable margin and the state will pay.

Back to the DA.

I've shown that their core voting public in the Western Cape are under threat from these codes, similarly the Indians in KZN who only make up 11% of the EAP in that province are offered little comfort under the codes (if they are employed). Then you have the white population who the codes are directed at; they are going to have to bear the financial brunt of implementing them alone. I can't say with much certainty but I am quite sure that the DA enjoys a great deal of support amongst those people. They could turn their backs on them and go with the new codes, which would then make Agang a rather attractive option. Also there's a lot of money amongst the whiteys and the DA probably would need some of it.

Think of the political kudos that the DA could gain if they are able to interdict these codes from going any further. They are patently un-implementable and are destined to fail. I've just written a press release that remarks that it's almost ironic that the codes have come out at the same time as the etolls are being prepared for implementation. Both require buy-in and acceptance from the public. Both are very easy to render unworkable.

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Mining Charter and beneficiaries

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They've been gazetted - not that different to what they published last year

Rob must be in his element.  He must be sooooooo proud of himself.  There'll be lot written about this document.  It's rather like the Group Areas Act - impossible to implement and harder to police.  

Here are a few thoughts.

1. They didn't listen to any of the comments that suggested that these are no good
2. Empowerment is a white thing only.  If you are a 100% black-owned company turning over less then R50m the you are absolved from any upliftment/empowerment.  In fact I think these are the companies that skilled white people should go and work for.  
3. Indians and Coloureds as employees are now completely marginalised.  This highlights the fact that the ANC is really only for Africans.  You're OK if you own your own business - but as an employee you make little contributions to EE or skills development scores.
4. There is no QSE code
5. It comes into effect in October next year
6. Those charities etc who derive contributions under SED can expect these to dry up within a year of this code coming into effect.  The five points that they offer will most likely not put a company into contention of becoming a level 8 contributor (40 points).  Don't forget - this is the caring ANC government who is now institutionalising a form of genocide.  Vote for them at your peril
7. If these codes make it past the gazetting phase - there is a strong enough suggestion that the public consultation process was ignored completely and hence these are unprecedural then I give BEE as a policy a maximum of three years to live.  Once that's gone there's no hope in reviving it, unless of course you resort to Mugabeist tactics.

That's probably the most positive that I can be about these.  If they are going to be challenged and there are many who should challenge them then do it before the elections.  You'll score many political points.

Here they are.  Do you think Rob hates being white?

 

Zoomer - Be a good citizen and buy an e-tag (and they're probably serious)

President Jacob Zuma's executive has called on the people of Gauteng to abide by the law and show good citizenship by registering for e-tags and paying for use of the world class roads.

via mg.co.za

Good citizenship must exclude corrupt activities, robbing the tax player to pay for Nkandla, failing to lead, being useless.

If that's the case then I am an exemplary citizen.

Don't forget folks, a vote against the ANC is a good vote.

Time for the carpetbaggers to emerge

As can be expected there are now a plethora of experts offering conferences and seminars and, and, and.  I've decided I'll do that too.  There is enough evidence on this blog to demonstrate that I know what I'm talking about, something that the DTI will definitely differ on.  I suspect that I know more about the practical and intellectual aspects of BEE than the DTI (mind you so does Keith Levenstein - so that's not much of a boast).

My presentation is not going to focus on the rights and wrongs and the merits and demerits etc.  It's going to focus on what this reality is, how real it is and the pitfalls it presents.  It'll show you the complexities of the calculations and the potential costs associated with each element.  I'll strongly emphasise the overwhelming burden of proof required whilst identifying those aspects that have no legal or constitutional backing.

You're not going to get the lecture on why BEE exists and why it's the right thing to do - that is now a moot point.  

Whilst this post comes across as flippant it's a dead serious offer.  I won't do it for free but I guarantee that you'll get a far more realistic perspective from me than anybody else.

It would be wrong not to post this image

The DA rather humuorously told IOL News 

Maimane, who is also the DA’s premier candidate in Gauteng, said it was difficult to see why the ANC was so upset.

“This message is 100 percent accurate. E-tolls were conceived under the watch of an ANC minister, supported by an ANC executive in Gauteng, passed into law by an ANC majority parliament, and signed, sealed and delivered by an ANC president. So what’s the ANC’s problem with the billboard? Is the ANC ashamed of e-tolls all of a sudden?” he asked.

I just hope this wasn't too early in the campaign trail.

 

Yes that was me on 702

Pissed Nomonde off - good she needs to hear certain realities.  My argument is that BEE will not survive these codes.  They are not implementable.  Her counter argument is that government is the biggest purchaser in the economy and they issue licences and hence people will comply because of that.  There is little merit to that argument.  Not every company does business with the government but they do do business with the private sector.  It is the private sector that has and will continue ensuring the scorecard activity continues.  If it's too hard to comply with the scorecard they'll eventually stop doing so - which means that most companies within a certain vertical are now non-compliant.  The corporates will need to continue buying from these businesses and so will not consider scorecards because there is no point.

What will happen though is that black business that now are elevated to a level 1 or 2 will happily become agents for those companies that cannot get BEE scores (read fronting).  They'll do business with the government and life will continue.  There'll a very small number of companies that comply and the rest of us won't bother.

Government alone cannot drive the change.  This is what Namibia is going to discover with NEEEF.  If they decline licenses etc because of BEE then there will be job losses.  Watch next year with the mining charter.  The ANC is going to be pushed into a corner with one of two choices - cancel mining licences for non-compliance which will result in dis-investment, job losses and a significant drop in tax revenue; or extend the period for companies to comply.  In both cases they will have lost a lot of face - the former is more dire, because it has an impact on votes and social unrest.  The latter shows that don't mean what they say anyway.

I will be proved right and it's not going to be the most pleasant journey - but the fact of the matter is that if you are incapable of running a country give it to someone who will.

 

 

 

Incentivisation using a sledgehammer

The new codes and scorecard, unveiled at the summit, aim to incentivise black ownership more strongly by penalising companies that fail on the ownership element of the scorecard. The formula to measure ownership has also been changed to ensure that benefits flow to black shareholders and that they attain net value as soon as possible.

Another application of the old "the beating will only stop when the people are happy".  

This is the deathknell for black economic empowerment.  Hang in there people - you've only got three more years to go.