Paul Janisch

This could be the most significant article written this year - trunceformaysheeyin be damned

The Daily Maverick is becoming the most valuable source of fine journalism in this country.  There is nothing that comes close to it.  By the way they are looking for financial support, if you are so inclined you can read more about this here.

Back to the Maverick.  Dirk de Vos wrote a fantastic article over the weekend.  I'm not a Marxist fan nor that familiar with his theories, but I do know that that inept commie bolshie bob is a massive officianado.  de Vos sets up his argument thus

In general, socialists continue to favour top-down direct interventions by the state preferably supported by “evidence based” research. When decision-making follows a process of identifying a problem with the objective of solving it by reviewing evidence and evaluating options, what we mostly get instead is some predetermined solution with evidence selected to favour the pre-selected solution. That type of policy making process is faulty because we cannot know the full ambit of what the problem is all about or that a whole number of factors will change once the policy is known. Goodhart’s Law shows the dynamics at play: Individuals who are aware of a system of rewards and punishments will optimise their actions within this system to achieve their own best outcome.

In other words policy makers come up with a solution to a problem without spending much time figuring out whether they actually know how to solve that problem. de Vos turns his attention to black economic empowerment and its raison d'etre

A good example of a failing policy is Broad-Based Black Empowerment (BEE) legislation and its regulations. The problem of lack of participation of black people in the formal economy and racial inequality is the problem to solve.

And in one sentence he sums up the fuck up that is best described as bob's folly

What we get is a a complex scheme of BEE regulation and arcane rules.

 He could stop there, the points is made, but he's far too an analytical journalist.

The only interesting thing about BEE regulation is about they reveal about what the drafters of the rules think private firms work. Well, they don’t work in the way the BEE codes suggest they do. They work in all sorts of different ways. Still, the BEE regulations provide a system of rewards and punishments. They are also thoroughly gamed: they get manipulated by a range of actors from failing white-owned companies, specialist BEE advisers (I'm one you know - in the business of making white people look black) , funders, crony capitalists and those with a talent for manipulating state procurement budgets.

I think he must have been reading this blog.   All this bullshit about voting rights and board meetings and the like - these are done by large companies.  Since when does the average smallish to large business actually sit down and conduct a board meeting?   bolshie bob obviously knows the answer.  I once heard that idiot being interviewed on the radio and telling all those who care to hear his deluded voice that he will insist that CEOs start getting involved in the operations of small black businesses.  Huh? - what would a CEO or even a high end employee be able to tell a small business about running their business.  It was Anglo, in their submission of comments on the revised codes who asked the very pertinent question.  What do we know about running a supplier's business? We are miners - we mine shit and then send it off.  But we could start working on companies upstream - we could advise them on the best ways to manage the raw materials we produce.  No! says bolshie bob.  It's all about suppliers. What fucking drivel.  Back to de Vos

Sadly, the response to the unsatisfactory outcome is to swap out some of the original rules, sub-rules and sub-sub rules with a whole raft of new rules that are equally misguided and arguably worse because they are combined with additional rules addressing issues of enforcement.

And so we bring in the awesome awdoz and SANAS.  SANAS is so concerned about process and paperwork that if has failed to take into account that all companies are doing is producing documentation to support stuff.  The actual benefit that is being derived is not measured.  de Vos absolutely hits it here.

Black empowerment won’t be advanced by better enforcement of BEE regulations. The whole scheme of BEE is wrong-headed.

And he correctly concludes with

Of course, the original problem, namely the exclusion of the black majority and inequality has not gone away and, in some respects, the original problem has got worse.

I can only hope that Cyril is reading this.  I have lamented often on this blog as to why have they made the codes so difficult to understand and even harder to measure.  I think I know one of the underlying reasons and this has to do with lobby groups like the broke black business council - who are now returning to BUSA (apparently Cyril wants business to speak with one voice).  I suspect that these lobby groups are attempting to use apartheid-style policy making where you make a certain class of people adhere to "arcane" rules and exempt others - thereby making it easier for that exempt class to gain access to the lucrative government business (a broke government I need to stress).  It's all in the name of trunceformaysheeyin.  

A completely unsubstantiated BBC rumour

They say that without hearsay no rumour is worth spreading.  I was informed by a source that was informed by another source - the latter being directly involved in the process, that the comments on minister davies amendments have been and will be evaluated by a team that includes the BBC.  Not your famous public broadcaster - we are referring to the reportedly insolvent black business council.  

This is a very interesting, if not alarming, fact and if true makes things a lot clearer.  My source tells me that it's the council members who are pushing for the narrow based promotion.  Why?  Well it's about government business.  I get the impression from the BBC's TV channel which is really just a 45 minute awesome awdoz presentation about fronting and how government doesn't live by its own rules (as an aside, my source tells me that the awesome awdoz is not that awesome and is patently not-up-to-the-task).  

For an insolvent organisation that courts controversy and dubious presidents it certainly punches way above its weight.  This shouldn't surprise any of us.  But what we should be concerned about is their presence on committees that have a direct bearing on the future of our country. If this is true then are they the only organisation that is not related to the DTI or government sitting on this evaluation committee.  More importantly - do they have a legal mandate to sit on this committee.

This will be useful information to get to the bottom of should there be any legal challenges in future.

 

Fair, equitable, cost effective and competitive. The Lord gives and the DTI takes away

Or something along those lines. I love how so many of our politicians including Mmusi are pastors. Even Manyi preaches his brand of racism at some church somewhere. But that's not the point of this post. Rob Davies really pushed the boat out when he tried to justify his little paragraph about limiting the shape of ownership in South Africa. Initially he attempted to smooth the waters (another biblical reference) by saying that it was not retrospective. Alas his calming words did nothing to feed the 5000 frenzy (oops, another biblical reference) of putting BEE deals on hold. He has withdrawn that little paragraph and so we wait. We know that the influential and very government-focussed Black Business Council is pushing for narrow-based ownership because their members are best prepared for it. It doesn't take the wisdom of Solomon (is that another!!!) to figure out why this works. You can sell 51% of your company to a black investor for 30 pieces of silver (my recollection of Judas' commission for Jesus' betrayal is a little foggy) but there are very few black investors with the cash or desire to pay for shares. You could do some sort of vendor financing deal but then you won't be recognised as being 51% black owned because the shares need to be paid off. So it's free shares all round - and a controlling interest too!

What happens in a state procurement scenario? I've written already that these codes are not about private sector procurement (courtesy of Loane Sharp). These codes are designed to give black owned businesses a 10 to 20 point advantage over anyone else when it comes to state tenders. It's as really simple concept. You create a scorecard that is both too expensive and operationally impossible to implement, you add in negative marking, raise the entry level to 40 points and throw in a lot of corporate apathy which means that these codes will never be challenged. Even those companies with the best intentions will never get to any competitive score. You waltz in there with your level one and you can charge 11-25% more. Take a look at the table below.

BEE level	80/20	90/10
1	20	10
2	18	9
3	16	8
4	12	5
5	8	4
6	6	3
7	4	2
8	2	1
Non-compliant	0	0

- See more at: http://bbbee.typepad.com/paul_janisch/2011/06/the-pppfa-regulations.html#sthash.Z1pKyU23.dpuf

But wait there is a failsafe system built into this. If you are 51-100% black owned then you HAVE TO IMPLEMENT BEE when you go over R50m. Like hell. Do you really think that any black business worth its salt is going to bother responding to tenders with companies that turn over more than R50m. I wouldn't.

The ultimate message here is that black owned companies are never going to bother with BEE scorecards and other nation-building mundane activities.

This is where section 217 of the constitution comes into play. Id est section 217 (1)

"(1) When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost effective.

The highlighted words are my emphasis. Promoting people on the basis of race whist forcing those that need to compete with them to take responsibility for all empowerment activities, knowing full well that they cannot compete is not fair. When black owned businesses clean up in state tendering unfairly and inequitably there will be a court challenge. All we have to do is wait for the challenge because it will come.

Related articles

Something very sinister is happening here

Why new BEE codes will pull the rug from under business - it's not just the BEE codes, it's everything

May the 1st approaches and Rob's not ready

Treasury, PPPFA and reforms

Craig Terblanche forwarded an interview with Kenneth Brown, National Treasury's chief procurement officer who been given the responsibility of overseeing the design and implementation of "rigorous procurement reforms" that Pravin wishes to implement. These reforms intend to improve infrastructure project management, strengthen service delivery, eliminate waste and root out corruption. The priority being to improve efficiency and visibility across the value-chain so as to guarantee value for money and a reduction in waste. (most of this has been cut and pasted directly from the Engineering News article).

Part of this process is to take a look at the PPPFA

A technical committee has been established to assess all aspects of the Preferential Procurement Policy Framework Act (PPPFA) to deal with some of the objections that have emerged from certain interest groups. "By the end of June, we should have a sense on where we are headed with the PPPFA and whether amendments are needed."

The "certain interest groups" are in all probability the Black Business Cabal Council. I wrote about this last week. In the post I quoted something from BDLive where "BBC CEO Xolani Qubeka said. The act in its current form was "antitransformation". His criticism is based primarily on the 90:10 (price to socioeconomic ratio) gauge used for the adjudication of tenders."

The Engineering News article refers back to section 217 of the constitution

Part of the agenda involves a process of legislative reform, guided by Section 217 of the Constitution, which stipulates that public entities contract for goods or services in a way that is "fair, equitable, transparent, competitive and cost-effective", while leaving room for "preference" in the allocation of contracts, as well as "protection or advancement" for those "disadvantaged by unfair discrimination".

I cannot see how changing the PPPFA rules are going to provide the necessary reforms that are going to talk section 217. In fact the BBC have no time for section 217. What they are advocating is the removal of the PPPFA altogether to further their specific agenda – which is quite patently to get the state to hand over business on the basis of race and race alone. Besides the fact that this is neither fair, equitable, competitive or cost effective (it is very transparent) it opens up the door for rampant corruption and abuse. At least with the PPPFA you've got a few basic guidelines and processes that could prevent abuse. Imagine a scenario where a government department (SOE or the like) state that certain procurement can only come from black-owned businesses. You must understand that the BBC operates at the highest levels in government departments so they could influence what gets set-aside. This could be certain types of high-end items that the BBC's members have exclusivity over. They could collude and ensure that an inflated price is set for each bid (like the construction sector during the world cup). That government department will then pay that premium price that the BBC has engineered.

It is impossible for the BBC to get its way and for Treasury to ensure that it "guarantee value for money and a reduction in waste". I am slightly heartened by Ken's suggestion that by June they'll know what to do with the PPPFA and whether to amend it. I just hope that he is able to resist the extreme pressure that Zuma's buddies in the BBC are able to exert. I also think we could have a defensive constitutional challenge on any of these reforms. It'll probably be my responsibility to do this.

Related articles

Black Business Council may take govt to Concourt - (no they won't)

Who's going to end up paying for this - why we are of course

BBC contemplates marching to Treasury - good idea because you aren't going to get parking near their offices

DTI names more products affected by local-content regulations (PPPFA)

PPPFA in a Free (State) world

Who’s going to end up paying for this – why we are of course

Mal Ossie Gigaba has graced the hypertexted (and password protected) BDLive again. This time he was addressing the BMF.

Mr Gigaba briefed the forum about business opportunities arising from the development of the Durban-Free State-Gauteng logistics and industrial corridor, which is the second strategic integrated project (SIP) of the national infrastructure plan. It is the most important economic corridor in the country. He said changes to legislation, including a review of the Preferential Procurement Policy Framework Act, were vital to hastening the expansion of a black industrial class in South Africa.

The act has drawn sharp criticism from black business groups and even state agencies which believe the government's overwhelming bias towards price in evaluating tenders restricts the potential to develop new industries and supply chains. Programmes of sufficient scale, they said, were worth paying a premium for, because of the benefits they could bring to long-term economic development.

"We are persisting in our effort, working with other government departments, to seek a review of the act in order to be able to achieve the goal of faster and more radical empowerment," Mr Gigaba said.

His comments were welcomed by the Black Business Council (BBC), which has said it is impossible for black-owned companies to compete with large firms when it comes to doing business with the state.

Funding was a key concern, BBC CEO Xolani Qubeka said. The act in its current form was "antitransformation". His criticism is based primarily on the 90:10 (price to socioeconomic ratio) gauge used for the adjudication of tenders.

Mr Qubeka believes the act should be replaced by "set-asides" of 40% of the work for black firms. A normal tender process would determine a winner, and would ensure that high standards are adhered to.

And the keywords are shot around the room. Radical empowerment, antitransformation and set-asides. Radical Empowerment and set-asides are unfortunately blocked by the PPPFA. Hence it's a useless act (according to the VERY EXCLUSIVE Black Business Cabal). Strangely though there is some merit to what he says, I think the idea of the state paying a premium to create sustainable black businesses that pay taxes and employ people is a good idea. It's a pity that it's limited to only black business but that's an argument for the next millennium. But even the least jaded person knows that these best intentions will amount to nothing. The very connected (many of whom are prominent members of the BBC) are just going to get even richer through entitlement and the poor will, well remain just that. .

I need to understand this whole process. It is an election year, one that hopefully results in the ANC taking a complete pounding at the polls. Rhetoric like this is aimed at those disgruntled African people who can see the ANC for what it is and have drifted away from its rudderless boat. It's a nice promise – we'll change the law to make sure that you as a black (read African) person will win many state tenders and become rich. You won't even have to compete on price or capability, it will just land in your lap. In the case of set asides, it'll only be black people bidding on these which will limit the competition even more. Money for jam, hey Sandile.

BUT – the PPPFA just keeps getting in the way. Not only the PPPFA, it's also the PPPFA's gatekeeper Treasury that keeps on preventing these poor and disgruntled Zungs from walking in and grabbing their entitlement, which is state business. The PPPFA has to go. The BEE codes have already promoted black businesses to a level that no other company will ever be able to compete with. Why can't the PPPFA do the same. As an aside you'll see that all of this activity is directed at state procurement and not private. I am almost sure that the private sector has little regard for the BBC because they add little value to anything. Wealth for the Zungs can only be created on the coattails of the state – and with those relationships in place the Zungs can then become the middle agent for the private sector. Everybody wins. But the PPPFA won't allow this!. You see if you outsource more than 25% of the contract to another party they have to have a better or equal BEE score than yours. Let's say you are a 100% black owned company turning over R49,999,999.99 you are automatically a level one contributor. Where on earth are you going to find a white-owned company that can vaguely compete with that? The answer is nowhere. The new codes have made it impossible to get to a level 7 let alone anything else. No – that PPPFA has to go!!!!

And the other BUT – in order to get rid of the PPPFA you need to change section 217 of the Constitution (how many times have I written about this). You could do what Rob did with the new BEE codes, just gazette them even though they do not talk the BEE Act, the BEE strategy and by association, the Constitution. But there's a problem here – those irritating white businesses will notice what you're trying to do and go to the Constitutional Court and get your amended PPPFA thrown out (as I hope to do with the new BEE codes). So what we need to do is get to the source of the problem and remove it – the Constitution (which includes section 217). Perhaps we should start with section 217. Yes, but to get rid of or amend section 217 you must have a 2/3rds vote.

Everyone knows that the ANC does not enjoy that kind of majority. Even if they did get a 66% majority the party is so factional that they'd never get the support they need. Now you understand why Zuma is asking for a 90% majority. It's simple it allows for a 23% fallout on the vote and the ANC can still push it through. And they'll do this in the name of service delivery. Although I think that a lot of service delivery issues arose as a result of dodgy tenders anyway. But you must remember that the ANC owned the Independent news group (via OddBall Survey – more on this to come), the New Agenda (which is just useless), ANN7 (which is no longer as entertaining as it used to be) and the SABC. The latter is the most dangerous, like the Nats the ANC will only broadcast pro-ANC news. Pro-ANC news is a refutation of all anti-ANC allegations.

And this is what scares me. Are we aware of what is going on in parliament? Zuma has five years left – which means that the Zungs really need to up the ante when it comes to milking the state. And they will do just that . They'll either push it through like they did the Secrecy Bill or they'll do what Rob the Red did with the BEE codes. There is stuff going on around us and we need to keep a watchful eye out. If we don't they will bleed this country dry.

It all starts with a populist remark made at a BMF meeting.

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BBC didn't make the cut as a Prasa BEE partner

Prasa’s empowerment partner selection process came under attack last year from the Black Business Council. The umbrella body’s general secretary, Sandile Zungu, said allowing Prasa to choose BEE partners was "dangerous" and that it fed into "the stereotype that BEE is about handouts".

 Mr Zungu could not be reached for comment on Thursday night.

Neither could Black Business Council CEO Xolani Qubeka, who was a bidder in the BEE process but was not selected.

via www.bdlive.co.za

This is good news.  It does show that Prasa is apparently serious about other players.  We all know that Zungu is Zoomer's big buddy - does ignoring his pronouncements indicate a decline in Zuma's power?  I fucking hope so

Zoomer transcends and BEE is the consequence

Transcend sent out an email today saying (and no I'm not putting up a hyperlink to this –they are my competition)

It is rumoured that the Revised BBBEE Codes will be gazetted as soon as July 2013, yes that's right, next month. Now the Dti could always delay this and only release them toward the end of the year, but this is what we have heard, Having said this we will be planning public sessions for you to understand the impact of the revised BBBEE Codes...

And then Zoomer told parliament today that

the government planned a shake-up of its "black economic empowerment" policies aimed at redressing the imbalances of white-minority apartheid rule.

Are the two linked in anyway? The shake-up of the laws does not specifically mean the codes. But you have to love the reference to "white minority apartheid rule". This is the rhetoric of the incorruptible and competent ANC government for the next election. If you had any doubt as to where the Black Business Council's allegiances lie then look no further than Zungrabber's comment in a Stephen Grootes article from a few weeks ago.

The real reason the Black Business Council (BBC) exists is because its members are "economic apartheid fighters", says general secretary Sandile Zungu.

But what makes this little group of disgruntled whiners so unique is that they seem to have realised that the private sector sees them for the players they are and so they are only focusing on state business.

My fuck Zoomer – what a fantastic legacy you have already started preparing for yourself. The racial polarising of the country is probably the least of your conquests but one that is going to take the longest to repair.

BBC contemplates marching to Treasury – good idea because you aren’t going to get parking near their offices

BDLive carried this story this morning (and no I haven't subscribed and won't do so until they change their viewing rates). The Black Business Council (BBC) has long been upset with the PPPFA. With such ZumaLuminaries like Zungrabber on their board they are able to namedrop very effectively and force a meeting with Treasury to voice their concerns. They plan to march to Treasury in Pretoria "to express our serious issue with the Preferential Procurement Policy Framework Act (PPPFA) and the negative role of the National Treasury towards BEE". They want the PPPFA repealed altogether so that set asides can be used to allocate spend to certain types of black business. Something that Malusi Gigaba has insisted that he will allow. But the best thing here is that they are threatening to go to the Constitutional Court for the final word. However I don't think that Zungrabber and his lot will be willing to shell out cash for this case. I suspect they are going to browbeat and namedrop until Pravin relents. Let's say that they do go to the Constitutional Court and I was the advocate representing Treasury (I'm sure I could fake a university degree and forge my acceptance to the bar to do this), this is the argument I would use.

The BDLive article refers to section 217, a section of the constitution that I have blogged about often. Section 217 is where we find the need for the PPPFA, specifically section 217 (3)

National legislation must prescribe a framework within which the (allocation of preference points) may be implemented.

But – section 217(1) says this

217. (1) When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.

It identifies five principles of procurement that every company should implement; namely fair, equitable, transparent, competitive and cost-effective. Treasury argues that these five principles provide enough protection for those who claim they are marginalised. They further argue that the PPPFA provides preference points that take those same principles into account. Set-asides would compromise the fairness, competitive and cost-effective principles.

The BBC on the other hand are going to depend entirely on a piece of section 9 (2) of the Constitution

Equality includes the full and equal enjoyment of all rights and freedoms. 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.

They will argue that certain people are still unfairly disadvantaged and that the PPPFA does not go far enough. People like me would counter that by suggesting that the promotion of a class of person in state procurement favours them unfairly over other citizens. After all section 9 (3) says

(3) The state may not unfairly discriminate directly or indirectly against anyone on one or more grounds, including race, gender, sex, pregnancy, marital status, ethnic or social origin, colour, sexual orientation, age, disability, religion, conscience, belief, culture, language and birth.

But the BBC won't take that lying down. They'll say that section 36 (limitation of rights) allows the limitation of certain rights. This is where my constitutional knowledge becomes scratchy. I would imagine that the rights of certain people (read white or foreigners) could be limited "in terms of law of general application to the extent that the limitation is reasonable and justifiable in an open and democratic society".

Ultimately the final argument is going to revolve around section 9(5)

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

We'll argue that the discrimination proposed by the BBC is unfair and they'll argue it's fair. It is therefore vital that this issue does go to the Constitutional Court. But as I mentioned earlier in this post, I somehow doubt that it will get to the highest court in the land, the BBC and Malusi will no doubt namedrop and bamboozle Treasury into agreeing to this because the ANC needs to deliver something to the very pissed off black middle class. There will be consequences however.

1. The state will pay an unnecessary premium for goods supplied by black suppliers. This concern has been voiced by Treasury many times over the last ten years.
2. The taxpayer is going to have to foot the bill for this which is going to result in Treasury allocating funds for things like healthcare, security, basic services etc. to state procurement.
3. Those black suppliers who are now doing very well thank you very much from the state will never be competitive in the private sector that will be loath to pay a premium from companies that have little more to offer than the colour of their skin.
4. It will further divide the economy into black suppliers who look after the state and white suppliers (i.e. not black) who look after the private sector (and probably supply the black companies to sell to the state).
5. And the ANC will then claim that the private sector is white and racist and the reason why black South Africans are so poor.

All of this is probably of little concern to the BBC or ANC. Both live for the present and have little concern for the future. And the future does not look too rosy at all.

Is the BBC legitimate at all

A letter to the Business Times this weekend was quite enlightening. Written by Zanele Gasa who is a Prasa board member.  She dismisses Zungu completely (as she should - but it's better if it comes from a black person not me) with

"The BBC's spurious and attention-seeking claims are unfortunate and achieve nothing other than bringing the programme into disrepute."

Bang on the money here.   But perhaps the conclusion of the letter is the most relevant.  She write "Where was the BBC at these engagements?" The engagements refers to market engagements that Prasa convened prior to issue the rolling stock fleet renewal programme (RSFRP).

Hmmmm - perhaps this is an analogy of how the entitlement mentality might work.  Something like we don't want to work on anything we want you to give it to us.  A sentiment Nkadimeng might endorse.