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President Cyril Ramaphosa restated a key doctrine of the African National Congress this week (1 June) when he said in a newsletter, “Economic transformation and economic growth are intertwined. There cannot be one without the other.” This principle is presently being translated into action through new legislation and appointments. He then named 14 advisors to address ‘inadequate progress’ on black economic empowerment, and is soon expected to sign the Employment Equity Amendment Bill into law1.
Significance – Transformation
On 17 May, the National Council of Provinces accepted amendments to the Employment Equity Act 1998 that the National Assembly first passed last November. The changes would enable the Labor Minister to set numerical workforce targets for employers in order to promote the equitable representation of black people, women and people with disabilities. The amendments would also require the government to issue contracts only to firms that have been certified as compliant with this law. The bill is now before President Ramaphosa (See: Employment equity: South Africa takes one more step towards black empowerment).
Meanwhile, Ramaphosa has set up a new Broad-based Black Economic Empowerment (B-BBEE) Advisory Council including members from the Competition Commission, labor unions and the black business community. Their task will be to propose ways to improve representativeness in board and executive roles, create an equitable workforce, expand black skilled labor and increase the overall participation of black people in the economy.
The challenge before the president and the new B-BBEE council is weighty. A 2020 report by the B-BBEE Commission says 80% of the unemployed in Q4 2019 were black – and unemployment has since risen from 29% to 34.5%.2Increased black ownership of large companies has also not led to more representation in management or improved opportunities for black employees and suppliers. This is attributed to fronting (see below).3 For instance, construction, transport and property were the only assessed sectors where black ownership consistently rose from 2017 to 2019. However, these three sectors were also among the lowest performers in terms of board representation and preferential procurement during the same period. Further, the proportion of black people in executive roles among reporting entities fell to 39% in 2019 from 45% the previous year.4
Regulators are attempting to address this imbalance through other means. In June 2021, the Competition Commission initially demanded black economic empowerment before approving the acquisition of Burger King’s local unit by US-based ECP Africa Fund. It was the first competitive merger to be prohibited only on public interest grounds since the Competition Act was first enacted in 1999. The commission cited a new clause in the amended law that it must prioritize ‘the promotion of a greater spread of ownership, in particular. to increase the levels of ownership ‘by historically disadvantaged people (HDP) and workers. The deal was consequently blocked on grounds that HDPs would lose their 68.56% stake in Burger King SA, but it was later cleared after counterparties agreed to terms including the formation of an employee ownership scheme (See: South Africa demands black economic empowerment before Burger King acquisition).
Outlook – Growth
The legislative process for the Employment Equity Amendment Bill should be concluded before September this year. This is when current workforce equity plans set by employers themselves will elapse and the labor minister would be able to set new five-year targets in terms of the new law. On a broader note, low economic growth will continue to limit the impact of B-BEE policies. The IMF projects GDP growth will be under 2% in the medium term and per capita growth has been mostly negative since 2014. However, structural reforms involving state-owned enterprises will quicken the economy and thereby facilitate empowerment, but the political process is uncertain. The ruling African National Congress scheduled to hold its national conference in December and Ramaphosa eying re-election (See: South Africa seeks SOE reform as parliament probes airline sale).
1. Approved by the lower parliament last month
2. Major B-BBEE transaction analysis report (March 2020). B-BBEEE Commission.
3. Fronting is defined in the B-BBEE Act as a number of practices aimed at circumventing the law. These include creating a legal relationship with a black person for compliance, without granting the person the associated economic benefits.
4. National status and trends on B-BBEE (June 2020). B-BBEE.
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