The EU Chamber of Commerce & Industry in Southern Africa says the tricky job of interpreting broad-based black economic empowerment (BBBEE) policies and the costs of implementing them are among the top challenges for European investors in SA. It says members report a growing emphasis on ownership over other aspects of policy, such as supply chain or skills development, and this is "compromising existing operations".
"An increasing number of tenders by state-owned enterprises (SOEs) in SA include a requirement of 51% black ownership for their suppliers," says Stefan Sakoschek, the chamber’s national executive director. He says the chamber has been told that "such a discretionary measure lacks sound legal basis". That’s because it requires pre-approval from the department of trade & industry (DTI), based on studies of skills levels and other market dynamics.
This is not happening, says Sakoschek. This means European companies are faced with "surprising new rules" in relation to "crucial government tender procedures".
EU companies account for more than 500,000 jobs, direct and indirect, in SA. The 27-member EU bloc is SA’s largest trading partner, accounting for nearly 80% of foreign direct investment and more than 20% of SA’s total trade, or about R580bn/year.
The DTI, which administers BBBEE, appears embarrassed by the EU chamber’s claims. It says every organ of state and public entity must apply any relevant code of good practice issued in terms of the legislation.
Asked if it is legal for SOEs to ask foreign — or any other — suppliers for 51% of their companies, DTI spokesman Sidwell Medupe says the minister may, after consultation with the relevant state entity, exempt it from a BBBEE requirement, "or allow for deviation". Any such notice must then be published in The Government Gazette. The EU chamber says this does not always happen.
In late 2015, SA Airways put pressure on BidAir Services — a division of the Bidvest group, which was already 63.42% black-owned — to transfer a 30% portion of a contract to an SAA-nominated black business. At the time, Bidvest CEO Brian Joffe said there was a lot of uncertainty about BBBEE policy. "We were asked by SAA — more than asked — to give 30% of equity to previously disadvantaged people. This is not government policy," Joffe said.
Webber Wentzel concurs a 51% black ownership requirement for suppliers of SOEs lacks a legal basis. The firm’s Achmat Toefy says since April 1 2017, SOEs "are explicitly authorised to put in place a BBBEE minimum-rating level as a prequalification criterion in tender documents". But this does not equate to a minimum black ownership level. "To place a minimum level of black ownership, as alleged, is not in accordance with the legal framework of (BBBEE)," he says. He says BBBEE codes of good practice are not directly relevant to the evaluation of tenders for government contracts. However, the Preferential Procurement Policy Framework Act (PPPFA) and recent regulations are.
Toefy says if an SOE seeks to limit competition to 51% black-owned suppliers, it will need an exemption from the PPPFA issued by the finance minister on the basis of public interest. If an exemption is granted, it is difficult to say when the decision to limit competition based on the BBBEE ownership might be justified — if ever. "It will be important to also understand the basis upon which the minister granted the exemption," he says.
New PPPFA regulations allow organs of state to require bidders to subcontract at least 30% of the value of the contract to exempted micro enterprises (EMEs). Any company with annual turnover of under R10m qualifies as an EME.
"There are further subcategories of EMEs to which the subcontracts may be granted by successful bidders — those that are 51%-owned by military veterans or black youth or black women," Toefy says.
"This is a mechanism through which the new regulations allow for the ‘setting aside’ of 30% of contract value to EMEs or categories of EMEs," he says. "If the evaluation criteria or process is not in accordance with the law, a high court review of the tender process is likely to be required."
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