Does the SOE version of BEE comply with the Constitution?

Both Eskom and South African Airways, State-Owned Entities, are on record as having a policy that favours Black-owned businesses in granting of contracts. Those contracts run into hundreds of millions of Rands value, and they are granted to businesses that are owned, according to Eskom, as to 50%+1 by Blacks. Not previously disadvantaged persons, as the South African public was led to believe to be the intention of the Black Empowerment policies, but Blacks. It appears that the State-Owned Entities view the requirement of the Constitution that all persons shall be treated equally, regardless of race, as not being applicable. In case they don’t recall the relevant provision, here is the preamble to the Constitution:

 

We, the people of South Africa,

Recognise the injustices of our past;

Honour those who suffered for justice and freedom in our land;

Respect those who have worked to build and develop our country; and

Believe that South Africa belongs to all who live in it, united in our diversity.

We therefore, through our freely elected representatives, adopt this Constitution as the supreme law of the Republic so as to-

Heal the divisions of the past and establish a society based on democratic values, social justice and fundamental human rights;

Lay the foundations for a democratic and open society in which government is based on the will of the people and every citizen is equally protected by law;

Improve the quality of life of all citizens and free the potential of each person; and

Build a united and democratic South Africa able to take its rightful place as a sovereign state in the family of nations.

 

The relevant sections are the following:

3. Equality.

(1) Everyone is equal before the law and has the right to equal protection and benefit of the law.

(2)    

(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.

*(4) No person may unfairly discriminate directly or indirectly against anyone on one or more grounds in terms of subsection (3). National legislation must be enacted to prevent or prohibit unfair discrimination.

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

 

217. Procurement.-(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 ( 1 ) which is equitable, transparent.

( 2 ) competitive and cost-effective.

( 2 ) Subsection ( 1 ) does not prevent the organs of state or institutions referred to in that subsection from implementing a procurement policy providing for-

 ( i ) categories of preference in the allocation of contracts; and

 ( ii ) the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination. j'(3) National legislation must prescribe a framework within which the policy referred to in subsection (3) must be implemented.

 

While there may be an argument that preference should be given in allocating contracts to members of the previously disadvantaged groups, it is clear that a policy of a SOE that ensures that large contracts at grossly inflated prices be given only to companies owned 50%+1 by Blacks is both unduly discriminatory against all other groups of previously disadvantaged, and also economic insanity.

The granting of large contracts to Black-owned companies that already have net assets in excess of R10 000 000 cannot by any stretch of the imagination be described as ‘leveling the playing field’, or ‘providing restitution to people who were disadvantaged by Apartheid’. That argument could apply to a contract valued at R100 000, where one could see it as a means of enabling a previously disadvantaged person to get a foot in the door, but when the recipient of this State largesse is a substantial business, that argument falls away, and the concession can only be seen as retribution against the Whites, or as a means of corruption, in which the favoured few are handed lucrative contracts at public expense. There is no shortage of examples of flagrant abuse of this good intention in SOEs like Eskom and SAA.

Even worse, the giving of huge benefits in relation to pricing is economically depraved. A pricing advantage of, say, 10% might be acceptable, if the beneficiary group were seen to be the ones intended under the Constitution, but a pricing advantage of up to 90% above the White or other non-Black competition is both economically and socially unsound. It is unsound in economic terms, because it disrupts severely the operation of the economy in promoting efficiency, ensuring that the least efficient supplier (not to mention the one with the best political connections) provides services to the Government in all its manifestations. It is well known that Governments do not rank high on the efficiency index, and this example of snouting exacerbates that. Under the BBEEE regulations, a price advantage of up to 90% is acceptable, even where the tender is fairly awarded under the law. That, of course, cannot be guaranteed in South Africa. The ANC Government is presently aiming to ensure that the greatest possible share of its R500 billion procurement is misspent under these provisions, implying that the cost of Government will increase in this aspect alone by R450 billion per year! That waste represents 34% of the annual Budget! It is not surprising that the GDP of the country is in negative growth territory. The rapid growth in the number of unemployed, now nearly 28% (probably over 50% of the work-able population), is a clear testament to the effect of this economic insanity. The policy does not seem to have created any substantial number of jobs amongst the poor, presumably those entitled to benefit from the purpose of the exception to the Constitutional right of equal treatment, regardless of race, while it has certainly contributed to the ability of the son of a goat-herder to purchase a palace in Dubai and of his (Indian) friends to reach the top of the list of wealthy persons in South Africa, after having started work as a shoe-seller at a flea market. Meanwhile, the taxpayer subsidises the unprofitable SOEs by transfers or guarantees in the hundreds of billions, while the State heads for insolvency, and the households, mines and industries subsidise the electricity monopoly via an electricity tariff that has increased 400% during the currency of the policy, and tens of thousands of jobs have been lost due to the very high cost of power.

These arguments, of course, ignore the equally disastrous effects of the State driving away thousands of well-wishing investors by imposing impossible conditions for the establishment of their businesses, by stealing huge shares in their business to hand to the connected few, and by demanding bribes to provide even the basic services, such as rail transport.

Any sane person wishing to invest funds in a country where they can expect fair treatment would do well to strike South Africa off their list of investment destinations to consider.