Archive for September, 2010

In my opinion Broad-based Black Economic Empowerment is the best economic growth policy that any country or economist has ever designed. We need to grow the economy AND redress the wrongs of the past.

Like any growing economy we have a very poor sector – in our case the income differential is larger than most other countries. We have some very wealthy people, and some who are poverty stricken. We have people who want to go into business, but lack the knowledge, life skills and capital to start and run a business. We have a severe skills shortage. I have repeatedly said that we don’t have as much an unemployment problem as an unemployable one. We have other economic, social and political issues to solve.

B-BBEE was designed to address all these issues.

Like it or not when one refers to the poverty stricken, squatters, we are in the main referring to black people. When we see a big income differential the lowest paid are black South Africans. The previous government, in the past specifically targeted black people, thereby exacerbating the situation. To call a policy broad-based black economic empowerment, when it specifically is aimed to address the problems I have highlighted in the previous paragraph is simply stating the truth.

The DA has a policy called broad-based economic empowerment that has similarities with B-BBEE. They choose to ignore the word “black”, probably to satisfy their voter base.

The best part of B-BBEE is the approach used as an economic policy: The designers/economists decided to identify those many aspects of the economy and society that need remedial action. They called those aspects “elements”, and identified 7 elements. Within those 7 elements they decided to work out an objective way of measuring how well the policy is working. They created the concept of a scorecard. Without an objective measurement, it is impossible to state clearly how this is affecting the economy. We cannot use subjective measurements – it has be be based on empirical evidence. A good analogy is a rugby and soccer match that has a winner when the winning team scores more goals or points. In rugby it is possible to score more tries and still lose the match. Spectators like to see tries scored, rather than penalties, but the team that wins, i.e is best is the one with the most points. The scorecard works on the same basis.

The scorecard concept of B-BBEE was a mark of genius.

Better was to come:

The scorecard alone does not explain why it is so good. The designers came up with an even better plan: In many other economies governments increase tax and uses that money for economic growth, education and training, offers tax incentives to growing business and helps the very poor with housing, water, health care etc. South Africa does this, but as an additional point, and instead of further raising taxes, which are not very high compared to Europe, the designers of B-BBEE decided to ask corporate South Africa to contribute. The incentive offered is more government business: The companies that score highest on their B-BBEE scorecard will stand a small chance of getting more government business than those who don’t. This incentive should encourage businesses to comply, i.e. earn as many points as possible on the scorecard and achieve the objective of the act. It was an unusual step to ask corporate South Africa (not force) them to contribute towards B-BBEE. It had to be done that way, because some of the problems of our society like racial intolerance can better be addressed at work, than yet another law. You cannot force someone to like someone else – you have make the conditions conducive. Governments still do use the stick approach, and the tax approach. Recently carbon tax was implemented to try to make South Africans more aware of the damage that fuel guzzling cars do to the environment. In the case of the B-BBEE scorecard, one of the very clever elements was preferential procurement which has the affect of increasing a company’s own B-BEE score if it procures (purchases) from other companies that themselves have a good B-BBEE scorecard. Corporate SA has made good strides in encouraging their own suppliers to become complaint – i.e. follow a scorecard that has some very good intentions.

I have previously stated that the theory behind the B-BBEE codes deserves a Nobel Prize for economics. I like the clever way that they have developed the combination of an objective measure of broad-based principles, the scorecard, the approach to rewarding corporate SA fro doing what they should be doing anyway, the procurement approach to widening the net to include smaller businesses that are suppliers to the bigger businesses. They have thought it through very carefully by making compliance easier for smaller business, and even reward smaller business more than larger ones. I stand behind my call for the economists to be recognised for designing this excellent policy.

Earlier I mentioned that the whole policy is based on corporate SA standing a chance of getting more government business.

There is nothing wrong with the policy. What is terribly wrong is government, whose procurement is central to the entire success of this excellent policy, has chosen not to follow B-BBEE. That is why we hear of the tenderpreneurs, and so much unhappiness is generated over the issuing of mining licenses, and deals. We hear of people, even government complaining that B-BBEE has not been implemented properly. That is true, but it should not detract from the good policy that it is. We should rather condemn those who choose not to follow it or implement it.

We put “our money where our mouth is”. We have now asked the Public Protector, whose job is to safeguard the constitution and the laws and ensure government follow all laws, to investigate why government is choosing not to follow the B-BBEE act, and to issue a directive that they do so. See http://blog.econobee.co.za/2010/09/02/econobee-submits-complant-to-public-protector/