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South Africa’s social development must come from the private sector

Andrew McGregor
By Andrew McGregor
Managing Director, Who Owns Whom

Andrew McGregor is the Managing Director of Who Owns Whom, an independent research organisation

Posted on Tuesday, 6 August 2019 18:02, updated on Wednesday, 7 August 2019 19:17

Despite some positive initiatives many of South Africa's state schools lack basic resources. REUTERS/Siphiwe Sibeko

South Africa's Black Economic Empowerment (BEE) policy was designed to redress the economic imbalance caused by apartheid. Launched in 2003, and having gone through several revisions, it still has a long way to go to bring dignity to all South Africans.

The policy is enacted via scorecards which record various categories of compliance with BEE regulations. To achieve maximum points for the enterprise development and social development components of the BEE generic scorecard, companies must spend 3% of profit after interest and tax on the former and 1% on the latter. Some of the charter scorecards require an even higher spend.

  • The combined profit after interest and tax of the 269 Johannesburg Stock Exchange (JSE)-listed companies that made a profit in their latest reporting period was R1.039trn ($73bn), which translates into a spend of R31bn on enterprise development and R10bn on social development.
  • To put this in context, the social development spend is more than twice that of Gauteng Province’s annual social development budget of R4.5bn.

According to social spend researcher Trialogue Publishing, the private sector has spent R153bn on social development over the past 21 years, with the biggest recipient being education.

This spend is driven by the BEE scorecard arising from the BEE Act of 2003 which was revised in 2013 and again in 2018. The BEE Commission, established in 2016 under the leadership of Zodwa Ntuli, revised the scorecard to achieve the original intentions of the Act and to abolish fronting. A consequence has been that some points scored under previous versions of the scorecard were no longer valid and of the 4,400 scorecards analysed by Who Owns Whom from 2016 to 2019, 52.43% of companies lost their level one status, 42.07% lost level two status and 31.66% lost level three status.

One impactful revision of the scorecard was combining the procurement and enterprise development components, and legislating that 1% of the enterprise development could be spent on generic enterprise development funding but the remaining 2% had to be invested in the company’s own qualifying suppliers. This spend should increase as companies try to improve their BEE score.

BEE and innovation

In many cases, BEE has been a spur to innovation. In the Who Owns Whom report on the Recycling of Waste and Scrap, Nampak, which is a founding member of The Glass Recycling Centre, purchases about 80,000 tonnes of recycled glass to be used in the glass manufacturing process from more than 4,000 small, medium and micro-enterprise (SMME) suppliers. These are waste pickers who recycle 90% of the recyclables collected from households, saving municipalities about R750m in landfill space annually. However, the hard reality is that waste and site pickers cannot secure dignified employment and are eking out a living in a harsh environment.

Waste and site pickers cannot secure dignified employment and are eking out a living in a harsh environment.

The Adopt-a-School initiative, started by President Cyril Ramaphosa when he was at Shanduka, and which he still chairs, has built six new schools and 826 new facilities at existing schools. While this is an extraordinary achievement, there are 25,000 state schools, according to the Who Owns Whom report on Primary and Secondary Education, many of which lack rudimentary facilities.

Afrika Tikkun, founded by the Lubner family, runs six centres in under-privileged areas which provide after-school support for more than 5,000 young people. Its “cradle to career” ethos nurtures children from pre-school through to tertiary education.

Prescribed assets are not the answer

Yet, instead of harnessing this goodwill, politicians are calling for the re-introduction of the apartheid relic prescribed assets in order to fix state failures. In essence this means forcing pension funds to invest in certain assets – not necessarily those that will benefit South Africa’s future pensioners.

The newly appointed minister of social development, Lindiwe Zulu, should commission an audit of what social services are being provided by the private sector and NGO initiatives, with the objective of:

  • coordinating complementary services;
  • assisting in the expansion of these services; and
  • identifying gaps.

Bottom line: While there is a history of private-sector cooperation with the apartheid state, these are different times and business and the state need to engage productively if we are going uplift the unacceptable levels of vulnerable people in our society.

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