Institutionalising Equality

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To engage its disenfranchised workers, South Africa is pursuing a programme of affirmative action.

Next month, according to the South African National Accreditation System (SANAS), the criteria set out in the standardised black economic empowerment (BEE) rating is expected to be released.

SANAS, which was tasked by the Department of Trade and Industry in 2004 to come up with an uniform evaluation and measurement standard for BEE verification agencies, has indicated that agencies will be able to apply for accreditation once the government's new codes of good practice are published in August.

It appears that SANAS will be the government's chosen vehicle for making sure that agencies are applying strict standards to the burgeoning empowerment rating industry.

While the government has ploughed ahead with its affirmative action programme many companies have complained that BEE poses many bureaucratic obstacles, with many left unsure which codes they should follow. The Broad Black Economic Empowerment Act is also causing concern as it rates companies on the BEE scorecard. Then there are the industry charters, which are sector-specific agreements between government and business. This can be extremely complicated, especially when a company straddles two charters, which is not uncommon in an economy that has traditionally been dominated by a few conglomerates. Most companies are following the codes of good practice as a guideline for what their future obligation to BEE will be, but the codes have yet to be passed into legislation.

Many are concerned that the BEE will complicate business operations, even Trade and Industry Minister Mandisi Mpahlwa was recently quoted as saying that BEE needed to be simplified.

BEE only applies to companies that bid for government tenders. Companies that fall into this category generally aim for a score of 65%, at which point they are deemed by the Department of Trade and Industry to be a "good contributor to broad-based economic empowerment".

Many companies have been faced with having to find black partners in order to get their score up and this can lead to difficulties, particularly with regard to finding partners with either the right skills set or sufficient capital to invest. The other challenge with forcing companies to find partners has been the issue of "fronting", where someone is paid to sit on the board to bolster a firm's BEE credentials.

One of the biggest problems, from the government's perspective at least, remains how to keep track of the progress being made by the private sector. There are only nine significant ratings agencies, with 40 more trying to achieve accreditation. Chia-Chao Wu, managing director of Empowerdex, South Africa's foremost empowerment agency, told OBG that he doubts whether the 40 prospective new agencies will meet the requirements of the strict new accreditation process.

"We don't even believe all of the current 10 will meet the current criteria, some of them are companies of just four or five people," Wu said.

All the industries in the economy will either have their own charter, or will have to comply with the BEE codes as prescribed by law.

The government ideally wants the large accountancy and auditing firms to get involved in the empowerment game. It is hoped that this will bring more professionalism and a greater sense of legitimacy to the industry.

Victor Sekese, CEO of the South African accounting and auditing firm SizweNtsaluba, told OBG that auditors are best placed to enter the empowerment market and that empowerment rating agencies will simply add another layer of bureaucracy to an already cluttered process.

"My opinion is that the auditing firms have enough credibility where they are already able to effectively rate companies," he said. "As opposed to some organisations who don't conform to any professional standards, adding an extra administrative burden on companies. We already have enough bureaucracy governing the auditing profession because we are subject to scrutiny, which ensures we comply with certain standards. So let's not re-invent other professional bodies to govern the verification process."

No matter who ends up taking the lead, most observers are in little doubt that setting down solid guidelines for industry will be a step in the right direction for affirmative action and the wider economy in South Africa.

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