After a key Constitutional Court victory by Sakeliga in 2022, there is a clear opportunity to fight back against the grip that BEE has on the economy.

But it will require a concerted effort by small- and medium-sized minority-owned enterprises  in the coming years to get ahead of the curb and break the procurement chain which imposes the BEE score requirements on the broader business community.

This is crucial, since the DA no longer opposes BEE, having fully committed themselves to the ANC’s “transformation” agenda, and have pursued BEE preferential procurement in the provincial and local governments they control despite there being no legal mandate to do so.

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Sakeliga’s critical strike

In 2022, Sakeliga secured a landmark victory against Black Economic Empowerment (BEE) in the Constitutional Court. State entities were ordered to immediately stop using BEE pre-disqualification criteria in tenders, or risk judicial review and litigation for unlawful procurement practices.

This directive followed ruling against the Minister of Finance concerning the 2017 Preferential Procurement Policy Framework Act (PPPFA) Regulations. The Court found that former Finance Minister Pravin Gordhan exceeded his authority by imposing these regulations as if he had legislative powers.

The 2017 PPPFA regulations drastically altered procurement and BEE in South Africa. Before 2017, companies failing to meet BEE criteria faced penalties of 10% to 20%. However, the 2017 regulations escalated this to preemptive disqualification, barring companies from tendering based on BEE status, such as not being 100% black-owned. The Court has now deemed these pre-disqualification regulations invalid and unconstitutional.

State entities must now disregard the unlawful sections of the 2017 regulations in their procurement policies. Applying BEE pre-disqualification criteria to public tenders is both invalid and unconstitutional.

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Delayed effect

One might well ask then, why the effects of this have not been seen. The simple answer is that 21 years of BEE has led to the domination of the core economy by BEE partnerships.

As Piet le Roux of Sakeliga himself explains:

“The 'scorecard' system introduced by the B-BBEE Act cunningly ensured that a company's BEE points were based not only on itself, but also on the score of its service providers. The result was a toxic chain reaction, in which companies that wanted to obtain state business or that had political risk exposure were incentivized to shift some of the political pressure for BEE onto their suppliers, even though those suppliers themselves did not trade with the state.”

The result has been that the bulk of the core economy has already been captured, and so the companies who have stable access to long-term government service contracts are now almost entirely BEE.

In some cases, this has led to large near-monopolies taking over entire government departments - take Syntell, formerly Tellumat, formerly the military contractor Plessey. They effectively run the entirety of the traffic services for most of six provinces, and all but one of the metropolitan municipalities, after the ANC cut them a big deal in 2006. South Africa has since become one of the most congested and deadly road systems on earth.

As we all know, BEE is often a corrupt practice which companies use to secure stable relationships with the ruling party through its affiliates, effectively allowing the ANC to indirectly capture and parasitise the private sector, and for shrewd white businessmen to exploit ANC contacts for access to government contracts.

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The chink in the armour

The only way to get around these contractors is to proactively compete with them, and cut them out of the economic network. The key lies in the 2022 court case - according to judge Zondo, the government has a constitutional obligation to pursue the best value for money, but not to pursue BEE. Additionally, the Constitution mandates local governments to prioritise local over national or international suppliers, all else being equal.

This offers a great deal of leverage to local businesses who wish to act to cut out the corrupt national oligarchy, but it will be a lot of work.

But to be proactive, local non-BEE companies will need to chase down local government procurement tenders. This will cut off the oxygen of those companies who demand high BEE scores to do business, and opens new opportunities to minority-owned SMEs.

To do this in a pro-active and coordinated way is essential, but difficult. While racial discrimination against minorities is legal and encouraged, the reverse is deeply illegal. This means that founding an anti-BEE Chamber of Commerce will simply not work, and would be taken to the cleaners by the SAHRC.

However, using a private consultant as a go-between would allow local minority SMEs to connect and coordinate their services to apply for tenders at the local level, establishing a dynamic local supply chain to cut out corrupt national corporate giants.

But this is not all - naturally, there are sticky relationships between governments and their preferred business partners, and these will have to be challenged in the courts. However, it should not take more than a couple of court victories to win out, and a concerted, shared effort will likely benefit all parties.

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Threading the needle

Of course, one must still provide better services and products than one’s competitors. Companies like Syntell will of course take a very long time to winkle out, given that their business is rather complex, but most government procurement tenders are rather humdrum and can be filled by existing businesses.

But ultimately, taking back control of the local economies at the municipal and provincial level will give added life to struggling SMEs who are currently constrained by legacy oligarchies and anti-competitive strategies enabled by the Labour Relations Act.

Not only that, but its grows the economies where they are needed, and provide local communities access to meaningful economic growth.

Most importantly, it will develop a rival donor class that can pressure political parties, particularly the DA, to take more proactive steps in combating racial discrimination and cutting the cost of doing business.

It can be done, but it may take a while, even if we start now.

Best get to work.

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