Carol Paton | Need to connect more dots between BEE, corruption

The startling intervention in last week’s summit of the Black Business Council by Business Unity SA president Sipho Pityana did have some effect, but not nearly enough.

Pityana, who wrote to council president Sandile Zungu (in his personal capacity) accusing him and his organisation of complicity in the state capture project, wanted to make many in black business rethink their association and cast doubt on our odious political culture, in which the misdemeanours of the corrupt are quickly forgotten and they are greeted with warm hugs.

To that extent, his intervention may have been effective.

When President Cyril Ramaphosa later addressed guests at the council dinner he emphasised the need to examine the role business may have played in “collaborating, and in facilitating the theft of billions of rand from the public purse”.

Pityana’s letter to Zungu also raised the fate of previous council president Danisa Baloyi, who last year was named in a forensic report as having stolen a R5m donation made by the Airports Company SA.

That probe had gone silent and Baloyi even popped up as a member of the business delegation to China on Ramaphosa’s state visit, as if no shadow had ever been cast on her reputation.

It now seems, from the council, that the pursuit of Baloyi and the stolen millions has been kicked back into gear.

But Pityana’s letter did more than point out some old misdemeanours and ill-considered alliances.

As the council was revived in 2012 – when it broke away from Business Unity SA – with an agenda to lobby quite specifically for opportunities for black business in state procurement, Pityana put his finger on one of the things that everyone from the ANC to the DA finds difficult to talk about: the relationship between BEE, state procurement and corruption.

The implicit idea of the breakaway was that the interests of those black business people, particularly those who had not yet made it big in getting expensive equity stakes in JSE companies, would have their interests better advanced through a sectarian approach. They were right.

The council and associated structures – such as the Progressive Professionals Forum and the Black Management Forum – gained pride of place during the Jacob Zuma presidency.

Though relatively small potato, they went with Zuma on numerous state visits, connecting them to foreign investors and government officials.

Hefty donations from state-owned enterprises rolled in.

As the Guptas could later attest, enrichment through state procurement can be very lucrative, provided you are ambitious and corrupt enough.

The relationship between BEE, and cronyism and corruption – admittedly never that far away – deepened with the shift to state procurement.

But just as BEE equity deals are a cost for shareholders, empowerment via state procurement has a cost.

As former finance minister Trevor Manuel said in his testimony before the state capture inquiry, BEE “adds a premium and someone has to pay”.

For much of the Zuma presidency, the Treasury held the line on preferential procurement for black-owned and small businesses, refusing to budge from the system, which allowed only 20% of a tender of R1m or less to be weighted by BEE criteria and 10% for bigger amounts.

This approach placed limits on the premium to be paid.

By 2016, though, it was forced to relent, agreeing to set aside 30% of large tenders for small or black subcontractors.

The BEE premium means the state has less available to meet the country’s social needs.

Arguably, if the payoff is economic transformation this could be deemed a social cost worth paying.

But the problems with BEE and procurement run deeper as they compromise economic competitiveness and systemically breed corruption.

Said Manuel: “I know we need to retain BEE to ensure we have a more inclusive economy.

“But some of these things have lent themselves to abuse.

“I hope we can have a nationwide discussion about how we can remedy [them].”

Such a possibility seems rather remote.

In the same week the ANC held an engagement with “organised bodies representing black professionals” and agreed that preferential procurement was not “advancing transformation as it should”.

The law “is not fair, equitable and competitive as it unfairly discriminates against black companies as it puts more emphasis only on cost, and does not take into account the total social and economic benefit”, was the conclusion.

So, in a more fundamental sense Pityana’s letter is not about to set the debate on BEE raging.

While in part a matter of bad timing – just before an election – the fact is that BEE and its social consequences are not topics with which the ANC will ever easily engage.