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Latest transformation laws underline the disjointed regulatory approach to transformation

In the past month, two publications in the Government Gazettes prompted a strong response from the agricultural sector. The amended Employment Equity Act allows the Minister of Employment and Labour to set employment equity targets in designated sectors for companies with more than 50 employees.

In the past month, two publications in the Government Gazettes prompted a strong response from the agricultural sector.

The amended Employment Equity Act allows the Minister of Employment and Labour to set employment equity targets in designated sectors for companies with more than 50 employees. The draft targets published last month aim for management positions in the agricultural sector to reflect the national or provincial demographic dynamics. Shortly afterwards, the Minister of Water and Sanitation published draft regulations setting out the procedural requirements to apply for a water use licence. Whilst most of the regulations are procedural in nature, the draft includes a table setting out requirements for 25% to 75% black ownership required by an entity depending on the number of hectares the entity wants to take, store or irrigate. Employment equity and water reform are both noble aims that are broadly supported by the industry but manner in which these regulations seek to go about it is arbitrary. The end does not always justify the means and the latest publications underscore a disjointed and arbitrary approach to transformation that undermines the legitimate efforts of companies within the sector.

When the Broad-Based Black Economic Empowerment Act was passed, it set down a blueprint for transformation in South Africa. It recognised that transformation must be achieved through a variety of actions, namely expanding black ownership in the economy, supporting black-owned businesses (supplier & enterprise development), providing employment to those previously denied the opportunity on management levels (employment equity) and incentivising companies to ‘do good’ by spending money on socio-economic and skills development. It also catered for sectors to develop their own transformation charters, aligned to the codes of good practice but which takes the unique characteristics of each economic sector into consideration. Despite this, the latest publications skew all focus towards ownership and employment equity to the detriment of the other relevant factors.

The punitive approach taken by these regulations are also at odds with BBBEE. BBBEE is designed to be incentive-driven and caters for companies to scale-up their transformation efforts over time, thereby earning a higher BBBEE score that can be used as a competitive advantage when accessing business opportunities. Whilst there are targets included in the BBBEE scorecard, these are aspirational with the points system providing recognition in proportion to an entity’s progress in meeting the targets. In sharp contrast, the latest publications couple ownership and employment equity targets to compliance, failing which an entity may be denied a water licence or an employment equity certificate. It is an ‘all or nothing’ approach which is out of sync with the design of BBBEE.

The latter point also poses some constitutional questions. Section 9 of our Constitution has the dual role of prohibiting unfair discrimination whilst simultaneously promoting affirmative action measures. This may seem like a strange combination, but it is necessary given structural impediments brought on by our chequered past. Section 9 does not, however, condone quotas and the courts have routinely rejected blunt instruments as disproportional. Only time will tell whether the latest gazettes fall into this category but the mismatch with BBBEE, our recognised measure for transformation, is already plain for all to see.

BBBEE is not perfect – far from it. In fact, is has widely been criticised for perpetuating inequality by creating a new class of elites. It is far too complicated and costly for small and medium sized enterprises to administer and some of the elements are impractical to implement in the agricultural context. However, the basic premise of a single, incentive-based system that measures companies proportionate to the impact that their transformation efforts are making, must remain the point of departure.

Should these draft regulations be finalised in their current form, then we are likely to see a wave of litigation. Funds that could be used for transformation, investment and job creation will inevitably be used to fund litigation. In the end, only the lawyers will benefit from these publications. This should not be the case. If our regulatory entities
are serious about transformation, then we should simplify the BBBEE codes, align it to the efforts already taking place within the industry and the goals set out in the Agricultural and Agri-processing Master Plan. Once we have a simple, broad-based and understandable framework to measure transformation, then the sector is likely to embrace it with open arms.

Relevant Agribook pages include “Black Economic Empowerment in Agriculture – AgriBEE“, “Irrigation” and “Water“.