BEE: look beyond regulation to be effective in supply chain

Black Economic Empowerment (BEE) is one of the most highly regulated aspects of the South African business landscape today. The most recent changes to the regulations have both large corporate businesses and smaller businesses returning to the scorecard drawing board. Louis Coetzee – General Manager of the Ecsponent Development Fund (part of JSE-listed African financial services company Ecsponent Limited) – told SmartProcurement that this has contributed to inhibiting economic growth, and the stunting of competitiveness in the industry.

BEE Counter-intuitive

Coetzee said that “instead of creating an enabling environment for large corporate businesses to jump start small enterprises’ economic activity, BEE has been counter-intuitive. The current structure often results in conflict between efficient procurement and the drivers of enterprise development and social responsibility in corporate South Africa. The underlying intent of broad-based empowerment is lost from sight.”

It was recently announced that the B-BBEE Commission would oversee new, and compulsory reporting requirements that include the submission of an annual compliance report for all JSE-listed companies, within 90 days of a company’s financial year-end. It is unclear at this time how non-compliance will be measured.

Compliance-based regulation

Coetzee added that this is an example of regulation that is compliance based, which removes the focus from the underlying intention of the social upliftment it wants to achieve. BEE has in many instances led to a strained relationship between corporates and their suppliers. If a business does not deal with Level 1, 2, or 3 suppliers, their own ratings will be prejudiced. The recent changes have forced the hand of many organisations, and as a result orders may have well been issued to vendors with the correct BEE credentials, but with limited ability to deliver.”

A combination of lack of funding and skills often results in the vendor failing to deliver, compromising corporate operations. In addition – in some instances – resellers are used to ensure compliance with the B-BBEE code, but this can cause margins to be inflated in order to provide for these resellers. This practice reduces the organisation’s (and ultimately the country’s) competitiveness. “This”, Coetzee says, “just adds to the frustrations of large businesses and the state – who carry the cost and efficiency burden”.

He added that “one of the biggest issues around BEE regulation is a distinct lack of infrastructure and regulatory cohesion supporting historically disadvantaged vendors. An example of this is the National Credit Act, which has effectively, and radically reduced the provision of credit to this sector. Access to capital and skills, combined with an understanding of the procurement dynamics, are key elements of supply chain success. These elements are co-dependent, and a vendor cannot be successful without support in each one.”

South African economy to be inclusive

Coetzee believes that while good governance is essential, the shortcomings of underlying BEE infrastructure in South Africa result in ongoing negative perceptions, when it comes to aspects such as skills, corruption, the racial divide, and a lack of true transformation.

He stated that “the South African economy has to be inclusive to survive. Large corporate businesses should be able to focus on their core strategies, while the BEE procurement cycle is supported by specialists who work with them to truly transform the market in the country. Education, community upliftment, and true empowerment will be the natural result of this, with all the stakeholders involved drawing benefit.”

Solution for B-BEE compliance standards

The Ecsponent Development Fund offers a comprehensive solution to assist businesses in achieving and maintaining B-BBEE compliance standards. In addition to ensuring more reliable delivery and driving socio-economic development, it also provides local enterprises with the skills transfer and skills development they need to fulfil their duties and deliverables, as preferred vendors.

Coetzee says that “the solution is about linking large corporate businesses and their vendors with an efficient funding and supply chain facility. Currently, there are financing operations in the market that provide financial assistance to vendors. There are also numerous operations that assist with tender applications, procurement negotiation and supply assurance. Ecsponent has combined all these elements. By taking a holistic approach in working with large corporate businesses and their preferred vendors, we have managed to achieve success in both controlling and uplifting. This allows corporate organisations to focus on their core business with complete peace of mind that Ecsponent ensures the delivery.”

He concluded that “the structure of the Ecsponent Development Fund creates a synergy across the supply-chain, fostering a more trusting environment of mutual benefit with goods delivered, compliance standards taken care of, and vendors being upskilled and empowered”.