“Box ticking” affirmative procurement does more harm than good

Over the last 15 years or so, the Government has tried various means to spread South Africa’s wealth more equitably among its people. Good progress appears to have been made, however, there is a growing move towards a complex political box-ticking ‘compliance’ approach to affirmative procurement and associated policies which may, in the long run, do more harm than good, says Dr. Douglas Boateng, SmartProcurement editorial board member and CEO of niche business advisory organisation PanAvest International.

The Government’s existing polices have quite rightly included aspects such as affirmative procurement, Black Economic Empowerment (BEE) and Broad Based BEE (BBBEE). With Government as the biggest procurer of goods and services, this legislation is a moral attempt by decision-makers to leverage billions of Rands towards socio-economic transformation. Like all emerging economies, Government sees this as a huge opportunity in:

1.Spreading wealth across the political divide.
2.Creating long-term jobs.
3.Fostering entrepreneurship.
4.Transferring useful skills.
5.Developing black enterprises .
6.Getting people to work, irrespective of colour.
7.Sustaining and growing existing enterprises.
8.Developing new businesses across the socio-economic divide.
9.Sustainably and competitively growing the economy.

Despite the progress that has been made, Boateng is concerned that a politically driven, ‘box-ticking’ compliance approach to affirmative procurement and associated policies may in the long run do more harm than good.

“Within developing economies, the marriage between politics and business always causes much consternation. Add to this the reality that our emerging democratic institutions and state-owned enterprises tend to be fraught with blurry governance issues. While attempts to use public sector spend to transform society is a must, the growing move towards the complex ‘compliance’ approach to public sector procurement can undoubtedly create problems which, if not managed, can lead to consequences never before envisaged,” he says.

 “The unfolding supply chain chaos seems to have already created an invisible and byzantine barrier between:

1.Existing and emerging services providers (black enterprises , SMMEs and others).
2.The Government and associated enterprises.

Confusion among emerging and existing service providers

“On one side is the increasing alienation of emerging black suppliers who sometimes, through no fault of their own, are marginalised and cannot compete with established service providers. In a frenetic attempt to survive, emerging black suppliers are resorting to sometimes incredible means to position themselves for potential deals.

“Along with these organisations are the existing niche and small white service providers who are feeling the pinch and getting frustrated with complex political box ticking, which tends to penalise them.

“The situation has become so desperate that some of the affected service providers have turned to unethical means to either hang on to existing contracts or pitch for new ones. Already there are a lot of casualties, especially among emerging black groups – the very same groups that these policies are supposed to foster and grow.”

The Government and associated enterprises

“On the other side we find the Government and associated enterprises which, in an attempt to satisfy this complex political box-ticking ‘compliance’ approach, are becoming more and more compromised in their ability to deliver satisfactory services. Of concern are the increasing numbers of contracts awarded to certified BBBEE companies which are paid in advance, but miserably fail to deliver. This results in anger and frustration from the community. We are now witnessing demonstrations in many informal settlements owed to poor service delivery, unfulfilled yet paid-for promises in terms of, for example, everything from housing contracts through to the maintenance of energy plants.

A precarious saga unfolds

“Perhaps the most worrying aspects of these unfortunate events include:

1.The increasing marginalisation of competent existing and emerging black companies caught in this complex web.
2.The short-sighted and misleading notion of free entitlement to stakes in companies by virtue of colour and political connections, and not necessarily by an ability to add value.
3.The very sensitive and unethical practice of creating community trusts, the beneficiaries of which are unaware that they may never see a dime in their lifetime.
4.Empty promises from service providers (black and white) made to communities to encourage them to join a grand scheme as broad based partners without educating them on the implications.
5.The use of creative accounting to sell stakes to black and BBBEE groups.
6.Fronting of non-transformed companies by blacks for short term gains.
7.Director-level appointments of people who may not understand the legal and financial implications of such a role.
8.The use of the ghost names, tea ladies and domestic assistants in proposals to prove that an organisation represents the rainbow nation and is BBBEE complaint.
9.The incessant desire to borrow beyond means to buy stakes in companies.
10.The continuous debt funding of large BBBEE related acquisitions that have relatively failed to create much-needed jobs to reduce youth unemployment and in some cases to merely benefit the participants.
11.The dangers of appointing inexperienced professionals to directorship roles in public and private organisations to comply with and score BBBEE points.
12.The plethora of companies supposedly issuing BEE compliance certificates.
13.The long term tangible and intangible cost of non-delivery to tax payers.
14.Emerging corruptive practices within government to comply with the political box ticking compliance approach.
15.The pressure and impact of this confusion on the procurement and supply chain professional.

Supply chain professionals must come together to support Government efforts

“The procurement and supply chain profession has image problems. Direct and indirect dealings with the procurement and supply chain profession have clearly indicated that these professionals are not necessarily corrupt. Rather, is it is this complex political box-ticking, its associated procedures and incentive schemes that corrupt. Collectively, we as supply chain professionals must be vigilant and work together to assist Government to:

1.Curtail these negative incidences, which could overshadow the positive gains made in the last 15 years.
2.Simplify affirmative policies to make them less corruptive and simple to implement.
3.Develop business driven policies that will in the long term address the economic imbalance in South Africa.
4.Foster value-adding empowerment and not the politics of natural entitlement, which is a fallacy in the real world.
5.Develop simple-to-implement Key Performance Indicators for affirmative procurement that do not penalise, but rather help to stimulate wider entrepreneurship and SMME growth.
6.Encourage entrepreneurship beyond Government entities among existing and emerging black businesses.
7.Openly support development finance institutions (DFIs) who risk more capital to fund proven, value-adding emerging black and SMME companies.
8.Conversely, reduce the amount of capital that DFIs direct towards funding relatively large-scale empowerment acquisitions in comparatively matured companies.
9.Encourage the private sector to embrace supply relationship development and management.
10.Mandate state-owned enterpris
es to provide development funds to proven, serious and value-driven emerging black service providers over a limited period.
11.Expand opportunities though supply chain management and not just procurement.
12.Openly promote and innovatively reward the transfer of best practices between the public and private sectors.
13.Foster sustainable, non-equity based, mutually beneficial and smart value-adding business partnerships across the political and socio-economic divide.
14.Encourage procurement and supply chain professionals to be openly creative in assisting emerging value-driven small businesses.
15.Encourage SCM professionals to be openly and ethically entrepreneurial to possibly benefit in the long term from their innovation. In so doing, the lure to partake in short term gains and deceitful practices, which could be detrimental to society at large, could be reduced.

“We are all casualties of this unwanted and avoidable bedlam. Therefore, it is our duty as responsible professionals to find creative ways to assist each other while supporting decision-makers in creating simple and workable policies that not only help to sustainably address the socio-economic divide, but also foster SMME and black enterprise growth for long-term societal benefit.

You can contact Dr. Boateng at dboateng@panavest.com.

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