The impact of the financial crisis on SA, and why BEE is now more important than ever

When the current global financial crisis peaked in 2008, the South African economy was held together by its strong foundation which benefitted from several past regulations that minimized investment flows out of the economy.

Factors that have been in South Africa’s favor include our exchange control, our healthy banking system, the infrastructure investment by government and the investment boom from the FIFA 2010 World Cup.  But even so, the financial meltdown allowed vulnerabilities to surface and created the awareness that even though we are not strongly affected by the crisis, we will have to manage the changes taking place.

“A slowdown in the economy is already affecting us. The forecasted unemployment rate for 2009 shows an increase of over 25%. Inequality, poverty, crime and HIV are still issues that influence our markets and that we have to deal with. In addition, the economy also has to cope with energy shortages. These crises thus have a real impact on the South African economy. Furthermore we see that property sales and values have been steadily declining, along with vehicle sales. Manufacturing production has slowed, the mining sector is shrinking further, and retrenchments are on the increase. This all shows us that South Africa is changing, but it is not about good or bad, it is about change”, Alexander Soare, Managing Director of BEESA Boxsmart, told SmartProcurement.

Does BEE still make sense in the current South African market conditions?
Black Economic Empowerment (BEE) was developed to integrate socio-economic processes, which directly contribute to the economic transformation of South Africa, and bring about significant increases to the number of black people that manage, own and control the country’s economic assets.

Besides this still being applicable, BEE is doing far more than just the above: The BEE scorecard has developed its current dynamics through organisations who have understood how to use it to their benefit. BEE has not changed the basic principles of business – It has merely added one additional element alongside price, service and quality. “In times like these, organisations have to plan far ahead because of the non-predictable impact of the financial crisis on the South African market, and therefore organisations are suddenly looking for different ways to secure their position in the market. Organisations are also being confronted with higher costs when importing or exporting, having less money for investments, new products and service improvements”, Soare continued.

So how does an organisation add value to its client, even though improvements are stagnating?
A growing number of organisations have discovered the power of their BEE Certificate. When faced with shrinking budgets, staff numbers and development, a new tool must be found to maintain the client relationship. This is where organisations use their BEE Certificate to add value and grow their relationship with their clients.

An example of the successful use of a BEE scorecard can be found in the case of CLI Designs in Cape Town. Kathrin Leimer from CLI Designs explains: “Through the financial crisis and the approximately 30% increase in cost of imports, our organisation had to come up with something to satisfy our clients in addition to our services. After understanding what BEE is about we actively implemented it in our day-to-day business. We lost the budget to fly overseas and source products for our clients, because they are much more price sensitive now with the global situation. Now we communicate to everyone that we are BEE compliant and that organisations can claim BEE points for using our services. It’s working brilliantly! We also understand that we have to use our Certificate pro-actively. Our BEE level is part of our letterhead now. You can download our certificate from our website and it is part of our e-mail footer. When we advertise we mention it, and when going out for tenders, it’s almost on the first page. This experience has benefited us, especially with managing tighter budgets. We do feel the relationship is improving with our clients as they suddenly understand the additional value they gain through doing business with us, especially for those to whom their own BEE score is important”.

Organisations thus need to use all the tools available to secure their market position in the current global economic climate. BEE is just one of these tools. “It must be emphasised that the correct understanding of Broad-Based BEE (BBBEE), and its implementation, is necessary to give organisations a competitive advantage and that it is of great importance that BEE is driven from within the business. Organisations need to look at who is driving BEE within their business and ask if this person has the understanding and the authority required to really achieve this task, which is becoming more and more important to the survival of organisations in South Africa”, Soare concluded.

Article submitted by Alexander Soare, Managing Director of BEESA Boxsmart.

Alexander Soare can be contacted at the details below:
Telephone: +27 11 726 3052
Cell: +27 82 441 1344

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