Lionel October, director general in trade and industry, briefs the trade and industry committee on the Broad Based Black Economic Empowerment Amendment Bill on Tuesday.   Picture: TREVOR SAMSON
Lionel October, Trade and industry director-general. Picture: TREVOR SAMSON

TRADE and industry director-general Lionel October this week told Parliament that black economic empowerment (BEE) is "a voluntary programme" and that "no company is forced to implement the g overnment’s BEE policy" (BBBEE compliance ‘voluntary’ for firms’, January 30).

Mr October’s claim will come as a surprise to most companies, which know that it is government policy to exclude businesses with poor BEE scores from state contracts and licences — and even from contracting with other private sector firms.

It will also no doubt astonish Central Rand Gold, a mining company which had its mining licence cancelled (and then reinstated) in 2011 for allegedly failing to fulfil its BEE obligations under the Mineral and Petroleum Resources Development Act of 2002 and its accompanying mining charter.

The claim that BEE is purely "voluntary" may also baffle MPs attending Mr October’s presentation, who heard him say that the government is busy changing BEE rules to better "enforce compliance" with BEE requirements.

According to Mr October, the new penalties mandated by the BroadBased Black Economic Empowerment Bill of 2011 — imprisonment for up to 10 years or fines of up to 10% of annual turnover — will apply only to fraudulent "fronting".

But the bill defines fronting so broadly that it includes, for example, failure to:

• give inexperienced black managers the same responsibilities and remuneration as people with long years of service; or

• incubate BEE startups and turn them into successful enterprises.

In addition, BEE rules require firms to increase black representation at senior management level to 60%. Under the Employment Equity Act of 1998, employers that fail to fulfil such racial quotas already face maximum fines of R500,000 for a first such "offence", rising to R900,000 for a fifth similar transgression within three years.

Moreover, under the Employment Equity Amendment Bill of 2012, also now before Parliament, these penalties are to be increased:

• to R1.5m or 2% of annual turnover, whichever is the greater, for a first such failure; and

• to R2.7m or 10% of annual turnover, whichever is higher, for a fifth such "offence" within three years.

Mr Lionel also told Parliament that "foreign companies are not obliged to implement BEE … and can instead propose ‘equity equivalents’, such as skills development".

But, under the proposed BEE codes of good practice gazetted by his department last year, all firms — foreign or local — that fail to transfer at least 10% of their equity to BEE investors will have their BEE scores slashed and, with them, their opportunity to do business in SA.

Dr Anthea Jeffery

Head of Special Research and Gawith Fellow, South African Institute of Race Relations