The sling rises against the policy of positive discrimination in South Africa

LETTER FROM JOHANNESBURG

According to Mteto Nyati, a new member of Eskom's board of directors,

Since the election of Nelson Mandela in 1994, correcting the injustices inherited from apartheid has been one of the sacred missions of the ANC, the party that governs South Africa. So there was reason to be surprised when, at the beginning of November, several South African media announced that the most emblematic of positive discrimination policies, “Black economic empowerment”, would no longer be taken into account in the awarding of contracts. public. A devastating news, immediately denied by the government. But the ambiguity that continues to surround the sequence betrays the growing unease around these policies accused of fueling corruption and harming the economy.

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The imbroglio is rooted in complex legislation which allows the South African State to give an advantage to certain companies in the context of the award of public contracts in order to favor “classes of people who have been historically disadvantaged due to unfair discrimination based on race, gender or disability”. The main criterion of this positive discrimination is based on the notion of “broad-based Black economic empowerment”, commonly abbreviated BEE. Every company has a “BEE score”, largely determined by the skin color of its leaders.

Traditionally, the mechanism consists in weighting the price proposed by a company in response to a call for tenders within the framework of a public market by its BEE score. But since 2017, a much more radical regulation makes it possible in particular to automatically disqualify a company that does not have a satisfactory BEE score. Mechanically, it also authorizes reserving the award of a public contract to companies 100% owned by people of color. A decision quickly challenged in court by Sakeliga, a lobby opposed to positive discrimination policies and more generally to state intervention in the economy.

In February, while criticism rained down on the perverse effects of these regulations, the South African Constitutional Court ruled in favor of Sakeliga. Believing that the Minister of Finance has exceeded his powers, she summons the government to review its copy. In the process, more than a hundred public entities are asking to be exempted from the provisions deemed illegal. Among them, Eskom, the South African public electricity company, whose current setbacks illustrate the limits of the system.

Incompetent companies

On the edge of the abyss, Eskom imposes daily power cuts on South Africa to avoid the collapse of the electricity network while its coal-fired power stations are crumbling under breakdowns. Most of them are over 40 years old, but the newer ones, barely a few years old, have the same problems. Because it is actually the skill that the South African electricity giant lacks.

“If Eskom is not able to operate, it is largely because the people in charge of maintenance are not doing their job properly”explains a connoisseur of the company who assures that incompetent, corrupt companies, or both, have obtained maintenance contracts under the cover of what South Africa calls the policies of “conversion” economy.

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In an explosive interview with the weekly Sunday Timesin late October, one of Eskom’s newest board members, highly respected business executive Mteto Nyati, bluntly asserted that “Corruption is largely on the back of affirmative action policies that promote small local businesses”. “Right now, we need to have the best people to do the job, because they are the ones who have to fix what needs to be fixed, no matter how they look”he continued, calling for “review, and modify if necessary” the legislation. A speech unimaginable in the mouth of a senior public company official a few months ago.

Unsurprisingly, Mteto Nyati’s remarks are violently attacked by the promoters of the “conversion”to the point that Eskom’s management issued a press release assuring that it “supports all government policies aimed at transforming the South African economy” and ensures that the words of his manager have been distorted. Questioned by Parliament on the subject, President Cyril Ramaphosa himself stepped up to defend the “transformative policies” South Africans. It is hard to imagine him doing otherwise as he prepares to contest his re-election as party leader in December and the ANC has made “conversion” one of his main electoral arguments.

“Developing a new vision”

It is in this context that, on November 4, the South African government finally published the new regulations governing the conditions for awarding public contracts aimed at complying with the judgment of the Supreme Court handed down in February. The new version, very sober, considerably restricts the field of application of positive discrimination and erases any reference to the policy of “Black economic empowerment”, prompting several media to affirm that the government has just abandoned this criterion.

In turn under the fire of criticism, the Minister of Finance, Enoch Godongwana, calls a press conference to ” clarify “ the situation. He assures that the new measures are simply to comply with a court order and do not signal any change in policy. A simple technical modification, in essence, which transfers to the various State bodies the responsibility of defining themselves the rules for the preferential award of public contracts. What the Minister omits to specify is that the new regulations bury, in fact, all the radical measures adopted in 2017, such as the possibility of disqualifying a company according to its “BEE score”.

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The saga is far from over. In the coming months, a new broader law framing the rules for awarding public contracts should clarify the position of the ANC on the subject. But already, President Cyril Ramaphosa, while ensuring that the policy of BEE “not threatened”emphasizes the need to “developing a new vision” of this policy in order to adapt “to economic realities”.

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The sling rises against the policy of positive discrimination in South Africa