Inside Government: When ‘Empowerment’ becomes legalised corruption
Inside Government is a newsletter written by Premier Helen Zille.
When ‘Empowerment’ becomes legalised corruption
One of the challenges of daily life in government is the weekly avalanche of documents that must be read, analysed and commented on. Among them are draft Policy papers, Bills, Regulations, “Instructions” and other documents from national government. Each must be dissected and “deconstructed” to ensure we understand its relevance and comment within the prescribed deadline (which is sometimes very short).
This week, the new Draft Preferential Procurement Regulations were among the many documents that crossed my desk. But when I see formulae like these, (that are actually supposed to explain the regulations), my eyes glaze over:
I have learnt that the more incomprehensible a document is, the more alert one must be. As it turned out, these equations are to an understanding of Jacob Zuma’s “radical economic transformation agenda” what the Rosetta Stone is to the interpretation of hieroglyphics.
I knew the formulae were very important, but I don’t have the mathematical skills to interpret them. That is what Chief Financial Officers are for. Our CFO reads equations and statistics easier than words, and interpreted the impact of the draft regulations as follows:
“Applying the proposed 50/50 preference system to our 80/20 purchases and the proposed 80/20 preference system to our 90/10 purchases, implies that we could be paying a premium of 100% instead of 25% for half of our goods and services and a premium of 25% instead of 11,1% for the other half of our goods and services.”
He explained that the formulae hadn’t changed, but the factors had. And this would make a big difference.
His explanation didn’t help me much. I knew the regulations would make supposedly “broad-based” black economic empowerment (BBBEE) requirements much more rigid, and far more expensive. But I wanted a specific, practical example.
So my CFO explained the difference between the current preferential procurement system, and the proposed new system, using a simple example.
He wrote back:
“Current practise: Bidder A, with no BBBEE status, quotes R10 for a bar of soap, while Bidder B with full BBBEE status quotes R12. The bid is awarded to Bidder B and government pays a 20% or R2 premium to advance economic empowerment in this instance.
Proposed practise: Bidder A, with no BBBEE status, quotes R10 for a bar of soap, while Bidder B with full BBBEE status quotes R19. The bid is awarded to Bidder B and government pays a 90% or R9 premium to advance economic empowerment in this instance.
De-coded, the circular also provides for the BBBEE premium on purchases between R10-million and R50-million, to rise to a maximum of 25% from the current 11,1% .”
And then in CFO speak (which tends to extreme under-statement) he said: “the difference in premiums impacts severely on the monies available for goods and services.”
I’ll say! What it means is that for certain categories of purchases (tenders under R10-million) we could be paying almost double for goods and services on the basis of the BBBEE points awarded. Firms that have the highest rating will get enough “bonus” points to enable them to double the best market price of a firm with no rating, and still get the contract. There is a sliding scale between firms with no BBBEE status and those with “full” status. If they attain only half the BBBEE status, we will pay 50% more!
So this is what Jacob Zuma’s radical economic transformation policy will mean: more cronies getting more tenders, and charging the state almost double the market value. And anyone who criticizes this will be labelled “racist”.
Fortunately, more and more South Africans are seeing through this ruse. They know that the “BBBEE” certification under the Zuma government has little to do with genuine broad based empowerment (which we fully support) and everything to do with the enrichment of “the network”. Zuma looks after them, and they look after him.
Let’s be blunt: the new draft regulations, if they are accepted, will legalise wholesale corruption at an even grander scale than we are currently witnessing.
The current inner circle of “preferred bidders” (inevitably with close ANC connections) will become even richer, while the poor, who depend most on efficient and effective government services, will suffer dire consequences. Government will pay double the price for the same service. The people will have to pay more for less.
How long will people still be fooled by the ANC’s BBBEE rhetoric as we enter secret nuclear deals worth an estimated R1-trillion, spend almost R1-billion on train coaches that are apparently too tall for safe use on our rail network, and select the most expensive and inefficient method to toll our roads?
The result will be “Eskom”, multiplied many times across the economy: a multi-billion Rand deficit accompanied by an inability to provide basic services. The rich can “make a plan” (such as buying generators). The poor can’t. They sit in the cold and dark, and have to steal electricity that has become unaffordable. And behind the rhetoric of a “turn-around strategy” Eskom’s deficit just grows.
We should no longer mince our words: this system will cause the collapse of the South African economy. It will not result in broad-based economic inclusion. It will re-enrich those who are already well entrenched; it will not lead to economic growth. On the contrary, it will destroy growth and jobs because it creates perverse incentives, rewarding inefficiency and uncompetitive pricing. And as government’s capacity to procure goods and services shrinks, many firms will go out of business. People will lose their jobs, while the pre-selected few flourish.
Fortunately we have a constitution. I cannot see how the new draft regulations will meet the requirement of Section 195 (1) b (amongst others): that “efficient, economic and effective use of resources must be promoted”. And lawful “discrimination” to redress past injustices, still has to pass the test of “rationality” and “fairness”.
We support rational and fair broad-based empowerment. Both the City of Cape Town and the Western Cape Government have an ‘open’ and transparent bid adjudication process. This prevents corruption and allows for fair competition in the bidding process. More BBBEE companies have been empowered through our competitive process than was the case during the ANC’s crony-based tenure in Cape Town and the Province. We have been able to procure better services and products at reasonable rates, providing the public better value for its money. At the same time the BBBEE companies become competitive in the broader economy.
We must take a stand against the new draft proposals from national government, even though we know that the Zuma ANC will respond by “playing the race card” all the way to the 2016 local government election.
But more people now know what is really going on than ever before. We are not heading for “radical economic transformation”. We are heading for “radical economic collapse” if we endorse these proposals. Next year South Africans will have to decide whether they want to continue endorsing legalized corruption -- and growing impoverishment -- or whether it is time for change. In a democracy, the voters get the government they choose and it is the government the majority deserves.