Last week’s Medium Term Budget Policy Statement was nervously anticipated, more so than these events typically are. No one expected anything ground-breaking, but what it communicated would give a sense of whether South Africa would continue its perilous course, or evidence a shift towards something better. Green shoots, in other words.
Budgets are fundamentally about managing the money – how it’s coming in and how it’s being spent. This is also central to South Africa’s crisis. It’s about so much more than simply ‘not having enough money’, as the hustings appeal to the public might have it. It’s the fact the economy is not generating the wealth to put money on company balance sheets and in households’ pockets, and so limiting what the government can collect; and that there has been such mismanagement of what has been collected is making a suboptimal impact.
The key strategic focus has to be on sharpening fiscal efficiency.
In this respect, in the lead-up to the Statement, the Institute of Race Relations called on finance minister Enoch Godongwana to signal that procurement systems be reoriented to prioritise value for money over ideology. Fundamentally, this would mean rolling back demands and expectations for empowerment in procurement.
We noted that Section 3 of the Preferential Procurement Policy Framework Act states: ‘The Minister may, on request, exempt an organ of state from any or all the provisions of this Act if … (b) the likely tenderers are international suppliers; or (c) it is in the public interest.’
Relinquishing BEE demands is possible, and has indeed been done in respect of Eskom and Transnet, two state-owned enterprises that are critical enablers for the wider economy, and whose performance has been a significant brake on it. We went on to say that the public interest argument has been clearly articulated by the Zondo Commission.
Its report noted problems in the ‘legislative design’, in other words, complex systems that gave a footing to corrupt operators to exploit. Arguably the most important problem in this respect was what the report described as an ‘inevitable tension’ between the imperative of ‘maximum value for money’ and the structuring of contracts to give preferences to vendors who might otherwise not be competitive.
Given the overall calculus of interests – not just for individual businesspeople, but for the economy as a whole – the Zondo Commission comes down on the side of maximising value for money when a choice must be made.
With South Africa at the juncture it is now, it’s hard to avoid that choice.
And so, it was pleasing to hear the minister take a position that implies agreement with our position, that official procurement need not conform to rigid empowerment demands.
‘I must add,’ he said, ‘the Constitution of the Republic of South Africa says it is the organ of state that procures. Every organ of state must have its own procurement policy, not be getting permission now and again from Treasury. We are giving you that authority, each organ of state to have its own procurement policies. No one will then say if I don’t deliver on time I’m delayed by Treasury.’
This seems to be an oblique signal that state organs can go ahead and institute procurement regimes that make economic sense. Call this a dog-whistle for a shift on a policy that provokes enormous political passions, but increasingly is hard to justify in view of South Africa’s fiscal limits and governance incapacity.
For Minister Godongwana, this probably weighs especially heavily, since it is his day-to-day job to look at these numbers and what they portend for the future. It’s not salutary right now.
The Treasury is likely to issue procurement regulations in November. They will be interesting to see. Maybe they will disappoint, and default to a prioritisation of racial empowerment. This will certainly not augur well for the country. But in the meantime, an opportunity exists to take stock and rethink the way procurement is conducted, to ask some hard questions about the consequences of policy that has been sacrosanct.
That being said, it’s important to recognise that empowerment policy hopes speak to a very real issue: the need to create more business opportunities, and especially to assist in fostering successful entrepreneurship among black South Africans.
It’s doubtful that empowerment policy makes much of a contribution here. Real empowerment will come on the back of an improvement in the overall business environment: security, labour policy, financing and so on. These will not be easy interventions to make, and not offering direct, designated benefits will probably not have many enthusiastic promoters – certainly in as far as achieving empowerment goals goes.
And in the latter respect, it should be understood that even if racial demands regarding procurement are relaxed, new and heightened demands with regards to the racial composition of workforces (a pending amendment to the Employment Equity Act) are on the table. This will only make South Africa less competitive and place another drag on doing business.
Green shoots? Possibly. But small and vulnerable ones that need to be nurtured…