Public Procurement Bill: No moral way to account for BEE’s impact on black unemployment

The Public Procurement Bill (PPB) faced a fiery debate in the National Assembly, with Finance Minister Enoch Godongwana defending its contentious provisions. The bill, set to increase the official BEE premium cap to 66%, drew criticism from DA Finance Shadow Minister Dion George, who warned of a potential R160 billion cost. Amid ideological clashes, questions on BEE’s impact on black unemployment went unanswered, revealing a lack of transparency and accountability. The bill’s implications for the struggling job market, particularly for poor black individuals, remain a central concern in this divisive legislative battle.

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No moral way to account for BEE’s anti-poor effects

By Gabriel Crouse

The final committee debate on the Public Procurement Bill (PPB) before it was passed by the National Assembly was exceptionally heated. Minister of Finance Enoch Godongwana correctly said ‘everybody here is canvassing’ in anticipation of next year’s national election, which distracts from the crucial new law.

DA Finance Shadow Minister Dion George said ‘the International Monetary Fund cautioned South Africa that preferential procurement adds 20% premium to the state’s cost of goods and services. That is approximately R160 billion.’

The PPB is a new proposed law that is set to exacerbate that premium. It does so by increasing the official BEE premium cap to 66%, imposing ‘set-asides’ that automatically disqualify other bidders based on race, and more. Government procurement exceeded R1.1 trillion in the last 12 months.

George called the PPB ‘disastrous’, coming from ‘a failing ANC government with nothing else to offer’ beyond race laws that benefit the few at the cost of the many. ‘Almost 5 million children are starving as a direct result of policies as set out in this bill. The people see you, dysfunctional, incompetent, and corrupt ANC government, and next year you will be abandoned.’

Godongwana retorted ‘let me tell you the following. I know the DA delivers in the Western Cape. What does it deliver? Bicycles and walking tracks for white people. No roads in the eastern [sic], in townships. That’s the delivery they do.’

Godongwana went on to say that ‘a vote for the DA…is a vote for firing all black people in senior positions’ before promising ‘shock’ and ‘surprise’ at the next elections.

Tempting as it is to fact check the proverbial ding-dong, it helps to transcend partisan jabs to get from first principles to practical upshots that affect our fellow 60 million.

R1.6 trillion in tax revenue

Godongwana asked the ‘ideological question’ about the PPB, being the ‘key’ first principle. What follows is a quote of his demand, but I have replaced his reference to a political party with the word ‘Treasury’, since that is the body overseeing R1.6 trillion in tax revenue:

‘I think [Treasury] must not mislead South Africans. [Treasury] has got to make it clear where does [Treasury] stand on the issue of the advancement of black people. That is the key question they have got to be clear. They are beating around the bush. They are not clarifying where they stand on the advancement of black people. That is the key question. That is the key question.’

Godongwana’s ideological question on ‘black advancement’ ought to have two parts, one principled, one practical. The principled question is ‘would Treasury abandon BEE if that would help advance most poor black people?’ The practical questions are ‘what has BEE cost the fiscus; how much more with BEE cost under the PPB; and how many more poor black people will never get jobs as a result?’

First the principle. If cutting BEE from procurement would reduce black unemployment by, for example, 5 million in 15 years, would Treasury ask to cut BEE?

Godongwana may reject the premise but should still be able to answer the hypothetical. Ideology is precisely the set of principles made explicit by answering hypotheticals. ‘Would you commit adultery for R1 million, or R1 billion?’ Anyone with an ideological commitment to marriage can answer those hypotheticals without any real money being put on the table.

Likewise, even if Godongwana rejects the premise factually he could still say, ‘of course I would beg Parliament to cut BEE if that would help the 7 million most disadvantaged South Africans get jobs. My ideological commitment is to advancing poor black people, and I will never beat about the bush on that.’

Making the rich richer

Alternatively he could say, ‘Even if it increases black unemployment we have to make BEE more aggressive. Can’t you see? Treasury’s commitment to black advancement is about making the rich richer regardless of this generation’s poor. Once there are nine times more black billionaires than whites we can think about relaxing BEE, no sooner. Our ideology puts elite balance first.’

Godongwana cannot say either, or much else, however. Both answers are political suicide. The latter is too overtly anti-poor for the electorate while the former is too overtly pro-poor for the ANC’s tenderpreneur elites (of all races) to abide by. So, his ideology, and his department’s, are unclear.

Now for the practical questions. How much has BEE cost the fiscus already, how much more will BEE cost under the PPB, and how many poor people will be worse off as a result?

On 1 September my colleague Mlondi Mdluli wrote to Treasury Director General Ismael Monomiat to ask ‘if the National Treasury has already calculated an estimate figure of the total cost of BEE in state procurement at National level? If the calculation is already available, I would appreciate it could be emailed to me.’

We have received no reply.

I made representations to the Finance Standing Committee which included the demand that Treasury provide an estimate of the past cost of BEE in procurement above what the Zondo Report calls the ‘value-for-money’ baseline, and what the estimated cost will be under the PPB?

In response I got hours of ‘beating about the bush’ from MPs and Treasury representatives, but no direct answer.

I furthermore demanded that cost of deviating from ‘value-for-money’ be considered in light of skyrocketing black unemployment during the BEE era from 21% in 2007 to 36% today.

Rising black unemployment

I argued that BEE procurement alienated investment, inhibited maintenance and infrastructure development, weakened fiscal resilience, thereby decreasing economic growth, which in turn harmed employment prospects especially of poor black people who lacked marketable qualifications. I could not demand that Treasury agree, only that they acknowledge the existence of rising black unemployment during the BEE era and address concerns that the PPB will make this worse.

Yet the word ‘unemployment’ does not even appear once in Treasury’s written, or oral feedback. The same goes for Godongwana’s speeches.

This disregard of the out-of-work poor is on record. So is the dereliction of constitutional duties.

The constitution demands ‘transparency and expenditure control’ from Treasury. Where is the BEE ‘extra’ accounted for in the procurement budget? Nowhere. And why is that, if BEE is a legitimate, respectable kind of ‘black advancement’?

I believe the answer is simple. There is no macro fiscal account of the BEE cost because there is no moral way to account for this anti-poor exacerbation of mass black unemployment.