2012 BBBEE Amendment Bill

1. 2012 BBBEE Amendment Bill Presentation to the Portfolio Committee on Trade and Industry Solidarity Research Institute

2. About Solidarity Solidarity is one of the oldest trade unions in the country Solidarity has members in virtually every industry in South Africa Solidarity is a trade union in the Christian democratic tradition Solidarity advocates a system of free enterprise, confident that the employment relationship can be one of mutual gain Solidarity does not support any political party

3. Participation thus far • Record of recent participation • Submission on BBBEE Amendment Bill 2011 • Submission on BBBEE Codes published October 2012 • Submission on BBBEE Amendment Bill 2012 • Would like to have it noted here • Announcement in December 2012 by Trade and Industry that Code series 500 is retracted

4. Approach to this bill • We noted that • the key intentions with the 2012 bill remains the intensification of the programme of reallocation of capital according to political priorities instead of consumer priorities; and • that this is contrary to the spirit of our previous contributions. • We therefore decided • that it is evident that the key intentions with the bill remain in place; • to desist from another round of point-by-point commentary; and • to focus our attention and the attention of the portfolio committee on the consequences of the bill’s adoption – and its key intention of political reallocation – on ordinary consumers.

5. Preamble (Act) • Whereas • SouthAfrica’seconomyperformsbelowitspotentialbecause of thelowlevelofincomegenerated by themajority of itspeople • In order to • Promotetheachievement of theconstitutionalrighttoequality, increasebroadbasedandeffectiveparticipationofblackpeople in theeconomy, and promote ahighergrowth rate, increasedemploymentand more equitableincomedistribution. Objectives of the Act 2(a) promote economic transformation in order to penable meaningful participation of black people in the economy. 2(e) promoting investment programmes that lead to broad-based and meaningful partcipation in the economy by black people in order to achieve sustainable development and general prosperity. 2(g) promoting access to finance for black economic empowerment

6. The capital structure • The capital structure • is the arrangement of durable goods and services that, in time, yield final goods and services for consumer needs. • originates from prior acts of saving and investment • has very specific properties, depending on how its parts are arranged to produce (which, when) final goods and services; • is arranged by entrepreneurs based on estimations of future consumer needs. • How are the entrepreneurs determined? • Consumers demonstrate preference for certain final goods and services • This process rewards whoever serves these consumer preferences best • Investors recognise that some producers (entrepreneurs) are more profitable • Investors channel their resources to these (best) entrepreneurs

7. Capital allocation a consumer-led process • Consumers, in their buying-patterns, identify the preferred entrepreneurs; and • investors act upon this preference by channeling resources to the entrepreneurs that consumers demonstrate preference for.

8. The Capital Structure and Consumer Goods • Consumer goods • Are goods and services used directly by consumers in the pursuance of their ends; and • are the end product of the capital strucure, its raison d’etre. • Who uses consumer goods? • Everybody. • In BBBEE terminology: black , coloured, indian and white • Importance of the capital strucure evident • If more efficient entrepreneurs manage capital structure, everybody benefits; and • if less efficient entrepreneurs manage capital strucutre, everybody loses.

9. How significant can a slightly less effective entrepreneur be?

10. How significant can a slightly less effective entrepreneur be? • By 2017: consumers have paid for BBBEE by sacrificing the equivalent of a year and a half’s worth of consumer goods production.

11. Conclusion • We can choose our policies, but not their consequences. • The goal of production is to provide means for consumption. • A policy that replaces a consumer-led process of resource allocation with a political resource allocation, has as its consequence that consumers have less access to goods and services, including black, coloured, indian and white. • Insofar as the BBBEE amendment bill succeeds in further suppressing the consumer-led process with the political allocation process, it is to the detriment of consumers – black, coloured, indian and white. • The cost of allocating resources to even slightly less efficient entrepreneurs is significant, and once paid – even if unseen – can never be recovered. • Naturally, true entrepreneurs exist among all population groups. • Resources should not be redirected away from them. • True entrepreneurs are not dependent on political allocation and can never be discovered by political allocation. • True entrepreneurs must be found by a consumer-led process. • We recommend that the BBBEE bill be withdrawn, since its core idea is to strengthen the BBBEE act, to the detriment of consumers, who are everyone in South Africa.