A criticism of B-BBEE you frequently hear in casual conversation is that it only benefits a small number of business owners. Or, more specifically, that B-BBEE is too focused on ownership, privileging a relatively limited group of shareholders.
While it is true that B-BBEE can be narrowly implemented, with little vision, this negative conceptualisation of B-BBEE represents an outdated view. It ignores the ways policymakers have responded to urgent social challenges. And, importantly, it overlooks the ways in which B-BBEE can be a powerful tool to expand access to the market and create a more level playing field that benefits everyone.
Opening up the market
Many people know that B-BBEE has a preferential procurement element. That is, you get B-BBEE points when you procure goods or services from suppliers with better B-BBEE credentials, with a heavy weighting towards black owned and black female businesses.
However, one might quite reasonably ask: Doesn’t that just benefit the people with the means and connections to establish viable businesses in the first place?
With such limited opportunities for entrepreneurship in South Africa, how broad, really, is Broad-based Black Economic Empowerment?
It is precisely to address these kinds of concerns that B-BBEE mechanisms such as Enterprise and Supplier Development (ESD) have been introduced.
Cookie-cutter solutions won’t do
ESD comprises two broad elements, each concerned with providing SMMEs with the developmental support and tools they need to flourish in the modern economy. Supplier Development enables businesses to gain B-BBEE points by helping to develop the companies from which the business procures goods and services. Enterprise Development provides critical business development assistance more broadly, to any applicable SMME outside the company’s supply chain.
When implemented properly, ESD is an excellent and cost-effective way for a business to meet its B-BBEE goals. But also, crucially, it’s a concrete, strategic programme of action that directly benefits businesses that need it most.
To appreciate the tangible effects of ESD, consider ESD123, BEE123’s tailored ESD solution. Rather than implementing a one-size-fits-all approach, our specialist ESD123 team carefully assesses each beneficiary business’s goals, weaknesses and works to identify obstacles to growth. The ESD123 team then provides the business with a fully bespoke and customised ‘Business Bundle’ comprising the modern tools, services and entrepreneurial suppot and development they need to drive real growth. Ultimately, it’s about reducing the obstacles that prevent entrepreneurs accessing the market.
Why? Because South Africa’s aspiring entrepreneurs don’t lack ambition, talent or drive. But too often they do lack the fundamental skills and tools necessary to scale their business- and this is what ESD123 solves for.
A supply chain is as strong as its weakest link
Let’s step back and look at ESD from a macro perspective. As I’ve suggested, ESD can be a highly effective way for established businesses to gain B-BBEE points. And, implemented effectively, ESD helps small, black owned businesses compete and grow.
But let’s also consider the economic environment in which ESD takes place. Supplier development has obvious benefits. By investing resources to make its suppliers more efficient and effective, a firm, by definition, enhances the quality of its supply chain.
More broadly, Enterprise Development helps produce a more robust and equitable business environment which will ultimately drive broader economic growth. And that helps everyone.
Of course, not every ESD initiative will be equally successful. But it should be clear that effective B-BBEE is not – indeed, shouldn’t be – simply about enriching the few, but about expanding market access.
Stronger supply chains, more resilient economic growth
Small businesses are vital drivers of economic growth . Small and medium enterprises account for up to 70% of jobs in OECD countries. And yet, South African small businesses have failed to flourish on an adequate scale, in large part due to limited access to funding, a lack of critical managerial skills,and other barriers to market entry. And it’s not just employment. Scholars suggest that SMMEs can help diversify the economy, reducing market concentration and potentially disrupting the oligopolies common in South Africa.
Crucially, however, the mere existence of small businesses is not sufficient to drive economic growth. You need fast growing new firms. In that regard, large firms provide a critical potential source of demand. By providing demand, skills and funding, and by working with SMMEs to help them produce consistent quality goods, we can produce a healthier economy, reduce unemployment and, at the company level, build more robust supply chains and secure consistent access to quality goods.
A well-designed ESD initiative addresses these issues holistically: it helps drive demand (and thus small business sustain growth) while enriching the supply chain. It’s another clear example of a programme designed not just to produce short-term benefit, but to contribute to more robust economic development that ultimately helps everyone.
We don’t need hope, we need a strategy
We’ve considered a powerful B-BBEE mechanism designed to both grow the economic pie and help more people enjoy a slice of the pie. Of course, we should not be naive. Our country faces complex structural problems and there is no magic bullet that will resolve them all.
But precisely it’s because the problems are so entrenched and structurally interconnected that we need collaborative mutually reinforcing solutions. And yes, there will always be instances in which B-BBEE is little more than a box-ticking exercise aimed at meeting short-term compliance goals. But in those cases, we are often acting in a strategically blinkered way.
One of the great advantages of the B-BBEE initiatives under discussion is that they are mechanisms through which all stakeholders can coordinate, offering strategic interventions that produce sustainable economic growth.