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OPINION: Radical economic transformation done right is economic inclusion

OPINION: Radical economic transformation done right is economic inclusion

As more South African politicians and policymakers call for "radical economic transformation" (RET) and others are suggesting "smoke and mirrors", Deon Oberholzer, CEO of Gestalt, says RET is not possible without a radical change in the way South African businesses see transformation as a whole.

"Shortly after President Zuma's State of the Nation address some months ago, 'radical economic transformation' became a buzzword; almost a chant among those jockeying for favour in the business arena," says Oberholzer.

"What isn't being made clear yet, however, is the fact that transformation - as it stands today - will end just one layer deep into the supply chain in the mining industry."

Oberholzer highlights the shortfalls of the Mining Charter as an example of how the term "transformation" is misleading, in light of the absence of any true measurement.

"The current version of the Mining Charter excludes a proper integration of the transformation of the sector's supply chain, one of the most important areas in which transformation could occur," he adds.

"Unlike the Construction Charter which includes all suppliers to the industry, section 2.2 Procurement, Supplier and Enterprise Development, Mining Goods, of the Mining Charter prescribes that 'a minimum of 21 percent of total mining goods procurement must be set aside for sourcing South African manufactured goods from black-owned companies’. The question procurement personnel should be asking, then, is: 'Are these companies B-BBEE compliant?' Without their compliance, economic inclusion is a one-layer deal."

Another requirement of the Mining Charter is that “a minimum of 44 percent of total mining goods procurement spend must be set aside for sourcing South African manufactured goods from BEE-compliant manufacturing companies".

Oberholzer says that while this should, in essence, have a positive impact on the local economy, there is no standard of measurement that indicates what precise percentage of goods must actually be manufactured in South Africa.

"Given that there is no measurement standard defined, could a company import a product such as a tractor; paint it using South African-manufactured paint and add a few locally made parts to it, and then claim local content? After all, in the section on Verification of Local Content, the Charter merely asks that proof be provided in the form of certification from the South African Bureau of Standards (SABS) and that responsibility to verify this lies with the supplier.

"The wiggle-room here is enormous," said Oberholzer.

"If verification of local manufacture - and therefore, local job creation, materials and logistics - required suppliers to meet specific percentages, transformation could be sustained. As things stand now, the messages that manufacturers and others in the supply chain are getting are blurred and even unrealistic for many."

As a transformation specialist, Oberholzer suggests that economic inclusion - the less scary way of talking RET - is vital to the country's economy and the best way to get ahead before new requirements are added is to ensure the highest level of B-BBEE compliance you can.

"This means everyone required to comply should not be aiming for a Level 8. A bare-minimum approach is not going to create jobs and ensure ongoing growth in any of our sectors,” he says, adding that in order to impact the broader economy and stay in business, a commitment to the B-BBEE Codes and a call for clear definitions and measurements is key.

"Radical economic transformation will come about when businesses employ radical solutions to job creation and skills upliftment; maximising their B-BBEE scorecard for better opportunities; and genuinely committing to an inclusive solution for the entire supply chain. Documents like the Mining Charter currently serve to highlight how much action still needs to be taken for true transformation to occur.

"But,” he concludes, "the starting point is clear and the days of fronting and minimal compliance with B-BBEE are over."

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