Employment Equity Amendment Act – destined for disaster - Biznews

The recently ratified Employment Equity Amendment Act (EEAA) in South Africa, aimed at promoting transformation in the private sector, has raised concerns about the future implications for individuals and businesses. The ANC argues that the legislation is necessary to address the historical over-representation of a single racial group in corporate boardrooms, however critics argue that the EEAA undermines individual responsibility and the importance of hard work by altering societal outcomes. The act mandates compliance with employment equity goals for companies with more than 50 employees, determining their eligibility for government contracts. This controversial measure has sparked debates over anti-competitive behavior and the prioritization of value-for-money principles. Furthermore, the EEAA faces legal challenges for potentially violating the Constitution and perpetuating inequality. Amidst practical challenges, including high unemployment rates, concerns persist that the amendment will exacerbate existing problems rather than offer effective solutions.

Chris Patterson

The President recently signed the Employment Equity Amendment Act (EEAA) into law, ostensibly to improve ‘transformation’ in the private sector. 

Claiming that its objective is to overthrow decades of one racial group being over-represented in private boardrooms, the ANC has now resorted to legislation to force compliance with its employment equity goals in the form of the EEAA. 

This, Minister of Employment and Labour Thulas Nxesi has argued, is the more ‘aggressive’ and ‘necessary’ measure that was needed to change the make-up of corporate South Africa, to make it more demographically representative.

Transformation is important, because it brings change, innovative ideas, new visions, new perspectives and better outcomes. However, resorting to changing the outcomes of society disincentivises individual responsibility and the importance of hard work. 

The EEAA dictates to companies with more than 50 employees whether they can access government contracts or not. If they do, they receive a compliance certificate. If they don’t, they are automatically excluded from being able to tender for contracts. This is a case of anti-competitive behaviour. It has no place in a free market, where the value-for-money incentive must be the government’s top priority, especially when spending on procuring goods and services now runs to nearly R1 trillion.

In Part 1, Vol. 1 of the State Capture Commission Report, the Chairperson Raymond Zondo made it clear: “the primary national interest is best served when the government derives maximum value-for-money…procurement officials should be so advised.” The EEAA undermines the value-for-money principle by instituting pre-qualification criteria that may be at odds with the national interest, as Zondo wrote.

Not their money

It is logical to assume that large institutions like governments would take the spending of taxpayer money seriously. It is after all, not their money. After losing nearly R50 billion to State Capture (only traced by invoices and bank statements by Shadow World Investigations’ Paul Holden), South Africans would assume that government would take procurement more seriously, and not lock out businesses that simply do not comply with the government’s transformation efforts.

Public procurement is the most important task that government has in ensuring that it fulfils its mandate of effective and efficient service delivery. The EEAA does not appear to or even attempt to appear to resolve South Africa’s chronic trio of issues: unemployment, poverty and inequality. The only remedy that will make progress in this regard is economic growth. 

To achieve economic growth, government is required to assess barriers to entry, which the EEAA is. Companies with a vested interest in helping the South African economy grow do not need the government standing over their shoulders pointing out who should or should not be appointed. 

These are South African employers whose mission it is to provide goods and services. Their employees help them achieve this mission. According to a 2020 Institute of Race Relations (IRR) survey, 82% of respondents endorsed appointment “on merit”. 

Non-racialism is important to South African success. The inclusion of the principle of non-racialism in the Constitution gives reason to believe that South Africans want their country to succeed; to become a serious player in the global economy. The EEAA undermines South Africa’s commitment to a non-racial future, and seriously endangers the future of investment in this country.

Unconstitutional

The IRR is heading to court to challenge this amendment because it is unconstitutional on at least one of these grounds: 

First, it will compel employers to apply vague criteria in an opaque process in overturning the supposedly “voluntary” racial self-classifications of their employees. In other words, it will force employers to do a kind of “pencil test” without telling them how, or face fines so severe they could be bankrupted. This is contrary to the certainty required by the rule of law, which is itself required by Section 1 of the Constitution. This outsourced pencil-testing is also profoundly antithetical to nonracialism, a Section 1 constitutional value.

Second, it fails the great majority of poor black people, who will not get management or other senior jobs under it. It will not “advance” the poor, but will rather hurt them by choking off investment, growth, and jobs. It will not “promote equality” but rather increase the already very large gap between a relatively small black elite and the 11.3 million black people now mired in unemployment and destitution. As such, the EEAA falls foul of the equality clause, Section 9, which prohibits forms of Black Economic Empowerment that make the rich richer while leaving the poor to languish in poverty.

Third, it extends to the private sector the kind of public sector racialism that was manifest when SAPS Commissioner Jackie Selebi kept a police post open rather than promote someone of the “wrong” race. A technically precise reading of Section 195 of the Constitution indicates that public sector measures should not bleed into the private sector in this way.

Fourth, it bars companies that fail to comply with the minister’s racial quotas from doing business with the government at all. This violates Section 217 of the Constitution, which requires – as the report of the State Capture Commission described it – adherence to the imperative to “maximize value-for-money”.

Practical challenges 

However, our objection to the amendment of the EEA is not only about legality, but also about practical challenges that South Africa faces. IRR surveys show that unemployment is our biggest challenge. Black unemployment specifically has increased since the implementation of race-based policies. 

The unemployment numbers across racial lines, presented in Stats SA’s 2022 fourth quarter (Q4) Labour Force Survey, provide proof that race-based policies have not worked. In the fourth quarter, 36.8 percent of Black Africans were unemployed, compared to 21.1 percent of Coloureds, 14.4 percent of Indians/Asians, and 8.2 percent of Whites.

The amendment of the Employment Equity Act will only make things worse.

A student of politics, Chris Patterson is a researcher at the Institute of Race Relations.

https://www.biznews.com/sa-investing/2023/05/22/employment-equity-amendment-act-destined-for-disaster

This article was first published on the Daily Friend.