Ramaphosa signs Public Procurement Act into law: ANC uncompromising amid GNU tensions – Katzenellenbogen - Biznews

Jul 31, 2024
The ANC is in a government of national unity (GNU), but it will not be compromising on empowerment and transformation. Indeed, the signs are that it is doubling down in its efforts to push empowerment.
Ramaphosa signs Public Procurement Act into law: ANC uncompromising amid GNU tensions – Katzenellenbogen - Biznews

In a bid to reinforce black economic empowerment despite internal ANC opposition, President Cyril Ramaphosa has signed the Public Procurement Act into law. This landmark legislation mandates uniform procurement rules across all government entities, prioritizing contracts for black-owned businesses and local firms. While supporters hail it as a victory for empowerment and transparency, critics warn of inflated costs and reduced competition. The Act is a strategic move by Ramaphosa to maintain ANC support amid the GNU coalition’s diverse interests.

Jonathan Katzenellenbogen

The ANC is in a government of national unity (GNU), but it will not be compromising on empowerment and transformation. Indeed, the signs are that it is doubling down in its efforts to push empowerment.

With factions in the ANC opposing the GNU deal with the Democratic Alliance (DA) and the Freedom Front Plus (FF+), President Cyril Ramaphosa is out to prove that there will be no watering down of black economic empowerment. He will also have to show his party that there will be no attack on labour rights.

Powerful constituencies within the ANC were worried that a coalition with the DA and other parties that reject black empowerment policies would watere down the wider empowerment and transformation agenda.

That has to account for much of the reason why President Cyril Ramaphosa signed the Public Procurement Act last week. This creates one regulatory framework that covers buying by all government entities − local, provincial and national as well as bodies set up under the Constitution, and public enterprises. It will mean that all government bodies will have to follow the same rules on setting aside contracts for black empowerment and local firms. The government has promised that the Act will mean far greater transparency.

In the Act preferences are given to black people, black women, women, black people with disabilities, military veterans and smaller enterprises owned by people from these groups.

Under the Act a public procurement office in the Treasury will standardise rules and ensure greater transparency across the government. We are told the Act is a response to the state capture and corruption in procurement highlighted by the Zondo Commission. But the new Act has also been taken as a chance to ensure that empowerment and preferences for local companies in selling to the state are followed throughout the public sector. There is no room for different government agencies to follow their own rules to ensure what they determine as value for money in procurement. 

Double protection
Firms with high empowerment scores will have double protection from potential competitors who might be able to offer better value and quality. Being black-owned and local affords enhanced protection when selling to the entire public sector.

The Act’s supporters insist that it will mean improved oversight, transparency and consistency in public procurement. It will also mean enhanced protection from competition in the public procurement market for black-owned firms. This is not a “developmental” benefit from the Act, as claimed by its supporters. It is simply a case of the government offering vested interests protection from competition.

The Black Business Council (BBC), which speaks out on empowerment and other matters, is thrilled with the new law, calling its passage “a historic day for democracy”, according to the Daily Maverick.

“In our view, this is the most important legislation, secondary only to the South African Constitution,” the Daily Maverick quotes the BBC as saying.

The new act will also please local industries that want protection in the domestic market from cheaper goods. It is difficult to see how a local manufacturer of pills for state hospitals can possibly offer them at the same price as an Indian firm which has the economies of scale to serve a global market.

Sakeliga, a small business association which has been vociferous on empowerment and issues of official overreach, says the Act will mean “exorbitant premiums for procurement due to the greatly diminished pool of available suppliers leading to spiralling costs and lower quality”.

Price premium
We currently do not know the price premium that the government pays for purchases from empowered contractors.

The new Act will mean that a high cost structure will be baked into all public procurement. With this Act the public procurement market will be less competitive than it would be in the absence of rules for empowerment and local sourcing. The entire public sector will pay a premium due to the limited number of companies that are able to bid on state contracts. In addition, there is the additional cost to the state of a larger bureaucracy that is required to monitor implementation of the rules.

A few months ago, the DA, the FF+, and the African Christian Democratic Party, all members of the GNU, opposed the bill when it was first put before the National Assembly. The DA said it was “another disastrous piece of race-based legislation introduced by a failing ANC government”.

“These regulations will cause additional market distortions that will lead to inefficiencies in the public sector,” the DA said.

In view of the DA’s past position, we really should have heard something from them now that the President has signed the law.

We have a GNU which includes parties that are opposed to empowerment, but there is a minimal chance that the policy can be overturned. The parties are in a minority in the GNU and the ANC constituencies that support empowerment are vociferous, influential and large.

Internal opposition
The ANC really needed this legislation to show ANC internal opposition to the GNU that it can still get what is important to them. Other members of the GNU might not have raised a furore over the signing of the law and at the premiums that are paid in procurement because they know that the ANC needs to reassure its internal opposition.

Signing the law so early in the life of the GNU means that the empowerment issue is off the political agenda for the moment.

But in view of empowerment’s failings, particularly in only enriching a few and pushing up procurement costs,  it could become a hot issue in future election campaigns. How could it not be when people in rural areas know that there are tenderpreneurs who have done a lot better than they have?

There are alternatives to empowerment that could achieve far better results.

The DA wants to use company adherence to the United Nations’ 17 Sustainable Development Goals instead of empowerment criteria as a basis for awarding state contracts. The Sustainable Development Goals include ending poverty, gender equality, clean energy and clean water. While larger companies report on their compliance with environmental, social and governance laws, expecting small companies to come up with detailed reports on how they are improving the world is unrealistic.

Spreading benefits
The Institute of Race Relations wants the government to hand out vouchers to disadvantaged people that they can use to pay for private health care, education and housing. That has the benefit of spreading benefits far more widely than current empowerment policies. The idea also has the advantage that it would be a way of directly targeting the poor

Best of all for mass empowerment would be far higher rates of economic growth and employment creation. The international experience is that the faster the economic growth, the more widespread are its benefits.

Jonathan Katzenellenbogen is a Johannesburg-based freelance journalist

https://www.biznews.com/leadership/2024/07/31/ramaphosa-public-procurement-act-gnu-katzenellenbogen

This article was first published on the Daily Friend.

Ramaphosa signs Public Procurement Act into law: ANC uncompromising amid GNU tensions – Katzenellenbogen - Biznews

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