OPINION | Gabriel Crouse: BEE dialogue - the devil is in the details - News24

Gabriel Crouse

Gabriel Crouse critiques the flawed phrasing of a question in an Ipsos poll on BEE premiums in public procurement. He proposes another scenario of which he is of the view will foster productive national dialogue on the topic.

There have been a slew of interesting articles on BEE on News24 lately, and it deserves praise for this.

However, some incorrect claims have been made that must be corrected.

First, consider analyst Ebrahim Harvey’s recent opinion piece on BEE premiums. Harvey, often a critic of the Institute of Race Relations (IRR), singled out our work on BEE premiums as “a sheer revelation”. He called for reining in BEE premiums, a call we agree with and a conclusion that we find, seriously, welcome.

But there were some technical slips in his article that should be corrected.

Harvey wrote about “BEE premiums of 25%” that “the state compulsorily requires upfront in tenders with BEE-controlled companies. In other words, besides the usual costs companies must bear to do business they have to pay an additional 25% BEE premium”.

But that is not quite right. Companies do not pay BEE premiums, taxpayers do.

This is how it works. The government buys stuff, goods and services, from companies, spending roughly R1.1 trillion per annum, using taxpayer money.

The current BEE process allows a company with more BEE points to charge up to 25% extra for the same exact goods and services as compared with a company that has fewer BEE points.

That means BEE premiums are a fiscal cost we all bear together.

Harvey also wrote that it “is estimated that a staggering R3.5 trillion has been spent on those BEE premiums since 2017, the beneficiaries of which are a tiny layer of black elite”.

This is not correct either. Our estimate, based on the Central Supplier Database, is that R3.5 trillion has been spent on majority black-owned companies since 2017.

The total (licit) cost of BEE premiums since 2017 is roughly estimated to be closer to R153 billion.

But as the Zondo Report and Harvard’s Growth Lab recognised the major cost related to BEE premiums is that the confusing system makes it much easier for corrupt actors (of all races) to rip off the taxpayer. That corruption cost, related to BEE is estimated to be roughly R1.1 trillion since 2017.

Overall, again, though there was a slip on some details, Harvey’s conclusion on BEE premiums is right - including his observation that shifting from BEE premiums to a value-for-money system “will also contribute to more state resources being available for social grants welfare”.

Confusing question

Next, consider the phrasing of a question on an Ipsos poll, published by News24, on how BEE premiums should or should not be paid in public procurement, which was confusing.

A large sample of more than 3 600 respondents were asked to decide who to procure from in the following hypothetical scenario (with added emphasis):

“A school wants to build a new classroom. Three tenders came in, and at first glance all three tenders offer the same quality and specifications for the new classroom. One tender came in for R1 million, with no statement of BEE ownership. The second came in at R1.2 million and claims 30% black ownership. The third tender came in at R1.5 million and claims 51% black ownership. Who should get the tender?”

First, notice what the “at first glance” qualification tells the respondent. It says that the person posing the hypothetical question has gone out of their way to give you a reason to think that upon closer inspection the three companies might not offer the same classroom in terms of quality and specifications.

That means no one can be sure if the respondent thinks the subsequent information is set against fixed quality and specs, or that it updated the quality and specs.

Why this is important

That is important for two reasons. First, earlier in the questionnaire people were asked if they agree that “ownership does not matter” in the tender process and 67% agreed.

Those people might have thought that to stay consistent with their earlier answer they must assume that the companies that charge more cannot possibly do so because they have extra black ownership. Why else could they charge more? Because they build better classrooms.

I am not claiming that every respondent who chose the second or third company did so because they believed that the more expensive company must on second glance offer a better classroom, since it is more expensive. However, price is widely known to be the single best proxy for quality in a free market, and given the phrasing of the question, there is no way to rule out the possibility that this is what determined people’s answers.

Second, notice that the first company has “no statement of BEE ownership”, meaning that it might have broken the legal requirements of declaring BEE ownership levels (whatever they are) in its bid and that it could be 100% black-owned or 100% white-owned, or anything between.

Again, that means anyone who shied away from this answer could have done so for multiple reasons.

The report took people’s preference for the second and third companies to be indicators that respondents were eager to pay more to black companies for the same exact classroom, because they were black. In other words, those responses were unjustifiably taken to support BEE premiums.

But this mistake can be fixed in the next Ipsos poll.

The phrasing could go like this: “A school is short of 10 classrooms and has a budget of only R10 million for new classrooms. Company A is 100% white-owned and can build all 10 classrooms for R10 million. Company B is 100% black-owned and can build only seven classrooms of the exact same quality and specifications for R10 million. Which company would you choose?”

This scenario clearly stipulates the race of both companies, the exact similarity of each classroom on offer, and the (realistic) scarcity of resources. It is also framed to keep all budgetary considerations within one domain to avoid confusion.

I suspect we all know what the overwhelming majority would answer to that question, but it would still be good for the national dialogue.

Gabriel Crouse is an IRR fellow and executive director of IRR Legal.