“Corporate SA must spend money with small businesses to create jobs”

Bernie van Niekerk.

The intention of previous black economic empowerment (BEE) laws was to spread economic activity more evenly among SA’s population. Rather than actively creating more jobs, the laws levelled the playing field so that no one applying for a job or bidding on a contract could be excluded for reasons other than their abilities.

However, in reality more people were competing for the same amount of jobs. This does not create work. As a result the situation was not sustainable and the Government rewrote the BEE laws.

The new laws recognise that the surest way to create sustainable growth in SA’s economy is to increase the number of South Africans participating in the economy, which requires more jobs to become available.

According to Absa’s October 2014 index that measures SA’s small business development, the average number of employees per company was 13.1. This clearly indicates that the vast majority of SA businesses are small to medium sized and that there are too few big corporates to offer jobs to all the South Africans looking for work.

The new BEE laws recognise that SA must look to small businesses for sustained job creation. However, businesses hire more employees only if there is more work to be done; for this reason sending more work to existing small businesses and increasing the number of small businesses are Government’s urgent economic objectives.

The new BEE regulations offer established businesses an incentive to give preference to certain types of small businesses when spending money. It is known as preferential procurement, which, under the new BEE laws, gives corporate SA an incentive to sign long-term contracts with small businesses and, importantly, assists them to build their financial and operational capacity.

This development assistance will promote job creation. Within established businesses it is usually the Procurement and Supply Chain Management Departments that decide where to spend money and, therefore, which small businesses receive development support.

Businesses must still spend a large portion of their procurement budget with black-owned suppliers, as with the previous BEE laws. However, these same black-owned suppliers must now be ‘empowering suppliers’, which are suppliers that use high levels of SA-produced materials in their products or services, create jobs, transfer skills to other enterprises and add value through manufacturing or beneficiation.

If a small business, black-owned or not, does not meet the criteria of an empowering supplier, the company buying from it cannot earn BEE procurement points from the transaction. Consequently, big organisations’ first concern is supporting small businesses that are recognised as empowering suppliers. Their Procurement and Supply Chain Management Departments are tasked with identifying these empowering suppliers to include in their supply chains and this is a difficult process: finding an empowering supplier among hundreds of small businesses is a lengthy task and, considering that BEE points are at stake, there is an element of risk.

The Absa Enterprise Development Expo, hosted at the Smart Procurement World Conference next week in Cape Town, assists Procurement Departments and small businesses to connect with each other and talk business. Procurement professionals can link up with verified black-owned businesses with proven histories of supplying to other corporates – a great deal of the leg work to identify suppliers has thus already been done.

“Procurement professionals are welcome to visit the Absa ED Expo at the Cape Town International Convention Centre free of charge,” says Expo organiser, Debbie Tagg.

This Expo is an important step in developing small, black-owned businesses from which SA’s corporates can secure a future supply of strategic commodities, while creating jobs in sustainable businesses. Ultimately, it makes economic sense as big business can thrive only in a strong and stable economy.

 – by Bernie van Niekerk, Editor at SmartProcurement.co.za