2023 Sanlam Transformation Gauge report reveals a mismatch between B-BBEE scorecards and reality

Nearly 30 years since the dawn of democracy and more than 20 years after Broad-Based Black Economic Empowerment (B-BBEE) targets were introduced, the rate of transformation remains slow, according to the findings of the 2023 Sanlam Transformation Gauge report.

The Sanlam Transformation Gauge, presented in partnership with the Sunday Times Business Times, , is the only consolidated, sector-focused research to take a holistic measurement of economic transformation in South Africa, accounting for all elements of B-BBEE. In addition to providing a clear and accurate picture of the state of B-BBEE and transformation in South Africa, the independent research carried out by Intellidex aims to ignite meaningful dialogue, shape policies and inspire actions that foster a more inclusive and prosperous future for all South Africans.

“In South Africa it is widely accepted that our challenges can be summarised in the triple challenges of poverty, inequality and unemployment, all of which can be resolved through the effective implementation B-BBEE policy,” explained co-founder of the Sanlam Transformation Gauge report, Andile Khumalo

The research is based on the B-BBEE scores of 14,542 companies across 10 sectors of the B-BBEE classifications system: Agri-BEE; Construction; Financial; Forestry; Information and Communications Technology (ITC); Integrated Transport; Marketing, Advertising, Communication (MAC); Property; Tourism; and Generic (which includes all other sectors that do not have a gazetted B-BBEE sector code, such as mining, manufacturing, wholesale and retail).

Lerato Ratsoma, MD of Empowerdex, revealed that overall, SA Inc’s efforts at transformation have improved, albeit slowly. Overall, total scores improved to just above the level 3 threshold with a slight increase in black ownership from 75% of target in 2022 to 80.81%. Management control – traditionally a problem area – improved from 56% of target last year to just over 69% in 2023.

Despite an expectation that enterprise supplier development (ESD) scores overall would see an uptick in 2023, this score has remained at a relatively low average of 75% of target. ESD is made up of procurement, enterprise development and supplier development. “Most companies get full points for enterprise and supplier development but struggle with the procurement aspect because there are not always enough black suppliers to procure from,” said Ratsoma.

The ESD pillar is regarded as one aspect of the B-BBEE framework that could make a significant difference to South Africa’s economic trajectory if it was practised in the way that it was originally envisaged to develop small and medium black-owned enterprises. Unfortunately, however, procurement practices have been subverted by corruption to and the impact has been disappointing, according to the 2023 report.

Newly appointed B-BBEE Commissioner Tshediso Matona says that when the B-BBEE Act came into effect, there may have been a naïve belief that everyone would comply with the codes and act in good faith. It was not anticipated that there would be those who would want to “game the system” or that there would be “fronting and misrepresentation of B-BBEE credentials”.

This year the report included the findings of a survey conducted among B-BBEE verification agencies. Although scores improved across the scorecard in this year’s Gauge Report, except for socioeconomic development which remains well above target, the main theme emanating from the verification agency survey was that transformation is not as advanced as the scorecards suggest. More than half of verification agencies said management’s poor score was due to “resistance by corporate South Africa to seeing black people in leadership positions”.

B-BBEE participation is ostensibly still voluntary, even though it is legislated. However, in response to the slow pace of transformation, government is pushing through a raft of legislation that attempts to enforce compliance in various ways. Matona believes there is a need to recalibrate the balance between incentives and penalties to improve compliance with B-BBEE codes and targets given that businesses won’t be incentivised to ramp up their transformation efforts unless it has a measurable impact on their bottom line.

There has long been an assumption that listed companies, who are required to submit their B-BBEE compliance reports to the B-BBEE Commissioner, will have better results than unlisted companies. However, the 2023 report found listed companies in the majority of sectors underperformed compared to their unlisted companies, in some sectors by a large margin. “While there is no apparent reason for this disparity, one possibility is that the balance sheets in the listed space are much larger than in the unlisted space, which in turn begs the question of how businesses are being funded,” said Sanlam Chairman, Elias Masilela.

Previous Sanlam Transformation Gauge reports have highlighted B-BBEE policy’s reliance on measuring inputs as opposed to outputs. In other words, it measures what a company spends on skills development, as one example, but does not measure the effectiveness of the skills training. In the absence of embedded monitoring and measurement mechanisms, it’s impossible to determine if the intended outcomes and impact are being achieved or not. This continues to be the case in 2023 with Matona conceding that these shortcomings are valid concerns. The unintended consequence of not measuring impact is that “these matters become relegated to a tick box exercise”, he says.

A panel discussion on the ‘lived experience’ versus the research findings included: Tabea Kabinde, chairperson of the Commission of Employment Equity; transformation consultant Litha Kutha, co-chair of the Enterprise & Supplier Development Community of Practise; Nozizwe Vundla, head of the Sanlam Foundation; Mamkeli Jim, a Dealmaker in Leveraged Finance at RMB; and Disa Mpande, acting CEO at merSETA. The panel agreed that the thinking around B-BBEE needs to be reframed and more needs to be done to enable meaningful change.

Panel discussions at the event echoed a consistent theme: to enable real transformation, words need to be turned into action – with more opportunities for collaboration to be uncovered. “Collaboration is a key enabler in addressing some of the critical social ills that are facing our country,” says Ray-Ann Sedres, Chief Transformation Officer at Sanlam. “We need to instil hope in our youth by working together to create more equitable opportunities to become economically active, thriving members of society,” she concludes.

To watch the Sanlam Transformation Gauge Conference click here. The 2023 Sanlam Transformation Gauge report can be downloaded here www.sanlamtransformationgauge.co.za/report-2023