South African firms of various sizes and ownership regard compliance with broad-based black economic empowerment (B-BBEE) as too costly for their businesses, with no discernible benefit to justify the cost.This is according to a survey conducted by two firms, XA Global Trade Advisors and Codera Analytics. B-BBEE has become a contentious point since discourse around the government’s Transformation Fund has gathered pace and parties in the GNU such as the DA have supported equity-equivalent investment programmes instead of B-BBEE to drive transformation.Donald Mackay, CEO of XA Global Trade Advisors, said transformation is essential to a thriving South African economy. He said the study was not about whether transformation of the patterns of ownership and access to the economy was necessary but whether B-BBEE in its present form can get the economy to its intended goal.“We need a coherent framework for thinking about achieving inclusive growth. At the moment, the direction of travel is for a proliferation of regulations for which some element of the policy objective is something like a transformation,” he said.“But what’s happening is that it’s just adding to the regulatory burden, and there’s no assessment of whether these policies are achieving the objectives that have been set out.”There’s just been a ratcheting up of the number of rules that bear on companies. So we really need a stock take and an honest conversation about how best to achieve our goals, given that our GDP per capita has been declining for the past decade or more— Donald Mackay, XA Global Trade Advisors CEOThe two organisations conducted the survey mainly because there is little available data about B-BBEE compliance, meaning researchers and the market are not in a position to assess the impact of the regulations.Mackay said B-BBEE compliance and cost burdens have intensified despite declines in compliance and participation, signalling that the government is of the view that compliance is declining because firms do not want to comply and this can only be remedied by adding costs.“There’s just been a ratcheting up of the number of rules that bear on companies. So we really need a stock take and an honest conversation about how best to achieve our goals, given that our GDP per capita has been declining for the past decade or more.”Dr Daan Steenkamp from Codera Analytics said the survey received 126 responses from firms of various sizes, ranging from single-owner small firms to some large firms with revenues of more than R1bn.“It is clear that there has not only been a decline in the deals that are being done over time, but also that there is a significant discount that applies to shares that are in such schemes. And so, even the intended beneficiaries of some of these schemes are not benefiting to the extent they might expect,” he said.Steenkamp said more than a third of firms were either noncompliant or at level 8 in accordance with B-BBEE compliance regulations, meaning a large proportion of companies are either choosing not to comply or the regulations do not apply to them. Some firms have no setup costs. For example, if a firm is very small and is completely black-owned or the founders of the firm are black, then there may be zero setup costs. But for other firms, setup or advisory or accreditation fees can be high— Dr Daan Steenkamp, Codera Analytics“Many reasons were provided by survey participants. Apart from that, the regulations don’t apply; many firms say that they are either too small or that they find the regulations to be discriminatory, or firms reported that the regulations were too expensive to comply with, or would not provide them with any explicit benefits. “It’s important to note that as you can see from the distribution, there are firms across the different B-score levels in the survey. They also range in terms of revenue and size, and belong in different industries.”He said the costs to set up BEE strategies or structures varied dramatically across different kinds of firms, and they depended not only on the size of the firm but also on the industry. Then there were the choices that the firms made among the different ways they could comply. “Some firms have no setup costs. For example, if a firm is very small and is completely black-owned or the founders of the firm are black, then there may be zero setup costs. But for other firms, setup or advisory or accreditation fees can be high.” The setup costs for BEE schemes are “very large”, ranging between about R200,000 and more than R500,000. “Setup costs range between 0.4% and 4% of turnover. This is a lot.“We also noted that the costs increase for companies that are near thresholds — so a threshold of, say, R10m a year turnover and for firms that have fewer than 50 employees.”Business Times