BLACK economic empowerment is one of the government’s plans to grow the South African economy by 6% a year by 2010.

Its ultimate success hinges on the cascading effect of preferential procurement. There is no legal requirement on any nongovernment entity to implement any type of empowerment policy; preferential procurement provides the incentive to do so.

If one considers that empowerment is a plan to ensure SA’s economy grows, many companies would probably agree preferential procurement is a positive concept. Why is the preferential procurement process is so badly handled from government through to private companies?

Before I answer this question it might be an idea to understand the theory behind preferential procurement.

Empowerment is built on a range of principles, including:

BEE must be broad based: The past few columns have discussed the scorecard and shown the composition of broad-based empowerment, which goes well beyond simple ownership;

Empowerment must be based on sound business principles: My interpretation of this principle is that all businesses in SA must continue operating and must implement empowerment policies that ensure they remain in business. For example, hiring staff to make up numbers when the business cannot afford these people cannot be considered a sound business practice;

Empowerment is part of SA’s growth strategy: For SA to grow, more sustainable enterprises must be created. Empowerment looks to nurture these into long-term businesses. SA needs more entrepreneurs — not white ones being replaced by black ones; and

Empowerment is an inclusive process: Every company that operates in SA should get involved in empowerment.

These principles must form the basis of every preferential procurement policy. The mere application of these principles is not enough, the policy must also include two important aspects:

All suppliers must be encouraged to develop and implement a broad-based empowerment profile. Their score must improve yearly. Failure to do so should result in the relationship terminating; and

Elements of procurement should be set-aside for black owned and managed small businesses. Once these are up and running, they too should be expected to develop a broad-based empowerment profile.

The determining of a company’s broad-based empowerment status is done through the scorecard. All scorecards calculate preferential procurement by each supplier’s score — the higher a company’s points, the better it is for the purchasing organisation.

Most companies tend to use one of two ways to determine a supplier’s status — either a complex questionnaire or insistence on a certificate from a rating agency. Both are fraught with problems. The first creates an administrative overhead for both supplier and purchaser and the second is a financial burden on suppliers, many of which cannot afford the rating firm’s services.

These methods are more often than not viewed as threatening and also serve to stifle up-and-coming entrepreneurship. In both cases empowerment is not that easy to ascertain (other than equity ownership). This makes the preferential procurement process redundant because if you do not know a supplier’s score, it is technically impossible to determine what points you score for procurement.

Scorecards will become more prevalent in the next 12 months. The interim solution is to educate suppliers on what is expected of them in the scorecard process, and at the same time find an easier way to open up avenues of procurement. By giving suppliers an opportunity to build up an acceptable empowerment score in the next 12 months, both parties can be assured that their commercial relationship has a future.

Government’s procurement is based on the Preferential Procurement Policy Framework Act; procurement is based on the 80/20 or 90/10 rules. This process is remarkably consistent but also uses narrow-based principles to ascertain empowerment. These regulations are expected to change in the next 12 months.

Janisch is CEO of empowerment consultancy Caird Consulting. His book, The Basics of BEE, is on the shelves this month.