New B-BBEE codes will hurt small business

Today's Business Day carries an article about the revised Broad-Based Black Economic Empowerment Codes of Good Practice for Exempted and Qualifying Small Enterprises which quotes me extensively - read it here.

My point can be summed up thus: the DTI is obsessed with remodelling the racial composition of the cake, while the Department of Small Business Development is (or should be) interested in growing the size of the cake. These aims inevitably come into conflict.

As I point out, a 50/50 partnership in a new business between a black and a white person would give it a level 4 rating. This is crazy! Surely we should be encouraging start-up businesses whatever the colour of their founders.

If Minister Rob Davies had been at the SiMODiSA Start-Up SA conference in Cape Town on Friday (where I was a panellist in the Government as Enabler session), he would have met many new multi-colour business partnerships. Could he have looked them in the eye and said, "no, Mr Black Entrepreneur, if you start a business with a White Person you're going to lose out."? Well with Davies' warped sense of priorities he quite possibly could have!

He would probably come back with the lame answer that the codes are aimed at existing white-owned businesses, which then leads me to my second objection to the new codes.

This is that they force white-owned small businesses to take on black partners to get or maintain a good rating. Does Davies realise how treacherous bringing on a new business partner can be, of whatever hue? A small business takes on the character of its founder(s) who hang on to this, and the equity that they own, very jealously. That is the nature of an entrepreneur and a start-up.

In my former life as a business owner and entrepreneur I tried two black partnerships, both of which failed, leading me and my original shareholders to take back 100% of the company. I am certain there are thousands of similar examples in South Africa. Fortunately my far-sighted predecessor, Adele Lucas, had already empowered the business by giving shares to long-standing black and white employees, leading to our achieving a Level 1 rating three years in a row.

Lesson: you can't force ownership/partnership, whatever you like to call it, on an entrepreneur.

This is why fronting is so common. The entrepreneur, exasperated at not being able to find a compatible black partner/shareholder, takes some junior black person he knows he can manipulate and hands him a chunk of the business (very rarely for money), puts him on the board and gives him a fancy title, with a wink, a nod and a whisper "you know this is just for show, Sipho, I'll still wear the pants."

This is not because white entrepreneurs are racist. It's because they want to run and control their business, which they have dreamt up, laboured over day and night, probably with no financial reward, because they have a passion and the drive to see it through.

Davies and his ilk do not realise that the jobs we need are going to come primarily from newly formed and growing small businesses. The DA will make a submission to the DTI before the cut-off date of November 14th along the lines that new businesses should be exempt for up to 5 years (or even longer) and that the size thresholds for EMEs and QSEs should be increased.

We are not opposed to B-BBEE for big businesses. These generally have multiple shareholders and the founder(s) have probably either left or have taken on professional management, who are less sensitive about handing over equity to new black partners or shareholders. Also, we agree with the Enterprise/Supplier Development and Skills Training imperatives for big businesses. Supply chains need to be opened up and employees need all the training they can get.

This is going to be a noisy debate. I am fascinated to see what Minister Zulu has to say about the new Codes. Is a fight brewing between her and Davies?