On 12 April, South African President Cyril Ramaphosa signed into law the Employment Equity Bill. The bill aims to promote ‘diversity and equality in the workplace’ by empowering the government to set specific equity targets by sector and region. The reason this is necessary is that the racial composition of the workplace still does not reflect the South African population three decades after the end of apartheid, and previous policies at ‘transformation’, an unfortunate euphemism for such racial rebalancing, have failed.
The law gives extraordinary power to the Minister of Employment and Labour. Any company with more than 50 employees must submit an employment equity plan. The plan must stipulate how the company will reach their designated racial targets within five years. It is the Minister who sets these targets at an industry and regional level. This does not only apply to companies that do business with the state; every company with 50 or more employees will be forced to comply.
The Bill’s signing, after it was passed by parliament almost a year ago, comes at a time when South Africa can ill-afford policy mishaps. The IMF expects South Africa to grow at 0.1% in 2023 ‘mainly due to a significant increase in the intensity of power cuts’. On the same day Ramaphosa signed the Bill into law, South Africa entered Stage 6-loadshedding, meaning South Africans experienced at least four hours of power cuts per day. And one day later, South Africa held its fifth and final investment conference in Johannesburg. In the brochure prepared for delegates attending the conference – optimistically titled ‘South Africa: Replete with opportunities for a better world’ – there is no mention of employment equity or transformation targets.
Although much progress has been made since 1994, there is little doubt that more should be done to address the inequalities of the office. One reason for the slow progress, for example, is the large differences in levels of education between black and white South Africans. Although, by 2020, 1.1 million black South Africans had a degree compared to 630 000 white South Africans, the relative share is important: one in every four white South Africans has a degree, compared to one in twenty black South Africans. White South Africans also tend to be older, with more job experience. Several apartheid-era policies are the cause of this inequality: the Colour Bar meant that black employees could, for much of the twentieth century, only be employed in unskilled jobs. Bantu Education prevented black kids from attaining the quality education their white counterparts received.
An obvious policy lever – although, importantly, not the only one – would be to tackle this history of exclusion through the education system. Although there has been some progress in schooling outcomes – in a 2019 chapter, Servaas van der Berg and Martin Gustafsson report that ‘the number of black African youths attaining results which would allow them entry into mathematically-oriented university programmes increased by 65% between 2002 and 2016’ – that progress has not been fast enough to address the relative inequality; in 2016, Van der Berg and Gustafsson report, ‘white youths were still seven times more likely to achieve this status than black African youths’.
Addressing education inequality is a slow and difficult undertaking. Frustrated, the government has opted for a more direct approach – the current Bill. What can we expect to happen?
I propose at least five consequences for firms who are unable, for whatever reason, to comply with the racial targets. First, the somewhat arbitrary ceiling of 50 employees will ensure that many firms prefer to stay small. Outsourcing and automation are two ways to achieve this; do firms really need an in-house HR department if the same tasks can be performed by an outside firm or, perhaps, an app? Profitable firms that would have hired more workers, will be reluctant to do so if they fall just below the threshold.
Another concern is that the threshold is uniform across industries. A medium-sized tomato farm can easily employ hundreds of workers, making them a ‘big’ firm. Other sectors, like tech, don’t need many workers. In such industries, expect smaller firms to draw in those high-skilled white workers for whom jobs in bigger firms are now unavailable. Although many of these start-ups fail, it is usually also there that generational wealth is created. When Facebook bought Instagram in 2012 for $1 billion, Instagram had 13 employees. Midjourney, an artificial intelligence service that creates images, has 11; it already has more than 1 million users. Racial inequality may increase if more white workers end up working for start-ups.
A second response might be for larger firms to insource unskilled labour. Just as small firms might want to outsource to avoid hiring more workers, larger firms that do not meet the demographic targets might want to insource those services that are provided by unskilled – and therefore likely black – workers. Although this may be more expensive for those firms (which is the reason they prefer to outsource those services), it may be less expensive than whatever punishment government dispenses for noncompliance.
A third response may be international acquisition. It is unlikely that these rules would apply to international firms operating in South Africa. One way to avoid the rules, then, would be to headquarter in a different country, like Mauritius or the Netherlands, or simply sell to an international competitor. International firms may be keen, too, to acquire local companies with talented workers who are now, because of the law, deemed surplus to requirements. Such workers are in high demand abroad, either as immigrants or as remote workers.
A fourth response might be spatial concentration. The minister can set demographic targets based on regional racial compositions. That might mean that a firm located in the Western Cape would be able to employ more white and coloured workers than, say, a firm in Limpopo. If a Limpopo firm does not meet the local racial target, and no other workers are available, one solution would be to move to a region where the firm would meet the targets. That will only lead to racial segregation and, in all likelihood, speed up semigration to the Cape.
Finally, white workers deemed surplus to requirements and who cannot find work in small firms are likely to seek employment outside South Africa’s borders. Expect the steady increase in emigration to speed up, with serious consequences for tax revenue and house prices, to name just two.
This is a policy that, however you look at it, seems to just add further fuel to a South Africa burning. One important reason for the slow progress in workplace transformation is that our poor education system has remained the main barrier to upward mobility for millions of South Africans. A BEE policy won’t solve it. At best, it will increase red tape but will not be enforced diligently. At worst, it will be the final nail in the coffin for many entrepreneurs who have survived weakening service delivery, lockdown and loadshedding, with devastating consequences for all South Africans.
An edited version of this article was first published on News24. Photo by Who’s Denilo ? on Unsplash.
Question. Why should the "racial composition of the workplace" reflect the South African population? This is such a far fetched idea. If a Xhosa opens a business in the Eastern Cape, must he forcibly employ "whites". And if an Afrikaner has a business in Venstersburg in the Free State, must he be forced to employ Sothos? (Yes, I also address this partly in your article) So because blacks generally procreates more, they should be represented more in the workplace? This is not rocket science. As you stated in the end of your article, it only adds fuel to the fire.
Seems to me the transformation goals, as the primary target of the Employment Equity Bill, has become more complicated. I ask myself what do we know about the performance of highly transformed organisations in SA? The answer is rather mixed, while we know some success stories (some private sector companies, SARS, etc.), we also see evidence of severe problems (the Post office, Eskom, SAA, etc). Thus, it seems transformation management is becoming even more challenging.