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A Tangled Web: The Perceived Influence of Broad-Based Black Economic Empowerment Legislation on Corporate Social Investment in South Africa

May 1, 2015

This paper explores the perceived role of the Broad-Based Black Economic Empowerment (B-BBEE) legislation and it's Codes of Good Practice on the nature, scope, extent and reach of Corporate Social Investment (CSI) in South Africa. Through a mixture of scarcity of data, ambiguity in legislation and laxity in interpretation and application of the B-BBEE codes, the research provides as many questions as it does answers. Key findings, however include: Though the B-BBEE codes are not mandatory, they have become a part of the commercial landscape and a necessary consideration for larger corporates doing business in South Africa. B-BBEE, though not intended as a CSI driver, has become a key de-facto driver of CSI and is now intractably weaved into the foundations of CSI planning and implementation. The codes generally are seen to be limited in influencing the motivations or rates of spend of large corporates, but are perceived to have had a much stronger influence on smaller businesses. Statistical data on this, however, does not exist. When it comes to large businesses governed by Industry Charters, however, the influence appears to be much stronger. Larger corporates, however, seem to be accounting more precisely for their CSI spend as a result of the codes, and are increasingly including non-cash giving in the CSI accounting. The inclusion of a de-facto CSI incentive in an economic transformation framework is seen to have narrowed CSI to the lens of the codes rather than allowing it to naturally broaden out. It is perceived that the codes have shifted focus away from development impact, and instead towards ensuring compliance and a tick-box approach to CSI. This appears to have isolated CSI from broader business practice, rather than aligning it. While the codes are not overly prescriptive on types of activities related to corporate giving, the looseness and ambiguity have unintentionally created a set of acceptable activities. The perception is that, as a result, flexibility in funding has been indirectly narrowed, that tangible, measurable outputs have been encouraged and that consideration of long-term impact has been limited. Funding for long-term systemic change is not seen as a norm. The ambiguity in the drafting of the codes has created much confusion, but also opportunities for much circumvention. There is little sign that the codes have incentivised companies to support the notion of black economic empowerment as a matter of conviction. Compliance with the letter of the codes, rather than their spirit, seems to be the order of the day. The ambiguity and complexity has further resulted in interpretation devolving to verification agencies, rather than remaining in the hands of the regulatory authorities. Funding for contentious social justice issues, are somewhat restrained by the codes, depending on issue area. It is perceived, however, that such funding would generally be shunned by corporates anyway, irrespective of the influence of the codes. The new codes, effective from May 2015, are seen as significantly changing the CSI landscape and having potentially disastrous outcomes for NPOs whose work does not fit within the revised priorities of income generation, enterprise development, skills development, education and training. The structure of the codes have meant that a sizable portion of the business sector potentially lies out of the sphere of its influence; opting out, however, is much easier for smaller and medium sized businesses The codes are weaker for not aligning with other regulatory and non-regulatory CSI incentives, nor with broader development plans that focus on aspects beyond economic transformation. The codes serve as both an incentive and a mandatory requirement, depending on several factors, again, leading to further complication. Investigation needs to be undertaken on appropriate regulatory mechanisms, and comparative analyses on the structure of CSI regulations in Mauritius, Indonesia and India may be instructive in this regard. Measurement of the influence of the codes is severely hampered by a lack of systemic longitudinal data on the CSI practices of business in general, and Small and Medium Enterprises in particular. Any further research on the role of the codes will require more intensive and broad ranging primary data as a first step.