In a display of ethnic nationalism and faith in central planning, the government released its new racial workforce quotas for private companies last week.
Since 1994 the ANC has strived to allocate government jobs along the racial lines of the breakdown of the South African population. The groups it is designed to benefit, the “designated groups,” are black people, women and the disabled. Under pressure to achieve higher Black Economic Empowerment (BEE) ratings to obtain government business, larger South African companies have long given a priority to hiring on a racial basis.
Higher BEE ratings give companies a better chance at government contracts and also of doing business with companies that deal with the state, who need good scores in this area.
But the ANC did not believe these regulations were doing enough. Last week the Department of Labour and Employment, issued multiple racial employment workforce quotas under the Employment Equity Amendment Act. With the regulation in force, private companies with more than 50 workers will have to adhere to a racial quota system, whether they need government business or not.
If they fail to meet these quotas in five years, they could face a fine amounting to ten percent of their turnover. That just might send some companies, that are not in profit or have very narrow margins, into bankruptcy, and in the process wipe out many jobs.
Numerical quotas
Racial quotas have been decreed for the workforce in 18 economic sectors, in five categories – Top Management, Senior Management, Professional Qualified and Middle Management, Skilled Technical, and Disabled Only. In turn the four job categories are divided into Male and Female. That makes for a total of 162 sector, job, and gender category numerical quotas. In most cases the required percentages of the workforce are given to one decimal point.
Thus, a company with more than 50 employees in the Administrative and Support Activities sector must meet a 33.2 percent quota for designated groups in the Top Management category. So, what happens if a company in this category with 100 employees, fails to meet its quota by 0.2 percentage points. The government seems intent on opening itself to ridicule. But that is what happens with race laws.
Clearly the civil servants have a lot to tell business, yet have problems in running their own departments and have driven the state-owned enterprises into the ground. They are intent on taking away a large element of business discretion in hiring, although they don’t face the risks that arise from this.
The industrial categories for the race quotas are wide and ill defined, and the overall maths behind the scheme is unclear, say some of those who attended the labour department’s consultations. The labour department has taken the trend in all the categories over the past two years and then extended these to establish the targets that must be met in five years’ time.
Nuclear option
If this is the apparent trend under existing regulations, why is there a need to take up the nuclear option and threaten companies with crippling fines?
The regulations stipulate that an employer will not incur penalties if there are “reasonable grounds” for not complying with the legislation. Grounds companies can cite for failure to meet the targets are insufficient recruitment and promotion opportunities, not enough individuals with relevant qualifications, impact of a court order, a business transfer, mergers and acquisitions, and the impact of economic conditions. These might seem wide and generous but it makes for yet another bureaucratic hoop through which business must jump.
The Department of Labour and Employment calls the targets released last week “a pivotal step toward advancing transformation and inclusivity in the South African labour market.”
It is unlikely to achieve that and instead risks jobs and growth. These tight regulations could also mean that due to the paperwork and risk of fines, many companies will cap their growth and stay under the 50-employee threshold. Others might split themselves into separate operations that do not employ more than 50 people. That is all a big hassle for business and creates yet another reason not to invest, grow and do business in South Africa.
With high unemployment, offering promises for jobs through preferential hiring is an attempt to lure support for the ANC in its death spiral. It just won’t work as jobs will not be created in sufficient numbers in an anti-growth and anti-jobs regulatory regime. It is an attempt at dividing rather than growing the jobs pie.
We also know that the main beneficiaries of such racial preferences tend not to be the underclass, but those in a good position to grab opportunities, people who have had access to good schools, universities, and training.
Thwarted
Based on our experience and that of Malaysia, we know what happens with preferential hiring and ownership along racial lines. Those who feel thwarted in their job opportunities, mainly whites in South Africa and Chinese and Indians in Malaysia, tend to go where they are wanted and can obtain promotions. Such racial hiring scares parents who worry about whether their children will have good educational and career opportunities if the trend is toward an ever-stricter emphasis on race.
India has one of the oldest affirmative action programmes in laying down quotas for the Dalits, members of the lowest rung in the caste system, for seats in parliament, government jobs, and educational institutions. Due to high unemployment, politicians tend to promise that affirmative action will be extended to the private sector to ensure jobs for the Dalits. It has not happened yet, but what this demonstrates is that the use of affirmative action has its own political momentum.
Affirmative action schemes always run into problems about their basic logic. It might be argued that race alone is too broad a category although this does not entirely coincide with unemployment and disadvantage. Why should people who have been to private schools and good universities derive advantages from a system because of racial identity?
What if other categories such as region and parents income were chosen. Vested interests tend to be against this as it just might disadvantage them.
As with most attempts at racial engineering, these regulations are more likely to constrain jobs growth and the economy. During apartheid the lack of training opportunities for black people and job reservation for whites created critical skill shortages and slowed growth.
The new regulations will be challenged in court by the Institute of Race Relations and jointly by the employers’ group the National Employers Association of South Africa and Sakeliga, the small business association. It is good that a court battle will soon begin. If the new race quotas are shot down, the ANC just might have problems in maintaining the race-based legal framework and patronage system.
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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