South African Institute of Race Relations NPC

South African Institute of Race Relations NPC

Oral Submission to

Parliament’s labour portfolio committee

on

the Employment Equity Amendment Bill of 2012 and

the Employment Services Bill of 2012,

Cape Town, 8th August 2013

Introduction

Statutory racial discrimination in the apartheid era was profoundly damaging to black South Africans, pervading every aspect of their lives from the cradle to the grave. It made upward social mobility much more difficult for Africans to attain, for many of the normal foundations for this – adequate housing, good schooling, skilled employment, property ownership, business operation, and the accumulation of capital over time – were barred to them in whole or part. Africans thus experienced severe economic blows, while suffering the daily humiliations flowing both from these restrictions and the pervasive sense of being `second-class’ citizens.

Hence, when the political transition took place, the 1996 Constitution strongly emphasised the vital need to prevent any return to racial classification and racial discrimination. It also acknowledged the importance of providing appropriate redress to those who had suffered from apartheid’s manifold injustices. ‘Non-racialism’ is thus identified as a core founding value of the Constitution, while the equality clause (Section 9) guarantees equality before the law to all South Africans. However, as a departure from these general principles, the equality clause also allows the taking of ‘legislative and other measures designed to…advance persons disadvantaged by past discrimination’.

During the constitutional negotiations, all parties to the talks – including the ruling African National Congress (ANC) – accepted that Section 9(2) required a form of affirmative action that would focus on training and ‘inputs’ rather than quotas or ‘outputs’. Says former state president F W de Klerk, ‘There was never any talk about imposing demographic representivity.’ Instead, it was widely agreed that ‘the most important and effective form of affirmative action was through the provision of excellent education…and the creation of employment’.

However, the quality of schooling has remained very poor since 1994, while the drop-out rate in the further education and training (FET) band is very high. Thus, of the million or so pupils who enrolled in Grade 10 in 2010, only 37.5% succeeded in passing their matric in 2012. In addition, only 13.5% of the initial Grade 10 class obtained a bachelor’s pass, while a mere 8% passed mathematics with 40% or more. In 2012/13, on the Global Competitiveness Report of the World Economic Forum, South Africa ranked 140th (out of 144 countries) for the ‘quality of its educational system’. It ranked even lower (at second last) for the quality of its mathematics and science education. South Africa’s score overall educational score has also declined, for in 2010/11 it ranked 130th out of 139 countries, while in 2011/12 it ranked 133rd out of 142 countries.

In addition, joblessness among Africans has more than doubled since 1994. Between 1994 and 2012, the number of Africans unemployed on the official definition (which excludes discouraged workers no longer seeking jobs) went up from 1.6m in 1994 to 3.8m in 2012. In the same period, the number of unemployed Africans (on the expanded definition of unemployment, which includes discouraged workers) went up from some 3.2m in 1994 to 6.8m in 2012. The latest figures show an even bleaker picture, for by June 2013 the number of Africans officially unemployed had risen further to 4m. Overall, the number of such unemployed Africans has thus gone up by 142% (or almost three times) in the 19 years since 1994. Among black youth, moreover, joblessness is even higher, standing at over 50% on the official definition.

Yet what the poor want most are jobs, as a recent study by the Unilever Institute at the University of Cape Town has (once again) confirmed. According to The Majority Report 2012 recently released by the organisation, ‘the number one aspiration of adults living in relative poverty is to get a job’.

This aspiration is easy to understand, for though the Government has extended social grants to 16m South Africans, these cash payments are mostly small and are targeted primarily at children and the aged, not adults who are unemployed. In addition, despite the Government’s many successes in rolling out housing, piped water, and electricity to millions of households that earlier lacked these, people living in these RDP houses need income to sustain themselves. They also need money from employment to pay for the maintenance of their new homes and the costs of electricity and water where their usage exceeds the free basic minimum.

Having an income from employment is also the foundation for self-reliance and human dignity. The minister of finance, Pravin Gordhan, recognised this reality in February 2012 when he wrote: ‘It is jobs that are fundamental to people’s lives…and their ability to improve their living standards.’

However, for new jobs to be generated on a scale sufficient to meet demand, millions of poor people need much better skills, while South Africa must urgently begin to notch up much higher rates of investment and economic growth. Only then will business be able to generate the millions more jobs that people want and the ANC Government has long been seeking to achieve. However, the current Employment Equity Act of 1998 (the EE Act) has already undermined growth and jobs, while the Employment Equity Amendment Bill of 2012 (the EE Bill) now threatens to make the situation even worse.

Two key features of the EE Bill

Time constraints compel a focus on two key features of the EE Bill: its attempt to brush aside the practical importance of skills shortages and financial constraints; and its aim to triple, at the very least, current fines for non-compliance.

Brushing aside skills shortages and economic constraints

Under the current EE Act, the director general, in seeking to enforce a firm’s racial targets, must begin by noting the size of ‘the pool of suitably qualified people from designated groups from which the employer may reasonably be expected to promote or appoint employees’. He must also consider relevant economic factors in the sector, along with the financial circumstances of the employer and ‘the progress made by other designated employers operating under comparable circumstances’.

These provisions have reportedly made it difficult for the Department of Labour to prosecute firms for not meeting their racial targets. The EE Bill thus summarily removes these provisions without in any way addressing the practical problems these provisions are intended to cater for.

The first practical problem is that the target of demographic representivity at all levels, including the most senior, is unrealistic. The EE Bill assumes, as does the Act itself, that all Africans between the ages of 16 and 64 who work (or wish to work) are qualified for appointment to management posts, irrespective of whether they have jobs at all (and many are unemployed, despite their ongoing attempts to find work), and also irrespective of their age (17, 20, 25?), work experience (none, two years, five years?), or post-school qualifications (very often none). However, this is simply not a valid assumption. In fact, only 3% of Africans have completed the tertiary studies often needed for management jobs, while many of these individuals have only recently qualified and are too young to have gained the experience needed for management positions.

The second practical problem is that the skills shortage remains very real. Historically, this has its roots in Bantu Education and other relevant factors, but it has also been compounded by the poor performance of the education system in the post-apartheid era. The upshot is a skills deficit which is so acute that many firms are paying premiums of between 10% and 30% to attract and/or retain the services of black managers and other skilled black professionals. These premiums show the extent and salience of the skills shortage. They also confirm that the skills deficit is the key issue that needs to be addressed – not a racist refusal on the part of business to employ black people.

Instead of recognising or addressing these practical problems – or the financial difficulties that many employers face at a time of low economic growth and rapidly rising electricity and other input costs – the EE Bill simply removes these important provisions from the current Act. Instead, it puts the onus on the employer to show what ‘reasonable steps’ he has taken to appoint, promote, and train black people and implement his employment equity plan.

The current EE Bill is better than its 2010 predecessor in that it does also allow the employer to ‘raise any reasonable ground to justify his failure to comply’. This clause opens the door for the employer to cite skills shortages and financial factors in his defence. However, the onus will lie on him to prove that such factors give him ‘reasonable grounds’ for failing to meet racial targets. This burden of proof might not be easy to discharge, especially if the Department of Labour persists in dismissing the skills shortage as nothing but an ‘urban legend’, as Jimmy Manyi, a former director general of labour, said in 2007.

Increased penalties

At present, maximum fines for employers who fail to meet their racial targets at management levels range from R500 000 for a first ‘offence’ to R900 000 for a fifth within three years. Under the EE Bill, by contrast, maximum fines for any failure to meet racial targets will start at either R1.5m (three times the current maximum) or 2% of annual turnover, whichever amount is the greater. For a fifth similar ‘offence’ within three years, maximum fines will be either R2.7m (again, three times the current maixumum) or 10% of annual turnover, whichever is the larger. This means that maximum fines will triple, at minimum, and could go even higher.

Fines of this magnitude will also apply to designated employers who fail to submit their employment equity reports, adopt successive employment equity plans, or implement the instructions of the director general of labour.

For other, more ‘technical’, offences under the EE Act, maximum fines will range from R1.5m for a first transgression to R2.7m for a fifth similar contravention within three years. Such fines will apply to firms that fail to analyse black under-representation, assign senior managers to implement EE plans, display notices informing employees about the EE Act, keep prescribed records, or supply the director general of labour with information at his request.

These proposed fines are extraordinarily severe, especially when the skills deficit – coupled with the extent to which available skills have already been absorbed into the better-paying public service over the past 15 years – make it difficult for firms to increase black representation at senior levels. These fines are also high enough (as the Government’s own regulatory impact analysis warned in 2010) to put many firms out of business. This could cost the country many more jobs, while hobbling the growth rate and making it harder still to raise this to the average of 5.4% a year advocated in the National Development Plan (NDP).

The EE Bill will harm, rather than help, apartheid’s former victims

For millions of black South Africans lacking skills and, very often, jobs, the need for redress for apartheid’s wrongs has remained largely unmet since 1994. Unfortunately, moreover, their need for redress is unlikely ever to be fulfilled via either the EE Act or the EE Bill. Even if every management or professional post in the country were to be set aside for Africans, there would be too few such positions to help the great majority of apartheid’s former victims.

What the poor need most are jobs, as the recent Unilever study, a host of other research studies, Mr Gordhan, the governor of the South African Reserve Bank, Gill Marcus (in a speech last week), and other ANC leaders have repeatedly confirmed. Instead, the EE Bill will further hobble economic growth and make it harder still for between 4m and 7m unemployed Africans ever to find work.

In considering the EE Bill, Parliament’s main duty is to help the truly disadvantaged rather than a relatively privileged black ‘elite’ whose scarce skills already allow it to command significant salary premiums. In addition, the legislature should avoid adopting a measure which goes far beyond the ambit of Section 9(2), with its intended emphasis on inputs and training, rather than outputs and quotas. This committee should thus reject the EE Bill and send it back to the department to be entirely recast, along with the EE Act itself.

Employment Services Bill of 2012

Given time constraints, only the three most damaging features of the Employment Services Bill (ES Bill) can be canvassed here. These are its additional requirements it imposes on foreign workers, the administrative burden it is likely to generate, and the restrictions it places on private employment agencies.

Increased requirements for employing foreign workers

Though the current ES Bill is better than its 2010 predecessor, it still allows the minister of labour (‘after consulting’ a new employment services board appointed by her) to make regulations requiring employers to:

• satisfy themselves that ‘there are no other persons in the Republic with suitable skills to fill a vacancy’; and
• make use of either public or private employment agencies to assist them in recruiting suitable South African employees.

Employers, even though they have already obtained permission to employ foreigners under the Immigration Act of 2002, will thus also have to show that a countrywide search has turned up no other suitable applicant. They could also be compelled to use the State’s employment agencies, despite the latter’s poor performance record (see below). This could deter companies wanting to establish new operations in South Africa. It will thus add a further barrier to foreign investment at a time when ratings downgrades, labour unrest, high input costs, and political uncertainty are already helping to curtail direct investment and retard the growth rate.

Moreover, as the governor of the South African Reserve Bank, Gill Marcus, has recently stressed, South Africa needs to be importing many more skilled workers, ‘because each skilled immigrant could create up to eight low-skilled jobs’. Instead, the ES Bill allows the Department of Labour to duplicate a key function of the Department of Home Affairs, which already has onerous requirements in place for the employment of foreigners. The Bill effectively establishes a parallel system for the regulation of skilled immigration, thus erecting still more barriers against the entry of the skilled people South Africa so urgently needs to help counter its massive unemployment problem.

An increased administrative burden

Unlike its 2010 predecessor, the current ES Bill no longer obliges all employers to notify the department of all vacancies and appointments. However, this gain seems tenuous at best, as the ES Bill now empowers the minister of labour to ‘make regulations requiring employers to notify the department of any vacancy …and the employment of any work seeker referred by a labour centre’.

The ES Bill also requires the department to ‘develop and operate an employment information system’, which must include details of work seekers and employers, plus vacancies in the labour market and available training opportunities.

This information system is supposed to help the department ‘monitor, evaluate, research and analyse trends’, but the data to be gathered is unlikely to provide useful insights. The Bill thus requires a costly administrative exercise that offers little value in return. In 2010 the department’s own regulatory impact analysis (RIA) warned that the compulsory reporting of vacancies – which this provision could reintroduce – could add R3.1bn a year to departmental costs. It could also, of course, impose a significant administrative burden, and yet further costs, on all employers – and especially on the small private sector firms on which South Africa primarily relies to generate the jobs required.

Restrictions on private employment agencies

The ES Bill requires all private employment agencies to be registered and licensed by the State under criteria to be laid down by the labour minister, after consulting the new board. Private agencies may not provide any employment service which is not expressly authorised, while their registration certificates must state whether they are allowed to function as labour brokers (temporary employment services) or not. The Bill is thus clearly intent on controlling – and perhaps prohibiting – labour broking, even though there is little evidence to support the accusations of ‘human trafficking’ and the like which have been made against labour brokers.

On the contrary, labour brokers play a vital role in generating employment. According to Adcorp, a labour broker and private employment agency, both it and other firms like itself have succeeded in ‘introducing 5.4m people to the world of work since 2000’. Labour broking is also now a R45bn industry, which employs around 20 000 internal staff, keeps about 1m people in temporary jobs on any given day, and makes it possible for 40% of these workers to move to permanent posts within three years. The sector thus provides a vital ‘stepping stone for inexperienced black youth into formal permanent jobs’.