COMPLIANCE WITH EMPOWERMENT REGULATIONS: Initial empowerment based only on transfers of equity had largely failed to address issues of inequality as equity deals focused mainly on people who already had the skills to participate in the formal economy but lacked the opportunity to do so. A large number of people with low or no skills need to be brought into the mainstream economy. Diverse empowerment options are available to companies to help achieve this.

Direct empowerment may be achieved through the transformation of ownership and management. Human resources empowerment may take place through employment equity and skills development. Indirect empowerment may be achieved through preferential procurement and enterprise development. Through adopting a combination of these mechanisms, companies will be allocated an empowerment rating upon which they will be able to participate in the economy.

ADAPTING TO EMPOWERMENT: The period of empowerment denial in South Africa that characterised the business sector between 1994 and 2002 was brought to an end by the adoption of industry charters, empowerment legislation, and the recently published draft codes of good practice.

The drafting of regulations was followed by a period of resistance and anger during which companies realised that the failure to comply with empowerment requirements would lead to their losing business. Even companies that indirectly supplied state contractors came under pressure as the effects of procurement conditions trickled down through various tiers of business from primary contractors to second and third tier suppliers.

The danger of losing business brought companies that initially resisted empowerment to a point where they were willing to bargain in order to survive. This bargaining stage is where many South African companies currently find themselves.

Bargaining is characterised by a focus on scorecards. Companies try to circumvent certain of the conditions in empowerment regulations and increasingly sophisticated forms of fronting come to the fore. Scorecard focused strategies are not based on sound economic principles and benefits do not accrue to their intended beneficiaries. The high cost of funding certain deals that resulted in repeated refinancing without any benefits accruing to the beneficiaries is an example.

The rejection of unviable empowerment initiatives by ratings agencies such as Empowerdex forces businesses to return to the design phase of empowerment. The cycle of planning and rejection will continue until companies come up with strategies where their stated empowerment intentions and their actions correspond.

This represents the final stage of empowerment. The companies that first reach this stage will have a competitive advantage. This advantage will, however, gradually disappear as more companies in a sector become BEE compliant.

THE FINAL TEST: The ultimate test of the success of empowerment policy in South Africa will be how many people are extricated from a life of poverty and inequality in the next five years through deals negotiated in terms of empowerment regulations.