How to Drive Merit From the Private Sector

Issued By the FW de Klerk Foundation on 21/04/2023


Last week, President Ramaphosa signed the Employment Equity Amendment Bill (“EEA”) into law. Whilst few people would disagree with the Employment Equity Act’s goal of “eliminating unfair discrimination in employment” and ensuring equitable access to the economy for all South Africans, the EEA Bill is likely to have detrimental effects on the South African economy and society as a whole.

We need an open, equitable and non-discriminatory economy. However, critics fear that the Government’s goal in implementing this Bill will be to impose mathematical demographic representation in the private sector – as it has already done in the public sector – often with disastrous consequences.

The difference is that companies that go out of business because of their failure to appoint and promote key employees on the basis of merit, will not be bailed out with taxpayers’ money – as is the case with non-performing government departments and SOEs.

The Bill will empower the Minister of Labour “to determine sectoral numerical targets for the purpose of ensuring the equitable representation of suitably qualified people from designated groups (blacks, women and persons with disabilities) at all occupational levels in the workforce.” In effect, this means that the Minister will have the power to impose racial quotas on companies with more than 50 employees at all levels of employment.

Employers are then required to report on their progress towards achieving numerical targets in terms of racial, gender and other demographic categories. Failure to meet these targets can potentially lead to fines and other penalties. These punitive measures could result in many more businesses (which are still reeling from the impact of Covid-19) being forced to shut their doors permanently.

This would, undoubtedly, lead to job losses and reduced economic growth. While big corporates might still be able to comply with the new Bill, its targets and administrative requirements, privately owned small- to medium-sized businesses (often considered the backbone of a country’s economy) might not be able to do so. Instead of Government promoting an environment conducive to making business and creating much-needed jobs, this Bill infringes on private companies’ prerogative to employ the best candidate to do the job. In a highly globalised and competitive world, private companies simply cannot afford this kind of interference in crucial decision-making.

The Bill’s numerical approach fails to take into account the complexities of the South African labour market. Finding a suitable candidate is not a simple matter of counting heads in different racial and gender categories – as is the case with the government’s implementation of demographic representivity. Skills, experience and qualifications must be taken into account to ensure the person can actually do the job for which they are hired.

The Bill dangerously discriminates against citizens on the basis of race and is accordingly irreconcilable with the foundational value of non-racialism and with the clear requirements of section 9 – the equality clause.

Neither will the Bill do anything to advance equality. Despite three decades of affirmative action, today’s South Africa is considered the most unequal country in the world. Inequality within the black community is now almost as great as it is within society as a whole. Competition for appointments and promotions in the companies that will be affected by the Bill will increasingly be between middle class South Africans from all races. It will be quite possible for relatively advantaged black South Africans to be appointed and promoted, because of their race, ahead of less privileged minority communities – irrespective of their relative merits.

The legislation will not promote equality among the bottom two thirds of our society. Indeed, it may very well aggravate their situation if it leads to the closure of tax-paying businesses, job losses and to further economic decline. A shrinking economy would reduce their chances of ever finding employment.

The Bill’s other consequence would be to place bureaucratic barriers to the appointment and promotion of minorities simply on the basis of their race. This would inevitably lead to a further haemorrhaging of merit and talent from companies and from South Africa.

There are certain economic laws that governments cannot repeal, irrespective of the size of their parliamentary majority. One of them is the adamantine law that if you promote and appoint employees on any basis other than merit, you will drive merit out of your organisation. We have already seen what happens when this law is breached in the public sector and the SOEs. The Bill would wreak similar havoc in the private sector – the last functioning component of our economy.

Limiting a citizen’s ability to secure employment and promotion on the basis of their race is discriminatory and unconstitutional. Rather than dogmatically enforcing racial quotas on the private sector, Government should focus its efforts on improving the very poor quality of basic education and services to the two-thirds of our people who are seriously disadvantaged. It should adopt policies that will ensure rapid and sustained economic growth and job creation. This Bill will, unfortunately, serve only to accelerate economic decline and deepen the plight of the majority of South Africans.

The FW de Klerk Foundation firmly opposes the Bill, which represents a regressive step away from our foundational value of non-racialism in section 1 of the Constitution. The Bill in its current form represents a giant step towards the re-racialisation of our society and will negatively impact race relations and social cohesion.