SA’s equity law could crush SMEs and kill investment

Transformation is Dr Cyril’s miracle cure that if ingested in sufficient quantities was supposed to eliminate all debilitating effects of apartheid. Instead, it is about to finish off the patient.

The gazetting of the department of employment and labour’s numerical employment targets, which form part of the Employment Equity Amendment Act (EEAA), was long anticipated and much dreaded by many.

It turns out that they’re even more draconian and destructive than was feared. The complex matrix of requirements across 18 economic sectors affecting any employer of 50 or more people has to be incrementally implemented over a punishing five-year schedule.

It effectively condemns hundreds of thousands of whites, as well as Indians and coloureds who are currently demographically “overrepresented” in their employment categories, to being surplus to the requirements of a desperately skills-short economy.

The end result will be wholesale destruction of jobs, with the DA estimating that 600 000 jobs will be lost. Foreign companies will slowly divest or at least put expansion on hold.

A Cape Town labour lawyer tells me that he has already been told by half a dozen international companies, each employing on average around 100 people, that they would rather shut shop than comply.

Especially concerned will be the more than 600 US companies employing over 200 000 people, operating in SA.

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The Trump administration’s legal onslaught on diversity, equity and inclusion (DEI) regulations puts them in a dilemma.

The Trump view is that DEI in the context of race-based hiring and firing amount to discrimination based on race or gender. This, goes the argument, is illegal and unconstitutional.

The matter is yet to be fully tested at the US Supreme Court level. In SA, as well, the EEAA regulations face legal challenges that will go all the way to the Constitutional Court before they can be fully implemented.

However, it’s not just a matter of businesses riding out a legal storm. For US companies and, to a lesser extent UK and EU ones, there are also significant reputational risks as the international political axis tilts towards the conservative end of the spectrum.

Some will decide that in a deteriorating economic environment, the game is no longer worth the candle. At the very least, the EEAA will be a disincentive to new business investment.

If the EEAA regulations are implemented as envisaged, they will cleave a swathe through an already frayed socioeconomic fabric.

Growth is already hampered by an intense shortage of skilled, experienced workers which, like it or not, are still concentrated among whites and Indians.

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To square the racial balance sheet, whites and, to a lesser extent Indians, will in some work categories become virtually unemployable.

Self-employment, retirement or emigration will be the only options for those with incorrect pigmentation. The EEAA is a disincentive to the growth of small businesses, which will try their best to remain under the 50-employee ceiling.

They will automate, mechanise, outsource, lay off staff and avoid any expansion that necessitates hiring more full-time workers.

Some medium-sized businesses already just keeping their heads above water will find the expensive administrative implications of such a complicated system the final blow.

They will also be unable to match the inflated salaries corporates can cough up to lure, in a tight skilled-labour market, the appropriate balance of race, gender and disability.

Family-owned businesses are particularly stuffed. How does a white family-owned farm slice and dice ownership in order, at best, to have no more than two-thirds of the “top management” with pale faces?

Certainly, and no doubt this is with calculated malicious intent, there will be no way that family farms that have passed from generation to generation will be able to continue the tradition.

But the highest cost is immeasurable. It’s the reminder to minorities that they are tolerated but not valued and that the degree of that tolerance is mathematically calculated according to their numbers, not their worth.

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