The Future of the PPRA and the Involvement of Sakeliga

Abridged speech delivered by Sakeliga CEO Piet le Roux to a seminar for estate agents, Somerset West, 27 September 2024

A while ago I was invited to address the Black Business Council’s annual conference on why Sakeliga opposes BEE and what we intend to do about it.

The invitation came after we had secured the first major court victory against BEE in state procurement. Despite some apprehension on my side, I was gracefully welcomed at the event and respectfully listened to. Interestingly enough, the topic of BEE has shifted from being too sensitive to openly criticise in public to the point today where virtually everyone realises that something is seriously amiss.

I will also be forthright in my talk today, about the political policy of BEE in relation to property businesses: at Sakeliga, we believe it is harmful and that it should be ended.

Key to this endeavour is checking the power of the Property Practitioners Regulatory Authority, the entity that in March this year announced that BEE compliance would henceforth be a prerequisite for being an estate agent, managing agent, bond originator, property developer, and eight further types of businesses.

Ladies and Gentlemen, I see two futures for the PPRA in relation to BEE.

In the one, it continues down the path of BEE licensing and becomes a harmful political lever for maintaining race-based access control to the economy. In the other, it is forced to abandon its planned enforcement of BEE and constrained in its operations to non-political and mundane regulatory tasks.

What we do in the next few months and years will determine where we allow the PPRA to go.

What happened in March

In March 2024, a major disruption hit estate agents and other businesses dealing in some way with fixed property.

It was during a webinar in that month that the PPRA announced that it would henceforth require BEE compliance before issuing or renewing fidelity fund certificates.

In the words of the PPRA’s presenter: “if you score anything below 40 and if your BEE certificate is non-compliant, then we will not be able to issue you with a Fidelity Fund certificate.”

Since the Property Practitioners Act prohibits doing business as a “property practitioner” without a Fidelity Fund certificate, the PPRA’s threat was existential. It affected you not only if you were operating as an estate agent or one of the other 40,000 FFC holders, but also if you were a property developer, property administrator, landlord, direct seller of fixed property, bond originator, auctioneer, and so on.

All these businesses were – and as we shall see – are at risk of being prohibited from operating. Among the 40,000+ annual recipients of Fidelity Fund certificates, most at risk were – and are – small, medium, and family-owned businesses.

How Sakeliga responded

At Sakeliga, we refuse to accept this kind of conduct by a regulator.

The PPRA was trying to make it illegal to operate a property related business unless you participate in B-BBEE. It was making political compliance a precondition for doing business and creating value in society. Such conduct is unlawful, harmful, and unconstitutional:

It was therefore not long before our first lawyer’s letter landed on the PPRA’s desk.

We insisted that it withdraws its policy and informed it that we will be litigating against it should it fail to abide by our demands. We then added to the legal process with extensive public campaigning, with substantial pressure on the PPRA. Several industry bodies and other role players made valiant contributions and efforts during this time.

In the meantime, in a letter to business in the various industries today considered “property practitioners”, we set out two reasons for why we believed a comprehensive legal challenge was necessary:

1. 2. First, the PPRA was acting unlawfully, because a certificate with zero B-BBEE points is as valid as any other. The Act does not authorise the PPRA to determine how many points a B-BBEE certificate needs.

   3. Second, the Act itself is arguably unconstitutional on two counts.

a. It is unconstitutional because the Act’s definition of “property practitioners” is overly broad.

When the Property Practitioners Act replaced the old Estate Agencies Affairs Act in 2022, it replaced the concept of an estate agent with that of a “property practitioner”.

Now, Fidelity Fund certificates are required not only of estate agents, but of all “property practitioners” including vastly different businesses, such as property developers, property administrators, landlords, homeowners’ associations, auctioneers, etc.

b. The Act is also unconstitutional because it states in section 50(a)(x) that “property practitioners” may obtain a Fidelity Fund certificate only if they possess a valid B-BBEE certificate.

While “valid” cannot be taken to mean compliance with B-BBEE at certain thresholds, the certification demand is itself an unjustified, costly, and harmful infringement on the freedom to do business and serve society.

We invited business to contribute to both this challenge and to Sakeliga, to make this possible.

The tactical retreat

Finally, in August, the PPRA backed down.

Faced with the prospect of a defeat in court, the PPRA had it made known that it would no longer require level 8 BEE compliance before issuing FFCs. This was an important tactical victory for Sakeliga, industry bodies, and the businesses that contributed to make it possible.

However, it was not a complete victory and much still hangs in the balance.

A proper assessment of this balance starts with the strange way in which the PPRA conducted its retreat – not by public announcement, but merely with a letter by its board chairman to the CEO of one of the industry bodies. The board chairman’s letter relayed that the PPRA had sought legal advice and would no longer be requiring level 8 B-BBEE certificates with new FFC applications.

At last, its counsel had confirmed what our legal team had spelt out in letters of demand to the PPRA: that the Act’s reference in section 50(a)(x) to a valid BEE certificate cannot be construed to mean a certificate of BEE compliance – not at level 8 nor at any other level.

Notably, the PPRA board chairman makes clear that the PPRA backed down on legal grounds alone. Not only does his letter lack an apology, but it shows, more importantly, no acknowledgement whatsoever of the disruption, ethical complications, and already-incurred costs that come with being threatened with restriction of economic participation based on race.

Remarkably, the PPRA has to this date failed to make a public announcement.

After half a year of extreme disruption, costly legal procedures, and existential threats to thousands of businesses far beyond just estate agents, the PPRA still expects you to be satisfied with second-hand information. The board chairman and the PPRA’s conduct is not only unprofessional but a wholly inappropriate way to communicate official regulatory policy. His conduct points to a desire at the PPRA to do the minimum to avoid litigation while keeping all options open to review its position in future or avail itself of alternative means to the same ends.

In fact, in his letter, the board chairman explicitly stresses that the Board remains steadfast in pursuit of ‘transformation’.

This open-ended and nebulous political policy called transformation, while having understandably found a foothold in policy discussions, puts businesses and industries at a disadvantage because it implies that so-called ‘untransformed’ businesses – whatever that conveniently means – are committing a wrong, when there is in fact no basis that they have.

Ladies and Gentlemen, understandably the word “transformation” has entered common usage among well-meaning people – and I have used it myself at times – but the word is highly problematic. It signifies not some eternal and objectively meritorious concept, but rather the concrete policy of one particular political party. And businesses should be loathe to commit themselves to the policies of particular parties.

At Sakeliga, we think the time has come to ask hard questions about political engineering, rather than indulging rogue regulators who use seemingly positive words to implement hard-line party political and ideological policies.

Whenever the temptation arises to use the word transformation, I am reminded of the importance of words and their meaning, and have along the way come to the conclusion that a new vocabulary for a flourishing industry, economy, and society is dearly sought.

Sakeliga se Missie: Bou Skaalbare Oplossings Teen Staatsverval

• Sluit aan by duisende toegewyde, missie-gerigte befondsers
• Beskerm ons gemeenskappe teen ’n mislukkende staat
• Verseker ’n florerende ekonomie in die plek wat jy liefhet

Ons Missie & Impak

The crucial role of legal processes

Now, I have heard a view expressed that the PPRA’s reversion to a more defensible interpretation of section 50(a)(x) came about thanks to dialogue between industry role-players and the PPRA, without engaging in costly and lengthy legal processes.

I do not think this view is correct.

While Sakeliga also always prefers dialogue to litigation, dialogue without leverage is seldom – if ever – enough.

Very much has in fact been spent on legal processes and otherwise, not only by Sakeliga and those who have helped fund us before and more recently, or by all the industry bodies who sought legal opinion and advice, and not only by the PPRA who would easily have wasted a small fortune on the legal opinion that told them what all of us had already spelled out, but also – and most importantly – by businesses.

Enormous costs have been expended by businesses who sought legal advice, consulted with BEE advisors, and who had to ascertain what this meant for their organisations. Some even hastily started taking wasteful steps aimed at securing BEE compliance (partly as the PPRA unlawfully intended).

Indeed, it is quite possible that during this period, some operators decided to close their doors and do something else rather than face the compliance burden that the PPRA intended to enforce, or pulled out of transactions and investments.

It was thanks to costly and lengthy legal processes that enough leverage could be brought to bear on the PPRA to have them concede the point.

At Sakeliga, we have seen how firm and focused legal challenges actually turn out to be the most affordable option by far, because it greatly decreases the amount of money that has to spent and lost all over the place when legal efforts are uncoordinated.

Beyond Litigation: Maximum Achievable Non-Compliance

But litigation does not solve everything.

In our letter to business in April and since, we also recommended a certain approach business may follow to stem the tide of harmful state interference.

We call this approach “Maximum Achievable Non-Compliance” – or MAN – and it is how responsible businesspeople can contribute in everyday ways to preventing BEE from becoming a requirement for economic participation.

What is Maximum Achievable Non-Compliance?

It is an approach by business owners to treat BEE requirements as unethical directives because of the harm they do to individual businesses and the common good. Where one judges non-compliance unfeasible, complying with BEE would be acceptable, but wherever feasible, ethics require non-compliance.

Businesses would be wise to obtain sound legal advice on this, as both non-compliance and compliance with BEE carry their own risks.

On the one hand, refusing to comply with a regulator’s unlawful or socially harmful demands is ethically acceptable but may expose you to the risk of legal expenses and various obstructions to doing business. It must therefore not be plunged into at all costs and blindly.

On the other hand, compliance feeds a rogue regulator that will keep escalating its unacceptable demands until you eventually lose your business or leave the industry.

Sound advice should take into account the risks and costs associated with both compliance and non-compliance and should seek to find viable avenues for delaying compliance as much as possible.

The way forward

The retreat by the PPRA from its level 8 requirement removes, for the time being, the most urgent element of the threat Sakeliga highlighted in April and on which we were preparing court papers.

However, two of the three elements we pointed out remain.

Sakeliga will therefore, with your support, continue to prepare our legal challenge and bring it to court at the appropriate time.

First, there is the Act’s requirement that not only estate agents, but all property practitioners must have a fidelity fund certificate. This improperly expands the reach of the PPRA over thousands of businesses and trillions of rand of turnover. This should be reversed.

When the Property Practitioners Act replaced the old Estate Agencies Affairs Act in 2022, it shifted its focus from “estate agents” to the newly minted concept of “property practitioners.”

Today, Fidelity Fund certificates are required not only of estate agents who hold money in trust, but of all “property practitioners” spanning twelve different industry categories with vastly different businesses, including estate agents, property developers, property administrators, landlords, homeowners’ associations, auctioneers, bond originators, etc.

Second, the Act still stipulates that fidelity fund certificates may only be issued to applicants with a valid B-BBEE certificate. At least for now, the PPRA is reverting to accepting that “valid” cannot be taken to mean “compliance” with B-BBEE, yet the certification demand is itself an unjustified, costly, and harmful infringement on the freedom to do business and serve society. The certificate requirement serves no legitimate government purpose, since there is no relationship between fulfilling the inherent requirements for a fidelity fund certificate and having a B-BBEE certificate or not. The requirement itself should be scrapped.

Adding insult to injury, the certificate requirement extends even to those thousands of businesses that do not participate in BEE, bizarrely requiring them to fork out in the region of R10 000 every year just to buy and submit a “valid” yet “non-compliant” B-BBEE certificate.

The bigger picture: Third Wave BEE

Thanks to support by some of you and others, Sakeliga is able to evaluate threats in a larger context than just one industry. What the PPRA is doing is not an isolated matter but part of a broader strategy in which state regulators use a two-phased approach to enforce BEE.

This two-phased threat has not been staved off permanently by the latest PPRA move, only temporarily.

In phase one, the foundation is laid. First, where feasible, the state redefines an industry in a way that vastly extends the reach of its regulator. The regulator then gradually implements compulsory BEE reporting, though usually without attaching significant penalties to non-compliance, as if the reporting is only for statistical purposes.

In phase two, with the Trojan horse in place, the regulator starts enforcing compliance on an industry now used to BEE reporting. The pretence is dropped and gradually all businesses – even those who have no contracts with the state – are required to comply with ever-increasing B-BBEE demands or face prohibition from doing business at all.

We call this latest two-phased approach the third wave of BEE, because it is no longer focused just on big corporates like the first wave in the 1990s, nor is it focused on businesses with state contracts like the second wave thereafter. Beyond the “property industry” we see this same approach rolled out in the health products regulator, ICASA, the FSCA, the legal practice code, agricultural business, water licences, mergers and acquisitions, and more.

Businesses in South Africa find themselves at the cusp of this third wave of BEE, and it is crucial to stop it in its tracks before it becomes the new norm, spins out of control, and wreaks havoc with business, the public, and the country.

Next steps in litigation

Properly rolling back the Third Wave of BEE for property businesses requires that Sakeliga continues with its court challenge. We must put at least two crucial questions to the court:

2. Is it acceptable that unrelated businesses are grouped together as a combined profession under a regulator merely because of their business related to property for regulation without a legitimate government purpose?

3. Is it an acceptable and lawful governmental purpose that B-BBEE certification becomes a prerequisite for participation in the economy?

Since aspects of BEE are involved in the matter, the court case will be complicated and entail risk. However, the alternative is worse.

The two futures of the PPRA

The PPRA has two futures.

In one, it continues down the path of BEE licensing and becomes a political gatekeeper maintaining racial access control to the economy. Unimpeded, this is the path down which it will go crashing and burning, causing great harm to you, your clients, the communities you serve, and almost everyone in this country.

In the other future, the PPRA is constrained and its powers rolled back.

You are able to build flourishing businesses, and you are able to join hands with people from any community to do business together, but you are not forced to. You are able to serve society by adding value, without political permission.

Getting to this second future requires dedicated and credible litigation, public pressure, and a comprehensive strategy across the economy.

It also requires a firm turn by individual business to become more and more resistant to unethical demands and determined to do business on terms of value creation.

Sakeliga’s recommendations

I close with four recommendations, given the recent progress, but also the remaining risks:

2. Businesses that have been denied an FFC based on B-BBEE compliance should reapply. If you are denied again, please let us know immediately.

3. Continue to do business on the basis of value, including with customers and partners from across communities and race groups. This can be done without and regardless of BEE. Where you are forced by government policy to compromise, do so within a framework of maximum achievable non-compliance.

4. Support Sakeliga to challenge BEE in the courts and beyond.

5. Encourage your industry body to remain firm and to not commit you or your industry to blanket compliance with political demands.

Ultimately, a B-BBEE certificate is a harmful political instrument and unrelated to business. It can never be a valid precondition to participating in the economy.