Taxpayers have been warned that the National Treasury’s newly proposed procurement regulations will drive up costs, reduce competition, and ultimately lead to a higher tax burden.
This month, the National Treasury has published the draft General Public Procurement Regulations for public comment.
The policy in its current form could lead to sweeping changes to procurement legislation and black economic empowerment (BEE) in South Africa.
These regulations, if passed, will bring into effect the Public Procurement Act, which President Cyril Ramaphosa assented to in July 2024.
Under the draft General Public Procurement Regulations, companies that wish to do business with the government must demonstrate that a large percentage of their prior procurements were with majority-black-owned businesses.
Specifically, the regulations state that companies must show that at least 40% of their prior procurement was spent on enterprises that are at least 51% owned and managed by black persons.
Speaking in an interview with BizNews, Democratic Alliance (DA) finance spokesperson Mark Burke said the new regulations will lead to poor value for the South African taxpayer and for local service delivery.
He added that the measures are “completely unnecessary” and “exactly the opposite of what the country needs at this juncture.”
Burke explained that whenever someone does business with the state, they must conform to a specific type of ownership and management structure to bid competitively.
While governments often negotiate lower prices from suppliers, he said the new system flips that logic.
“You go from asking for a discount to being willing to overpay because you’ve got these silly requirements,” he said.
He warned that this would significantly shrink the pool of suppliers.
He argued that, by implication, the government can procure only a small portion of the whole pie, which means they’ll end up overpaying for services.
Taxpayers will have to foot a larger bill
According to Burke, the regulations will entrench inefficiencies in an already strained economy. He said businesses are already operating in a tough environment with their hands tied behind their backs.
He cited unreliable electricity, logistics challenges, and rigid labour conditions as examples of this, and added that further structural requirements will deter business in the country.
He further argued that the system risks fuelling corruption and cronyism.
It will lead to “the sort of corruption we’re already seeing”, where procurement benefits the elite, connected few rather than the broader population.
For taxpayers, Burke warned that the financial consequences will be widespread.
“Toilet paper will become more expensive. Tunnels will become more expensive, and everything in between will become more expensive as a result of this,” he said.
He linked this directly to growing frustration among South Africans, noting that many already feel overtaxed and underserved.
“If you speak to anybody contributing to the tax base, they don’t feel like they’re getting massive value for money. In fact, they feel the opposite.”
This means taxpayers will have to foot a larger bill for the government to perform its basic functions, as those increased costs will require more revenue to be squeezed from a stagnant economy.
This is on top of the existing cost of BEE in South Africa, with research from the Free Market Foundation showing that it already costs the economy R290 billion in direct compliance costs and lost economic activity.
The DA is now challenging the regulations on multiple fronts. Burke noted that the party has taken the matter to the Constitutional Court of South Africa.
The party is also preparing to oppose the regulations in Parliament and raise public awareness.
