BEE Brief 11 April 2011
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This is an article from Black Business Quarterly on-line magazine written by Ntokozo Ndlovu (After an exclusive interview with Moeletsi Mbeki) entitled “We do need BEE”. I unashamedly include the entire article because it represents the many objections and discussions currently in circulation regarding BEE.
In the wake of mounting pressure to review black economic empowerment, analyst and author Moeletsi Mbeki offers a more candid perspective.
It does not take a rocket scientist to declare that black economic empowerment (BEE) – or its better loved sibling, broad-based BEE – have made very little impact on the poor.
The bulk of beneficiaries are the black elite, the Politically well-connected and the dynamic entrepreneurs who have made hay while the sun shines. Besides making an elite few even richer, the policy has evidently not done much for those in real need of empowerment.
In retrospect, the policy of BEE was introduced to redress imbalances of the past, and as a pragmatic growth strategy to realise the country’s full economic potential and transform South Africa’s economy.
Despite the many economic gains since 1994, with a growth rate of 4% or higher every quarter since 2004, there are visible blemishes. The racial divide between the rich and poor remains, there is a rise in unemployment and corruption in the government, and the mismanagement of the public sector.
In 2007, 153 BEE transactions were carried out to the tune of R96 billion. The value of BEE deals in 2006 was R56bn, and the bulk of beneficiaries of these
transactions were the usual suspects.
The poor remain much on the margins, facing the same dehumanising poverty as they did during apartheid. The standard of education has not improved, and
little significant investments have been made toward skills development, job creation or the betterment of the standards of living for the poor .
In late 2009, the government launched a BEE Advisory Council, primarily to assist it in addressing shortcomings of its empowerment policies, through practices such as fronting and identifying weaknesses in the verification and accreditation procedures.
Since then, there has been much talk about ways of redefining BEE.
In October 2010, Finance Minister Pravin Gordhan warned in his Medium-Term Budget Policy Statement that the government would follow up cases of tender corruption (with reference to BEE) ,and other matters where poor service delivery emanated from “collusion” between officials and private enterprise.
In December last year, Minister of Trade and Industry Rob Davies said the “scourge” of fronting in BEE transactions to secure government contracts had become so pandemic that “we needed to become much more energetic in combating (it)”. However, no results have come out of these plans.
In 2003, Davies’ department said it was working with Treasury to find ways of penalising companies for “fronting”, while disguising it as BEE or affirmative
procurement.
Other departments, too, have promised to criminalise fronting.
While government officials and politicians talk of resolving ills associated with BEE i.e. corruption in the tender process, fronting and other forms of wrongdoing, their kith and kin continue to strike gold, and in the process slow down processes of genuine empowerment.
The reality of South Africa’s framework for empowerment is that the lives of the poor have not significantly changed. Unemployment has risen, coupled with a
shrinking manufacturing or industrial sector.
In 2008, the manufacturing sector accounted for only 16% of gross domestic product – down from about 25% in 1990.
In South Korea, manufacturing accounts for 35% of GDP, and in China a massive 51% of its GDP.
The Chinese government has invested a great deal in its education system; every year, it builds new universities and colleges to produce educated, competent and skilled workers. By the end of 2004, China had over 2 200 universities and colleges.
The Chinese government invests in entrepreneurship and job creation because the country has a wealth of skills and, as such, the economy is booming.
This is in stark contrast to South Africa, where a pool of uneducated people from previously disadvantaged communities survives on social grants. Most cannot find work, as industries in South Africa have dwindled, with more focus shifting toward the country’s natural resources – which is where the politicians and the elite have struck it rich.
It is an unsustainable model, described by author of Architects of Poverty Moeletsi Mbeki as a system that has encouraged development of a bloated middle and senior level of management, which is grossly overpaid and underqualified.
Speaking in an exclusive interview with Black Business Quarterly, Mbeki stated: “We have all this employment legislation and equity legislation in the country, BEE legislation included, but if people don’t have qualifications, and they don’t have the work ethic and training, you can pass as many laws as you wish about employment equity – it will not make private companies employ unqualified people, and that’s why we have service delivery problems in the public sector. It’s because government employs people who haven’t the training, but are politically connected.”
He said the private sector is productive because it employs qualified and competent people, whereas BEE and BBBEE compel the private sector to employ unqualified people for reasons of creating jobs.
The government has not done much to educate and upskill people and, since the introduction of BEE, has sustained the illusion of making poor people believe in BEE and its promises.
Very little investment has been made toward the promotion of entrepreneurship in industries, one of the biggest drivers in addressing unemployment and poverty.
Mbeki said that to understand fronting, the premise of BEE needs to be explained.
He revealed that most people in South Africa, and the rest of the world, naively believe BEE was an invention of the African National Congress (ANC). To the contrary, BEE was, in fact, conceptualised by what he called “South Africa’s economic oligarchies” – a handful of white businessmen and their families, who control the commanding heights of this country’s economy, including mining with its associated chemical and engineering industries and finance.
He explained that the object of BEE was to co-opt leaders of the Black Resistance Movement, by literally buying them off with what seemed a transfer of massive assets to them at no cost. But to the oligarchies, these assets were, in fact, small change.
The scheme was used to wean the ANC off radical economic ambitions, such as nationalising the major elements of the South African economy, by putting cash in politicians’ private pockets. The transfer of wealth from the strong to the weak is what has come to be known as BEE, according to Mbeki.
In return, the ANC had to give these oligarchies’ companies a first bite at government contracts that appealed to them, and protect them from foreign competition, while opening up the rest of the economy, particularly consumer goods and the manufacturing sector.
Those oligarchies wanted to shift their companies’ primary listings and headquarters from Johannesburg to London, which the ANC allowed.
All these machinations were eventually incorporated into South Africa’s democratic constitution, through creation of citizens – apparently 91% of the population – to be known as previously disadvantaged individuals.
This gave the impression that all black South Africans could or would benefit from BEE, and this legitimised the co-option payment to the black political elite by dangling before the black masses the possibility that one day they, too, would receive reparations for wrongs inflicted during apartheid.
“It is unfortunate that the ANC has been very successful in creating the illusion among the poor that there’s hope for them in BEE, when the policy was never in the first place created for purposes of redress,” revealed Mbeki.
“The reality is, South Africans don’t need BEE, the poor do not need BEE, it has not made an impact on their lives; the emerging black middle-class does not need BEE, they are educated, skilled and competent and can equally compete in the open market just like anyone else.”
He maintains that the reason BEE still exists is because politicians and government officials need it, and the elimination thereof will definitely affect them. All this tough talk about developing laws to address fronting and fake BEE are mere threats because the same people making the laws are the ones benefiting, and are in cahoots with BEE fronting companies.
“A good education system, good healthcare, skills development, the creation of an employable community of professionals, decent housing, creation of sustainable jobs, revival of industries in South Africa to create sustainable jobs, will bring about genuine empowerment for all citizens of South Africa – and not crazy schemes like BEE,” advised Mbeki.
Many people now warn of a bleak future for the country should this greed continue, in view of the fact that 10 official years after its introduction, not much has been done to empower previously disadvantaged communities.
Archbishop Emeritus Desmond Tutu has cautioned that South Africa is sitting on a “powder keg” because millions are living in “dehumanising poverty”, as BEE continues to serve the elite few – stating that political “kowtowing” within the ANC is hampering democracy.
“BEE is a system that is building up much resentment we may rue later, and it is the kind of antagonism that threatens the security of our country,” he said.
According to Jenny Cargill, author of Trick or Treat, the biggest challenge facing South Africa now is that “we cannot move on from BEE and we have lost our innovation on how to create a much more inclusive society, one that will encourage up-skilling and accord people from previously disadvantaged communities an equal opportunity to engage productively in the economy.”
It is clear that the current BEE formula has not worked and does not include empowerment as an agenda for the people of South Africa as a whole, neither does it address South Africa’s socio-economic challenges.
Instead, it is the cause of current socio-economic inequalities, and a key contributor to the failed public sector system, where positions have been created to accommodate the elite and politically connected.
South Africa requires a solution that will genuinely empower people. An effectively educated populace, creation of a pool of qualified people and revitalisation of industries will play a significant role in addressing poverty in this country.
A skilled workforce can compete for jobs in the open market, without the flawed current affirmative action programmes.
Ntokozo Ndlovu
Sunday, May 1, 2011
Friday, April 22, 2011
Changing perceptions of BEE
Changing Perceptions of BEE
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The recent merger between two black accounting firms, SizweNtsaluba VSP and Gobodo Inc. is an illustration of economic transformation that goes way beyond BEE as currently conceived. In itself it redefines the accounting market which has up until now been dominated by the “big four”. The merged entity, to be known as SizweNtsaluba & Gobodo, will boast a staff complement of more than 800 and annual fees of more than R400m, making it the fifth largest accounting firm in the country. This merger is important in that it may mark the beginning of a change in perception about BEE. Luc de Brabandere in his book, “the Forgotten Half of Change” reflects on the French saying “Plus ça change, plus c’est la même chose” - it sounds better in French but means “the more something changes, the more it becomes the same!” He is referring to “perception” which he argues is the 2nd vital component of change, the 1st being the reality of the change itself. Different people respond to change depending on their viewpoint. For example if in the early 19th Century a person standing on a cliff saw a sailing ship with a funnel they might have considered the advantage of having a steam engine if the wind failed. Some years later after having seen dozens of steam ships the same vessel might be seen as having the small advantage of being able to use the wind if the engine failed. Another example might be the attitude of a student towards the study of French, before he meets a stunning French girl. The 2nd change – that of perception of the possibilities of the language in the new relationship completely redefines the actuality of learning the grammar and pronunciation. The big difference between a change in reality and a change in perception is that a change in perception can take an instant whereas the reality of change grinds on at its own pace. A change in reality requires action whereas a change in perception requires thinking. But for true change to take place, both these changes are required – the actuality and the perception. The media coverage of BEE, which so affects our perception,
centres around the reality of such subjects as the % of black ownership or the unwinding of BEE transactions, the ineffectiveness of the BEE Codes of Good Practice in addressing mass unemployment and poverty and the enrichment of the few who are politically connected. What is rarely touched on is how we and the outside world view transformation or indeed what transformation really is or could be. It is usually seen as a way of distributing the wealth of the nation more broadly (under the euphemism of sustainability – or avoidance of revolution) and rarely if ever is represented as the process whereby South Africans of all cultures and races join together to form winning teams? Public perception is that BEE is a method of enriching ANC “fat cats”! The idea that a South African rainbow company has unique advantages is rarely considered. Is SizweNtsaluba & Gobodo a transformation success story or is it just another culturally narrow organisation (albeit primarily black) that is likely to miss the advantages of a truly diverse and representative South African organisation? I raise these issues as a BEE practitioner who very rarely meets anyone who is truly passionate or even vaguely excited about BEE. And this is because the perception of transformation is generally negative and backward looking. Few
see any real advantage in a truly representative South African organisation that is able to out-manoeuvre equivalently sized rivals from Europe, China or the USA because it is better equipped to comprehend the multi-cultural and fast changing international market in which it operates. Transformation has been labelled “Black” Economic Empowerment” whereas a more embracive and forward looking idea such as “Team SA Winning Together” (the recent World Cup success being an emblem) could modify perceptions with a more positive acronym perhaps suggesting a concept such as SA Inc. or Team SA. Luc de Brabandere tells us that “the process of change in perception is discontinuous and is fuelled by questions, surprises and strange and incomplete ideas”. It is human to hold onto the certainties of the past but we in South Africa don’t have the time - the pace of change on every front is so great. For example how does the current concept of BEE fit in with South Africa being part of the BRICS group of nations and could we present it in a positive light to these other four emerging giants. And if we are a model of democracy in Africa, a model that that so many are dying for in North Africa, how does BEE and democracy intersect and how does it benefit the model?
If anyone wishes to test the relevance of BEE to the segments where transformation is a reality, take a look at the Taxi Sub-Sector B-BBEE Charter – it epitomises a lack of vision and out-dated perceptions about the new South Africa that we all saw so clearly for an instant during the 2010 World Cup! I must end by suggesting that SizweNtsaluba & Gobodo probably does not see
itself so much as a BEE company but more as a successful company that can take on the best of their rivals because they are a winning team. We need markers in the development of a new perception about South African rainbow companies that disturb past stereotypes. Let’s find a replacement for BEE that expresses a more modern South African ideal and that leads to a future that we can all believe in and perhaps a Code of Good Practice that companies such as SizweNtsaluba & Gobodo would feel truly proud and challenging to measure themselves against.
Alasdair Yuill
(click here to view a print friendly version)
The recent merger between two black accounting firms, SizweNtsaluba VSP and Gobodo Inc. is an illustration of economic transformation that goes way beyond BEE as currently conceived. In itself it redefines the accounting market which has up until now been dominated by the “big four”. The merged entity, to be known as SizweNtsaluba & Gobodo, will boast a staff complement of more than 800 and annual fees of more than R400m, making it the fifth largest accounting firm in the country. This merger is important in that it may mark the beginning of a change in perception about BEE. Luc de Brabandere in his book, “the Forgotten Half of Change” reflects on the French saying “Plus ça change, plus c’est la même chose” - it sounds better in French but means “the more something changes, the more it becomes the same!” He is referring to “perception” which he argues is the 2nd vital component of change, the 1st being the reality of the change itself. Different people respond to change depending on their viewpoint. For example if in the early 19th Century a person standing on a cliff saw a sailing ship with a funnel they might have considered the advantage of having a steam engine if the wind failed. Some years later after having seen dozens of steam ships the same vessel might be seen as having the small advantage of being able to use the wind if the engine failed. Another example might be the attitude of a student towards the study of French, before he meets a stunning French girl. The 2nd change – that of perception of the possibilities of the language in the new relationship completely redefines the actuality of learning the grammar and pronunciation. The big difference between a change in reality and a change in perception is that a change in perception can take an instant whereas the reality of change grinds on at its own pace. A change in reality requires action whereas a change in perception requires thinking. But for true change to take place, both these changes are required – the actuality and the perception. The media coverage of BEE, which so affects our perception,
centres around the reality of such subjects as the % of black ownership or the unwinding of BEE transactions, the ineffectiveness of the BEE Codes of Good Practice in addressing mass unemployment and poverty and the enrichment of the few who are politically connected. What is rarely touched on is how we and the outside world view transformation or indeed what transformation really is or could be. It is usually seen as a way of distributing the wealth of the nation more broadly (under the euphemism of sustainability – or avoidance of revolution) and rarely if ever is represented as the process whereby South Africans of all cultures and races join together to form winning teams? Public perception is that BEE is a method of enriching ANC “fat cats”! The idea that a South African rainbow company has unique advantages is rarely considered. Is SizweNtsaluba & Gobodo a transformation success story or is it just another culturally narrow organisation (albeit primarily black) that is likely to miss the advantages of a truly diverse and representative South African organisation? I raise these issues as a BEE practitioner who very rarely meets anyone who is truly passionate or even vaguely excited about BEE. And this is because the perception of transformation is generally negative and backward looking. Few
see any real advantage in a truly representative South African organisation that is able to out-manoeuvre equivalently sized rivals from Europe, China or the USA because it is better equipped to comprehend the multi-cultural and fast changing international market in which it operates. Transformation has been labelled “Black” Economic Empowerment” whereas a more embracive and forward looking idea such as “Team SA Winning Together” (the recent World Cup success being an emblem) could modify perceptions with a more positive acronym perhaps suggesting a concept such as SA Inc. or Team SA. Luc de Brabandere tells us that “the process of change in perception is discontinuous and is fuelled by questions, surprises and strange and incomplete ideas”. It is human to hold onto the certainties of the past but we in South Africa don’t have the time - the pace of change on every front is so great. For example how does the current concept of BEE fit in with South Africa being part of the BRICS group of nations and could we present it in a positive light to these other four emerging giants. And if we are a model of democracy in Africa, a model that that so many are dying for in North Africa, how does BEE and democracy intersect and how does it benefit the model?
If anyone wishes to test the relevance of BEE to the segments where transformation is a reality, take a look at the Taxi Sub-Sector B-BBEE Charter – it epitomises a lack of vision and out-dated perceptions about the new South Africa that we all saw so clearly for an instant during the 2010 World Cup! I must end by suggesting that SizweNtsaluba & Gobodo probably does not see
itself so much as a BEE company but more as a successful company that can take on the best of their rivals because they are a winning team. We need markers in the development of a new perception about South African rainbow companies that disturb past stereotypes. Let’s find a replacement for BEE that expresses a more modern South African ideal and that leads to a future that we can all believe in and perhaps a Code of Good Practice that companies such as SizweNtsaluba & Gobodo would feel truly proud and challenging to measure themselves against.
Alasdair Yuill
Friday, April 1, 2011
President's Advisory Council and Finance Charter
BEE Brief April 2011
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Highlights from Friday 1st April President’s Advisory Council: One of the key issues raised at the Black Economic Empowerment Advisory Council meeting, chaired by President Jacob Zuma, was the over-emphasis on diversity of ownership and senior management. An unintended consequence of this over-emphasis is ''fronting'' and tender abuse and the Council spoke out strongly against this seeing it as one of the major obstacles to the implementation of B-BBEE. Fronting is when black people are listed as directors of companies, but do not take part in the decision-making process or ownership of the business. Participants agreed that fronting needed to be eradicated and effective mechanisms, including possible punitive measures against those guilty of fronting practices, needed to be implemented to stamp it out.
According to the Presidency, there was special emphasis on the implementation of the government's New Growth Path programme and the role of Broad-Based Black Economic Empowerment (BBBEE) in creating jobs at the meeting. In particular, the meeting stressed that BBBEE was not just about big business deals for a few individuals in society but also had to have a hand in empowering ordinary people. The Council called for the consistent implementation of broad-based BEE in all sectors of the economy, to ensure that the policy touches the lives of more people. This included ownership by communities and workers, increased skills development and career-pathing for all working people and support for small enterprise and cooperatives, as well as a new emphasis on procurement from local producers in order to support employment creation.
The meeting also pointed out that to contribute to job creation, BBBEE has to, amongst others, promote new enterprise development, encourage local procurement and enhance skills development and employment equity.
It was agreed that government, with the support of the BBBEE Advisory Council, would ensure a revision of the BBBEE Codes to promote employment creation, investment in small business and co-operatives, broad-based ownership and employment equity. The Council also recommended that government should urgently ensure proper monitoring and evaluation of the implementation of the BBBEE Act.
What we can deduce is that the Codes are not static and that there will be continuing change in the years ahead.
Tourism Sector Code: Following on from the comments in the last BEE Brief regarding companies having to use the relevant Sector Code if 50%+ of their revenue is derived from that Sector, it is interesting to know that on 22nd March 2011 NERA was severely embarrassed when they were forced to withdraw their DTi COGP BEE certificate for City Lodge. This happening after a somewhat self-righteous company called EconoBEE complained to the Minister of the DTi that the Tourism Sector Code applied to City Lodge and also that NERA was not accredited for the Tourism Charter. In this case, whilst living up to their irritating reputation, EconoBEE have actually helped to clarify and highlight an issue that has been undermining the various Sector Charters for some time.
BEE Suppliers
Eleven of the country's biggest companies have launched a "diversity council" to help businesses find black empowerment suppliers, in order to avoid falling foul of BEE legislation. The companies, which include ABSA, Barloworld, De Beers, Rand Water, SASOL, and Unilever, say the non-profit SA Supplier Diversity Council will help develop black businesses, so that they can compete commercially.
The council's interim-head, Matthew Govender, says they have set up a growing database which now includes 800 black suppliers, that have gone through an assessment and certification process.
Finance Charter (Will it ever see the light of day?)
Black business and professional organisations are up in arms over proposals in the financial services charter to permit financial institutes to use equity equivalents in their BEE ownership calculation. Equity Equivalents are a way of scoring ownership points by making equivalent valued contributions under other Elements, usually via Enterprise Development, and have in the past been restricted to multinationals.
The charter was announced as long ago as October 2003. The first phase of the charter was finally gazetted last November by Trade and Industry Minister Rob Davies for public consultation and has introduced equity equivalents as an option to reach ownership targets. Financial institutions will have an option to address the direct requirements by either achieving a total of 15% ownership or a minimum of 10% direct ownership and a maximum of 5% equity equivalents in the direct ownership requirement. Equity equivalents can be in the form of loans to black people or entities.
This is favoured by the banks who argue that there are not enough black investors who could hold a 15% ownership stake in a major financial institution without incurring substantial debt. The 15% Target is in itself highly controversial with many black business and professional organisations saying this is in conflict with the Codes of Good Practice which requires 25.1% direct black ownership. The Banks have also raised concerns that increasing the direct black ownership target will lead to then introduction of under-capitalised shareholders in mainstream banks.
The Confederation of Black Business Organisations (CBBO), the Black Management Forum, and Black Lite Consulting have all written to Davies to voice their objections.
One sometimes wonders whether the Banks are content to have the their Charter under continuing discussion!
DTI training programme for B-BBEE
The Department of Trade and Industry (dti), together with three universities (Unisa School of Business Leadership, Wits Enterprise and UFS Centre for Business Dynamics), is finalising the development of a Standardised National Training Programme for BEE verification. This is intended to apply to SANAS accredited verification analysts and IRBA registered auditors. A recent report back to stakeholders elicited a sharp response from ABVA complaining that:-
1. No hard copy of any material was distributed during the report back.
2. The Joint Venture Universities did not approach to ABVA for input into the curriculum requirements and an ABVA suggested curriculum was not considered.
3. The curriculum appeared to focus on theoretical concepts which will not equip the industry with the necessary technical skills for the correct calculation of BEE scores.
4. The fast-track option for current BEE industry practitioners and registered Auditors with 3 years of BEE experience should mean 3 years of BEE Verification Experience.
5. The suggestion that Auditors can complete the 5-day course and then be in a position to issue certificates for all Codes including Sector Codes both present and future ones is unrealistic and unfair to the ABVA VAs who are working under a vastly tighter regime.
6. The cost of R15,000 for the 5 day course is high.
Alasdair Yuill
(click here to view a print friendly version)
Highlights from Friday 1st April President’s Advisory Council: One of the key issues raised at the Black Economic Empowerment Advisory Council meeting, chaired by President Jacob Zuma, was the over-emphasis on diversity of ownership and senior management. An unintended consequence of this over-emphasis is ''fronting'' and tender abuse and the Council spoke out strongly against this seeing it as one of the major obstacles to the implementation of B-BBEE. Fronting is when black people are listed as directors of companies, but do not take part in the decision-making process or ownership of the business. Participants agreed that fronting needed to be eradicated and effective mechanisms, including possible punitive measures against those guilty of fronting practices, needed to be implemented to stamp it out.
According to the Presidency, there was special emphasis on the implementation of the government's New Growth Path programme and the role of Broad-Based Black Economic Empowerment (BBBEE) in creating jobs at the meeting. In particular, the meeting stressed that BBBEE was not just about big business deals for a few individuals in society but also had to have a hand in empowering ordinary people. The Council called for the consistent implementation of broad-based BEE in all sectors of the economy, to ensure that the policy touches the lives of more people. This included ownership by communities and workers, increased skills development and career-pathing for all working people and support for small enterprise and cooperatives, as well as a new emphasis on procurement from local producers in order to support employment creation.
The meeting also pointed out that to contribute to job creation, BBBEE has to, amongst others, promote new enterprise development, encourage local procurement and enhance skills development and employment equity.
It was agreed that government, with the support of the BBBEE Advisory Council, would ensure a revision of the BBBEE Codes to promote employment creation, investment in small business and co-operatives, broad-based ownership and employment equity. The Council also recommended that government should urgently ensure proper monitoring and evaluation of the implementation of the BBBEE Act.
What we can deduce is that the Codes are not static and that there will be continuing change in the years ahead.
Tourism Sector Code: Following on from the comments in the last BEE Brief regarding companies having to use the relevant Sector Code if 50%+ of their revenue is derived from that Sector, it is interesting to know that on 22nd March 2011 NERA was severely embarrassed when they were forced to withdraw their DTi COGP BEE certificate for City Lodge. This happening after a somewhat self-righteous company called EconoBEE complained to the Minister of the DTi that the Tourism Sector Code applied to City Lodge and also that NERA was not accredited for the Tourism Charter. In this case, whilst living up to their irritating reputation, EconoBEE have actually helped to clarify and highlight an issue that has been undermining the various Sector Charters for some time.
BEE Suppliers
Eleven of the country's biggest companies have launched a "diversity council" to help businesses find black empowerment suppliers, in order to avoid falling foul of BEE legislation. The companies, which include ABSA, Barloworld, De Beers, Rand Water, SASOL, and Unilever, say the non-profit SA Supplier Diversity Council will help develop black businesses, so that they can compete commercially.
The council's interim-head, Matthew Govender, says they have set up a growing database which now includes 800 black suppliers, that have gone through an assessment and certification process.
Finance Charter (Will it ever see the light of day?)
Black business and professional organisations are up in arms over proposals in the financial services charter to permit financial institutes to use equity equivalents in their BEE ownership calculation. Equity Equivalents are a way of scoring ownership points by making equivalent valued contributions under other Elements, usually via Enterprise Development, and have in the past been restricted to multinationals.
The charter was announced as long ago as October 2003. The first phase of the charter was finally gazetted last November by Trade and Industry Minister Rob Davies for public consultation and has introduced equity equivalents as an option to reach ownership targets. Financial institutions will have an option to address the direct requirements by either achieving a total of 15% ownership or a minimum of 10% direct ownership and a maximum of 5% equity equivalents in the direct ownership requirement. Equity equivalents can be in the form of loans to black people or entities.
This is favoured by the banks who argue that there are not enough black investors who could hold a 15% ownership stake in a major financial institution without incurring substantial debt. The 15% Target is in itself highly controversial with many black business and professional organisations saying this is in conflict with the Codes of Good Practice which requires 25.1% direct black ownership. The Banks have also raised concerns that increasing the direct black ownership target will lead to then introduction of under-capitalised shareholders in mainstream banks.
The Confederation of Black Business Organisations (CBBO), the Black Management Forum, and Black Lite Consulting have all written to Davies to voice their objections.
One sometimes wonders whether the Banks are content to have the their Charter under continuing discussion!
DTI training programme for B-BBEE
The Department of Trade and Industry (dti), together with three universities (Unisa School of Business Leadership, Wits Enterprise and UFS Centre for Business Dynamics), is finalising the development of a Standardised National Training Programme for BEE verification. This is intended to apply to SANAS accredited verification analysts and IRBA registered auditors. A recent report back to stakeholders elicited a sharp response from ABVA complaining that:-
1. No hard copy of any material was distributed during the report back.
2. The Joint Venture Universities did not approach to ABVA for input into the curriculum requirements and an ABVA suggested curriculum was not considered.
3. The curriculum appeared to focus on theoretical concepts which will not equip the industry with the necessary technical skills for the correct calculation of BEE scores.
4. The fast-track option for current BEE industry practitioners and registered Auditors with 3 years of BEE experience should mean 3 years of BEE Verification Experience.
5. The suggestion that Auditors can complete the 5-day course and then be in a position to issue certificates for all Codes including Sector Codes both present and future ones is unrealistic and unfair to the ABVA VAs who are working under a vastly tighter regime.
6. The cost of R15,000 for the 5 day course is high.
Alasdair Yuill
Tuesday, February 1, 2011
General Commentary on BEE Status
BEE Brief February 2011
(click here to view a print friendly version)
This short newsletter is intended to keep BEE practitioners up-to-date with current developments regarding Black Economic Empowerment and to delve into various topical BEE related subjects. The plan is to publish a BEE Brief every couple of weeks or as a significant subject emerges. I would welcome feed-back and any contributions from the readers.
Currently the BEE world is going through considerable change as new legislation, recently gazetted for discussion, will enable IRBA (Independent Regulatory Board for Auditors) accredited CAs to issue BEE Certificates. Whereas this definitely will increase the national capacity to measure transformation, it has caused consternation amongst SANAS (South African National Accreditation System) accredited Verification Agencies who recognise this as a real threat to their market position. They are shocked at the likelihood of massive competition at a time when very few are truly established and they are also concerned that the Accountants will not have such a tight and regular BEE supervisory regime. If this is the case, many of their customers will defect to their auditors in the hope of an improved BEE score. This is all happening at the very time that Verification Agents are having to invest in hiring and training new analysts to address Industry BEE Charters* and to meet the rapidly growing demand for BEE Certificates. A further factor is that there is no IRBA approved BEE training course yet, so regardless of the outcome of the discussions, it is unlikely that any Accountant will be able to issue a BEE certificate for at least 12 months. Who would consider registering with SANAS to become a new accredited BEE Verification Agent under these circumstances?
What we can be sure of is that if and when Accountants commence offering BEE verification services, interpretations and practices across the BEE industry will widen even further.
On a more technical point, the Minister of the DTi has just caused quite a stir by publishing for discussion a draft amendment to the DTi’s BEE Codes of Good Practice (COGP) under which the averaging of contributions under the Enterprise and Socio-economic Development Elements would be replaced by a simple measurement of the annual contributions during the measured period. This has been a vigorously debated subject in the past and the proposed amendment was not expected; most informed practitioners felt that the Codes of Good Practice (COGP) were worded with the intent of 5 years averaged contributions and that organisations should be encouraged to engage with their community on a sustained basis on the back of development agreements etc. Practically this is a considerable simplification but it does undermine a positive influence of the COGP in encouraging long term structured corporate social investment. If enacted it would also remove a significant customer retention factor for existing Verification Agents. Its application under the Industry Charters has not been mentioned so far.
Lastly, the DTi has clarified that any organisation that derives at least 50% of its revenue from an industry segment for which there is an Industry BEE Charter has to be measured under that Charter; it cannot choose to use the DTi’s COGP for its BEE Certificate. Many of these Charters are complex and almost certainly will result in a degree of industry sector specialisation by BEE consultants and Verification Agents. More significantly, lowered BEE thresholds in some industry sectors are going to surprise a number of small businesses by sweeping them into BEE compliance and increased BEE complexity.
Alasdair Yuill
(click here to view a print friendly version)
This short newsletter is intended to keep BEE practitioners up-to-date with current developments regarding Black Economic Empowerment and to delve into various topical BEE related subjects. The plan is to publish a BEE Brief every couple of weeks or as a significant subject emerges. I would welcome feed-back and any contributions from the readers.
Currently the BEE world is going through considerable change as new legislation, recently gazetted for discussion, will enable IRBA (Independent Regulatory Board for Auditors) accredited CAs to issue BEE Certificates. Whereas this definitely will increase the national capacity to measure transformation, it has caused consternation amongst SANAS (South African National Accreditation System) accredited Verification Agencies who recognise this as a real threat to their market position. They are shocked at the likelihood of massive competition at a time when very few are truly established and they are also concerned that the Accountants will not have such a tight and regular BEE supervisory regime. If this is the case, many of their customers will defect to their auditors in the hope of an improved BEE score. This is all happening at the very time that Verification Agents are having to invest in hiring and training new analysts to address Industry BEE Charters* and to meet the rapidly growing demand for BEE Certificates. A further factor is that there is no IRBA approved BEE training course yet, so regardless of the outcome of the discussions, it is unlikely that any Accountant will be able to issue a BEE certificate for at least 12 months. Who would consider registering with SANAS to become a new accredited BEE Verification Agent under these circumstances?
What we can be sure of is that if and when Accountants commence offering BEE verification services, interpretations and practices across the BEE industry will widen even further.
On a more technical point, the Minister of the DTi has just caused quite a stir by publishing for discussion a draft amendment to the DTi’s BEE Codes of Good Practice (COGP) under which the averaging of contributions under the Enterprise and Socio-economic Development Elements would be replaced by a simple measurement of the annual contributions during the measured period. This has been a vigorously debated subject in the past and the proposed amendment was not expected; most informed practitioners felt that the Codes of Good Practice (COGP) were worded with the intent of 5 years averaged contributions and that organisations should be encouraged to engage with their community on a sustained basis on the back of development agreements etc. Practically this is a considerable simplification but it does undermine a positive influence of the COGP in encouraging long term structured corporate social investment. If enacted it would also remove a significant customer retention factor for existing Verification Agents. Its application under the Industry Charters has not been mentioned so far.
Lastly, the DTi has clarified that any organisation that derives at least 50% of its revenue from an industry segment for which there is an Industry BEE Charter has to be measured under that Charter; it cannot choose to use the DTi’s COGP for its BEE Certificate. Many of these Charters are complex and almost certainly will result in a degree of industry sector specialisation by BEE consultants and Verification Agents. More significantly, lowered BEE thresholds in some industry sectors are going to surprise a number of small businesses by sweeping them into BEE compliance and increased BEE complexity.
Alasdair Yuill
Tuesday, May 11, 2010
BEE - a needed industry voice
An article by Brigitte Brun in Manufacturing hub.co.za http://www.manufacturinghub.co.za/business-industrial-relations/bee-verification-industry-regulation/
caught my attention. Anyone who is in anyway involved with the BEE verification industry would have to agree with Brigitte that consistency in legislation interpretation and audit practice is the biggest need amongst the accredited BEE Verification Agencies. The need is becoming more pronounced with every Industry Charter that is Gazetted (The Transportation Sub charters alone add 21 new BEE scorecards!)
The issue is one of money! ABVA just doesn’t have the resources to undertake the role adequately. I suggest that all members agree to add a R30 – R50 ABVA charge to each audit fee. This money would fund a secretariat to research issues, communicate widely across the industry and to take up contentious subjects with the DTi and other bodies on behalf of its members. I believe that if ABVA had a couple of full time experienced individuals acting in the interests of the BEE industry body, it would able take the lead so badly needed, would be welcomed by the DTi and would provide a powerful voice for the industry. Under these circumstances, leaving ABVA would be a far more serious matter than it is presently. Alasdair Yuill
Monday, May 10, 2010
BEE impact KZN
A recent survey by Grant Thornton quoted in Business Report http://www.busrep.co.za/index.php?from=rss_&fArticleId=5454189 stated that South African Privately Held Business (PHB) owners believe black economic empowerment (BEE) to be an important factor in winning new business. Interestingly from a regional point of view, the survey found that BEE is far less of an issue in KwaZulu Natal (53%) in terms of winning business, while the
Thursday, May 6, 2010
BEE Scorecards
I would like to start a debate amongst those who really understand the day to day dynamics of the Bee Scorecard. If we had one insane moment of power, how would we change the 7 Generic Element scores to really help the 25% unemployed?
Here’s my 1st shot; Ownership 5, Management control 10, Employment equity 15, Skills development 25 (with sub minimums) , Preferential procurement 20,
Alasdair
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