Paul Janisch

Fuel companies explain and a correction

Business Day has a short report on the fuel industry's response to Nhlanhla Gumede's outburst. 

The oil giants presented progress reports to the committee which indicated significant progress in meeting the charter’s targets, though some companies remained very white- and male-dominated.

They can't do much more than this really - many of the oil companies are making great strides in the broad-based arena and they need to remind government of this fact.  I don't think this is the last time they'll be doing this.

Correction

My post on the 18th of August,06 (Fuel giants warned to pump up BEE efforts) requires some correction.  The Liquid Fuels Charter is not gazetted per se, it is part of the Petroleum Products Act and has already been promulgated.  In other words some charters bypass the gazetting phase because they have been incorporated into the legislation, the Mining Charter is another example.  I apologise for this mistake.

Legal charter continued and delayed, and it's not the only one

I found an amazing site that gathers BEE news.  It's run by Sabinet and can be found here.

Two articles caught my attention.

No Agreement On Legal Charter

There was no final agreement yet on a Legal Services Charter but finalising it was urgent, the Justice Department said on Friday (18 Aug, 06). "There has been general acceptance of a certain number of issues," said director general Menzi Simelane. He was speaking after a two-day consultative conference with the legal profession in Sandton on the charter.

Simelane said the department would now travel around the country to consult the legal profession further, then redraft charter details, although its principles were unlikely to change. "The deadlines are yesterday because the impact is today," he said, but did not give a timeline for the process. "There is great urgency, this should have been in place long ago, it's long overdue."

Long overdue indeed.  The question is "how much longer is this going to take?". Give us a timeline and deadline, or don't do it at all!

And if you think this is a procedure and delay, take a look at the next article.

ICT charter stalls

The last draft of the ICT Charter was in May 2005 and it was a fantastic document, one that really had a handle on the ICT industry (I come from an IT background so I understand this industry).  And now.......

The ICT sector's empowerment charter has been with government for a year, where it seems to have disappeared into obscurity.

The report suggests that no-one is driving it.  Sad this actually, if there was an industry that needed a charter it has to be the ICT industry.  IT skills are sorely lacking in SA - hence some companies importing Indian skills under JIPSA.

What then is the reason for these delays?  I am sure that a major percentage of the blame must land firmly on the government.  The generic codes have really taken their time in coming out.  There is a humour in the fact that they themselves are investigating the slow progress in BEE. Business Day ran a story last week (State to investigate slow progress in BEE) stating that "government is to investigate black business’s complaints about the snail’s pace of black economic empowerment (BEE) and plans to hold a top-level indaba with black business leaders before the year-end to discuss the achievements to date." 

Oh my - a meeting about a meeting about a meeting about a caucus about a policy about a budget about another meeting. 

All we need is finalisation - arrange the indaba for a year's time where the progress of the BBBEE codes of good practice can be evaluated.

BEE education

I chaired a two day BEE conference last week and was exposed to some of the finest thinkers in this industry.  These include Andrea Brown of Mohlaleng, Kevin Lester (soon to be ex Cliffe Dekker), Robin Woolley, Colin Reddy, Germien du Plessis and Christiaan van der Merwe. 

The delegates were largely from the major corporates and government departments in South Africa and all contributed actively to the conference each from their own perspective and BEE charter.  It's pleasing to note that the BEE implementers within the country are very clued-up about their subject.

I did notice a few common themes coming through.  I'll list them.

• BEE requires you to change your business, but this change must result in growth.  Change for change's sake is not a sustainable option.
• Your BEE strategy must be aligned to your business strategy (this was reiterated by almost every speaker).
• Transformation and growth must go hand-in-hand, you can't have one without the other.  A brief glimpse at the recent BEE deals highlights this.  The successful deals result in the business growing.
• On the subject of deals, Kevin Lester offered a fantastic insight into the world of deals.  Firstly - a BEE deal is the same as any other merger or acquisition, any good M&A lawyer is able to draw up the necessary agreements. Secondly, deals should be done because a genuine desire exists to do the deal.  Ernst and Young conducted a survey on M&As and found that 80% of them fail; if the desire is lacking the odds are stacked on the deal being a statistic.
• Sandile Hlophe of KPMG coined a new phrase "doing an Mzi".  This refers to Mzi Khumalo who has a notorious reputation for buying into companies and then selling that stake a little earlier than intended.  Mzi has upset a few big businesses that he has dealt with but his behaviour is typical of any capitalist (more on this later.)
• Rating agencies are a necessary evil to most companies, although almost all of the delegates were opposed to the idea that there was only one rating agency and that they should make use of that agency. 

And the final codes - it looks like they'll only come out in October at the earliest.

Helping small enterprises can boost scorecard success

This was published in Real Business yesterday.  It provides an overview of our take on BEE and enterprise development and the opportunities both present.

Helping small enterprises can boost scorecard success

Paul Janisch

A WHILE ago a client of mine pointed out that globally corporations and governments were shedding up to 25% of jobs annually. This suggests that the majority of South Africans will find employment in the SME sector or start their own businesses.

Those who do decide to go it alone face numerous challenges. The odds are somewhat stacked against these businesses surviving the first couple of years. The enterprise development element in the trade and industry department’s scorecard intends to manage this risk and sets out to “assist or accelerate the development, sustainability and ultimately financial and operational independence of beneficiary entities”. This effectively means that enterprise development also includes mentorship or assistance to beneficiaries in reducing the chances of failure.

That’s the theory behind enterprise development, but the earning of points on the scorecard requires each company to measure these contributions as a percentage of Ebitda (earnings before interest, tax, depreciation and amortisation).

In the current draft form of the codes, this investment is between 3,3% and 5% of Ebitda (for Telkom to earn 10 points on the scorecard it would need to spend well in excess of R600m). For any company this is a substantial amount of money, but herein lies business opportunities.

Imagine that there is a company that supplies a type of product in KwaZulu-Natal. They have a great business in that area and would like to expand to other areas, but have held back because of the expense of setting up another branch.

The company might consider looking for people or companies that could market its product in that region. It would have to provide the necessary training and support in order to ensure that the product is properly received in the new area.

This programme is actually an application of enterprise development as the company is assisting in the creation of sustainable enterprises and expanding its market at the same time.

In order to achieve black economic empowerment (BEE) points on your scorecard you have to ensure that you target the correct beneficiaries. Code 600 (enterprise development) identifies three types of beneficiaries but I am going to focus on one, dubbed exempt microenterprises (EMEs).

EMEs are defined as enterprises whose annual turnover falls below the value added tax threshold (typically R300000). These enterprises are exempt from any form of BEE or implementing a scorecard.

There are two other important aspects to bear in mind. First, an enterprise is defined in Code 100 as “a natural or a juristic person, or any form of co-operative, conducting a business, trade or profession in SA”.

Second, Code 600 does not place a racial profile on the EME as a beneficiary. This means that any person or company, irrespective of ownership, race or gender, can benefit from a company’s enterprise development project. The code must therefore be looking at developing more sustainable enterprises and providing a long-term solution to job creation in the country.

The debate as to what constitutes true empowerment will rage for many years to come, with some leaning towards ownership and others looking at other areas of BEE.

I think that Trevor Manuel would concur that real empowerment occurs when people are provided with the opportunity to start and sustain their own businesses. If your company is looking to expand, begin with exempt microenterprises and incorporate them into your own enterprise development strategy.

New codes and deals

The pressure is mounting for the dti to release the final codes.  The myriad different interpretations of the codes can only lead to more confusion. 

The Sunday Times ran a special feature on mergers and acquisitions this weekend.  It is pleasant to note that it is not only normal business that is waiting for the codes,  merchant banks are lining up anticipating a flurry of M&A activity once the codes have been finalised.  Ashraf Dada of Ernst and Young predicts a fair amount of activity from the media sector within the next 12 months.  He suggests that multinationals will also get into deal mode after this.

Better news for deal makers is that the secondary market is also expected to take off.  The secondary market being BEE players selling to new BEE players.

Fuel giants warned to pump up BEE efforts

I wanted to stay out of this for a while, but I am now drawn in.  It was quite a surprise to see the headline on the front page of Business Day yesterday (Fuel giants warned to pump up BEE efforts), it is quite sensational and untypical of Business Day.  The story revolves around a "warning" made by minerals and energy chief director of hydrocarbons Nhlanhla Gumede (not the minister you will note).  He said that  "licensing would be used as a tool to achieve compliance, with licences possibly being withdrawn or withheld if companies did not make efforts to meet their commitments."

Section 10 of the BBBEE Act allows the state to query empowerment credentials before issuing licences, concessions etc.  Gumede would make use of this section and the requirements of the new Petroleum Products Act, the act speaks of the Petroleum transformation charter and makes it a condition for awarding a licence (which is strange because the charter has not been gazetted!)

However you have to consider the implications of using section 10.  Withdrawing licences could result in many people losing their jobs and the country riding bicycles.  Section 10 is there as a last  resort and should be used if all other avenues have been exhausted.

The Business Day responded today in the Opinion and Analysis section Fuelling empowerment.  They make the valid point that there is a desire to transform and that the liquid fuels sector were the darlings of empowerment a few years ago.  The problem they face lies in finding suitable black investors who have access to capital.  The editorial notes that the procurement target could be easily achieved by contracting crude oil through a black-owned middleman, they wisely discard this idea, but observe that the industry has made great strides in employment and training.

People of the petroleum industry (especially you in government),   empowerment is about elevating previously disadvantaged people through employment, skills development, enterprise development and CSI.  Focus on those things and the ownership element will sort itself out. 

SA has to supply its own capital needs

Erwin is back in the paper talking about the importance of SA developing internationally competitive supplier industries to provide itself with the goods it needs.   In this article from last month he hinted at the same thing

"The minister also had stern words for the private sector, warning that local businesses would not receive preferential treatment from government in tendering processes. In the past, local businesses benefited from tender and price premiums. This approach would not be repeated.  'There will be no special allowances, no special protection from government … there will be no government underwriting of these investments. We’ll be giving a lot of information and have a lot of discussions and facilitate.'  Businesses would, however, have to supply on an internationally competitive basis because the programme was large and would establish the ideal platform to create major export opportunities in the future.

Now we are getting somewhere, Erwin is right, we need to get our house well in order to compete globally.  We can't bleat and moan about the Chinese destroying local industry, because the reality is that they are doing it to everyone.

I do love this quote  "Those of you who think SA has got a skills shortage, let me tell you, the world has got a skills shortage. I am afraid that when you go out and look for highly qualified technical people, they are not easy to find.”

Come now SETAs - start delivering the curricula,  trainers and skills.

Legal charter continued

Brigitte Mbandla spoke at the justice department's conference yesterday.  The Business Day's report doesn't really say anything more than we expected.  Rhetoric abounds “We cannot create equal opportunity in a climate of systemic inequality unless we take special measure to bring about equity.” 

The report is scant on actual actions that are going to be taken - just a recommendation that the government COULD IMMEDIATELY allocate 50% of its legal work to black lawyers.

And

The conference SHOULD look at the role of state attorney’s office, government departments and state-owned enterprises, which were all guilty of not providing legal work for black practitioners.

(The uppercase words are my emphasis - question is, will they?)

The legal charter is going ahead though, it will probably be very similar to Codes of Good Practice, as most charters tend to be these days.  There are some unique legal features "The draft charter proposes that the pro-bono work system envisaged by some commentators in the legal profession be developed and enhanced. It also suggests that the role of paralegals be recognised and enhanced."

My two cents worth suggests that the legal profession is going to find itself waiting a while to begin the transformation process.   Do we really need another charter, why can't the professions just adopt the dti's codes with a few modifications?

The Coega saga continues

Today's Business Report carries this headline on the front page "Coega firm may be forced to award R82m building deal to Scribante".  As it turns out the winner of the tender, Sakhisizwe, did score fewer points on the tender than Scribante (Scribante scored higher based on price, the fact that it was a local business and it was going to use local black-owned subcontractors). Coega Development Corporation (CDC) has also admitted in court papers that it was wrong to award the tender to Sakhisizwe.  Now it's a mud slinging match.

Else where in the Business Report there is an article on another government entity, SALGA and their tender processes (SALGA officials face forensic audit over tender).  It is alleged that SALGA didn't follow tender procedures.

It is so clear that some people involved in the awarding of tenders are not aware of the rules or the ramifications of not following procedure.  We've developed a to assist government departments in this process. Download iq_africa_education_government_department_tender_evaluation_seminar__16_august_06_v1.pdf

Legal charter coming (Business Day, 14 Aug 06)

Just when you thought there were too many charters another one springs up.  The justice department claims that this charter goes beyond empowerment issues - “It is not one couched in the framework of black economic empowerment legislation only. It also deals with issues of equality and improvement of access to legal services.”

The charter, which is being debated at the justice department's conference this week, will find ways to accelerate procurement from black practitioners, black owned and black empowered enterprises.  (This smacks of narrow-based BEE).  Apparently the government has undertaken to identify, prioritise and target black lawyers, legal practitioners and companies in awarding tenders, briefs and contracts within the public sector. As much as 50% of government’s legal work requiring private practitioners could be allocated to black practitioners by next year.

The problem with these charters is that they take forever to be finalised and this slows the whole transformation process down.  Also the charter has to approved by the minister of trade and industry, and he has a veto right over it in terms of the BBBEE Act.  So if the justice minister (Brigitte Mabandla) likes it there is no guarantee that it will make gazetting.