Paul Janisch

Update rating at no extra cost - Abva

ABVA is the Association of BEE Verification Agencies.  Their web site is useless and hopelessly out of date.  These guys are the body that controls rating or verification agencies and only ABVA members may verify companies.

They have their work cut out for them because there are apparently 50 of these companies operating out there, each with its own interpretation and methodologies.  ABVA is now supposed to reign them in and prescribe standards and methodologies.  Good luck I say.

There also seems to be a fair amount of heightened rating activity in the market place at the moment with these agencies attempting to drum up as much business as possible.  My advice "DON'T DO IT YET!!!!!!!!".  It's too early, the final codes aren't out yet.   We also don't know what the final definition of an exempt micro enterprise is going to be and we aren't sure whether QSEs have to be officially rated.  You might be wasting money and time.

If you find yourself forced to do it make sure they are part of ABVA - at least this provides you with an element of protection.   ABVA has announced that a free follow up rating will be provided within six months of the first rating agencies being accredited.

An interesting statistic

Referring to my earlier post.  This article Mdladlana calls for more money for skills fund gives an idea of how many companies have a payroll less than R500k but more than R250k - it's apparently 294,236 companies.

But there's more. 

About 95% of businesses in SA are small enterprises and they contribute between 25% and 35% of total national income, according to Joe Schwenke, MD of Business Partners. He said there were about 600, 000 small businesses in SA’s formal sector and between 1-million and 2-million informal businesses. He said experience in the US showed new employment was mostly created by small businesses.

Blumenthal responds and we find out where the NSF may fit into the QSE scorecard.

Ivor Blumenthal (Services SETA CEO) wrote a scathing response  to this article in the Business Day -Skills training funds missing the target.  Blumenthal argues that the Labour and Finance departments did not discuss the removal of the 1% skills development levy (SDL) for companies whose annual payroll was less the R500k, I have heard that SARS will not accept the payment even if it is voluntary.  In fact he suggests that there is a huge rift between the two departments. 

And I quote. "Now, one year after the exemption, this chicken is home roosting.  SMEs are now far worse off than they were when they were paying levies. No training and development of any meaningful consequence is occurring among this 600000-strong group of registered businesses, and worse, these SMEs have resorted to activities engaged in during the days of industry training boards, where they wait for medium-size and large businesses to train staff, then simply poach the good ones."

The Labour Minister, Membathisi Mdladlana, has woken up to this fact and he's looking for cash to solve this problem.  Mdladlana does not consider the National Skills Fund as an option to fund SMMEs (the NSF gets approximately R1billion of the total R5billion collected annually from the SDL; it uses that money towards skills programmes that target the poor and unemployed).  And he's a little shy on what the solution is.

We were all a little confused as to why the QSE skills development scorecard provided 5 points for making an application to the NSF.  It seems clearer now that this requirement is some sort of a typo.  They might be referring to a voluntary SDL payment, I reckon this is a better solution. 

BEE strategy should be communicated to all in the company

Strategy, business plans and their ultimate implementation are normally discussed at the upper levels of an organisation. The implementation guidelines are then filtered down to the lower levels.

It is quite common that the people at the lower levels are not aware of all the ramifications of the strategy and their implementation may have a detrimental affect on the company.

This situation may also be exacerbated by customer and supplier-facing representatives who may sacrifice a deal because they don't fully understand the company's strategy.

I come across this situation on a daily basis when it comes to BEE. There always seems to be two extremes that you experience.

Supplier facing personnel receive a brief that the company is to buy from certain types of companies, e.g. black-owned companies. They are more often than not, not given the tools and knowledge to adequately ascertain the BEE status of existing and prospective suppliers.

This situation is exacerbated by the fact that in some organisations purchasing officers are incentivised to concentrate their procurement efforts on black-owned companies. As a result the purchasing organisation may have to seek alternatives that might ultimately impact on price, local content and other criteria.

In addition suppliers to this organisation are not provided with the opportunity to state their case as the organisation has made a decision to use those criteria and those criteria only in determining their suppliers.

Sales people in an organisation must be equipped with a comprehensive understanding of a company's BBBEE status.

The company's BEE profile will be brought up at some stage in the sales process, and the sales person must be able to allay these concerns at the outset. The deal can then be freely negotiated on a business level.

A uniform message also removes any confusion in the market place. There are companies and government departments that happily speak about broad-based BEE in much of their marketing, but only use narrow-based criteria when it comes to determining their suppliers. This kind of dissonance could have a negative impact on their image.

It is simplistic to suggest that only BEE strategies need to be communicated across the organisation. Kaplan and Norton, in their book "The Strategy-focused organisation", argue that the company's broader strategy must be communicated across all levels.

But the need for adequate broad-based BEE education throughout the organisation must be a priority for all companies as business can be won or lost based on a simple misperception.

A little more on government procurement

My BEE life revolves around the Business Day.  I do recommend that you read financial publications when it comes to BEE, they don't spend much time (if any) on the emotional and sensational.  It does give you a somewhat balanced view. 

Today's lesson is taken from an advertorial on page 33 of the 8 August, 2006 edition.  Goes under the title of "Procurement in South Africa" and is drawn from an interview with Roger Wakefield of Werksmans Attorneys.

The South African constitution requires that all persons tendering for State contracts must be treated equally.  However the constitution provides for preferential treatment to be given to historically disadvantaged individuals. (This means that the Coega tender was constitutional). 

Wakefield then refers to the Preferential Procurement Policy Framework Act which states clearly that only the bid with the HIGHEST NUMBER OF POINTS may be selected.  This is where Coega may have gone wrong.

And the remedies.  Section 5 of the Promotion of Administrative Justice Act (3 of 2000) "provides that a person whose rights have been adversely affected by administrative action may request the administrator to furnish written reasons which must be provided within 90 days of the request."

The administrator's reasons (I'm typing this verbatim off the article - I can't seem to find it on Google) may assist the unsuccessful tenderer in determining whether the procurement process was biased, procedurally unfair, irrational or contravenes any law.  If an administrative action is irregular the affected person may apply to a court for a review of the administrative action and the court is empowered, amongst other things, to remit the matter back for reconsideration.

This would appear to be what is happening in the Coega case.

BEE compliance raises more questions than answers

So says David Pincus in Sunday's Business Times (Tenders section page 11).  The report tells of a Coega tender in the Eastern Cape that was awarded to a BEE compliant consortium.  The only problem was that the consortium's bid was R8 million more than another bidder who was deemed not to be empowered enough.

The jilted bidder took Coega to court and work on the contract has been halted. If you want to read on the war of words take a look at http://www.sundaytimes.co.za/Articles/TarkArticle.aspx?ID=2168772.  Pincus very significantly asks the question "Do those who call for tenders and insist on BEE compliance regard compliance as more important than value for money?  And if that's the case, what is it costing taxpayers?"

The Preferential Procurement Policy Framework Act and its accompanying regulations make it very clear that pricing and quality are still the most important considerations in awarding government tenders.  I can understand that government wants to support BEE companies (and their definition of BEE is excruciatingly narrow),but not at the expense of the taxpayer.  I'll watch this closely. 

Rural migration to cities slows down

This article appeared in the Business Day this morning http://www.businessday.co.za/articles/national.aspx?ID=BD4A245132.  A study conducted by the Human Sciences Research Council (HSRC) has found that the flow from the rural areas to the urban areas has slowed down and in some cases people are returning to the rural areas because the cost of living in urban areas and unemployment is too high.

(There is a definition of a rural area: a sparsely populated area in which people farm or depend on natural resources, including the villages and small towns that are dispersed through these areas, also includes large settlements in the former homelands, created by apartheid removals (South African Rural Development Framework 1997:9).

One other interesting observation is that the location of government offices also influenced migration patterns.  Also "allocation of social grants and low-income housing often encouraged people to stay where they were, rather than move to the cities. The same scenario was observed when government built houses on cheaper land outside the cities."

The BBBEE tie in lies in the enterprise development and CSI elements.  There is a great deal of emphasis on rural development in these two elements specifically. This study does show that if there is going to be corporate involvement in these areas then they will only work if the government has an acceptable presence there.  Perhaps this CSI would best delivered as a Public Private Partnership.

Ollie Halsall and Patto

If you've read my book "Broad-based BEE for small businesses" (you can get it here http://www.kalahari.net/bk/product.asp?toolbar=none&sku=29709174&format=detail) you may have noticed I refer to a company called Patto and Halsall.  This company is a product of my mind and was named after two great musicians, Mike Patto and Ollie Halsall.  They played in a few bands together but are probably best known for playing in Patto.

Barry Monks who manages the brilliant Ollie Halsall web site http://olliehalsall.co.uk/index.htm has decided to post MP3s of the last official Patto album - Roll 'em smoke 'em, Put another line out.  If you would like to hear my favourite Patto album and some of the best musicianship you've ever heard then download the MP3s from here http://olliehalsall.co.uk/rollemsmokem.htm.  You won't listen to anything else for a long time (I'd love to know what you think of Mummy).

Foreign banks looking for a piece of BEE action

This article appeared in Business Day on Tuesday (1 Aug, 2006). http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A242965

There is no shortage of financial institutions with cash for these deals, the question should be "are there enough deals out there?"  I think I might not have a full understanding of the number of deals there are to be had out there, with these big guns playing there has to be a lot of business to write.

I still do not think that ownership is the best form of empowerment.  I'll write more on this in the next few days.

BEE opportunities are often overlooked by companies

This press release was published in Moneyweb today.  It covers my sentiment about BEE, if you have to implement it then you might as well make it work for you.

http://www.moneyweb.co.za/business_today/828733.htm

The implementation of broad based BEE should not be regarded as an expense that can only be reaped at a later stage. “The Codes of Good Practice have provided every company with certain efficiencies and business opportunities. Unlocking these is really a matter of understanding the codes,” says BEE consultant Paul Janisch.

When it comes to business efficiencies Janisch isolates the skills development and preferential procurement elements as being particularly relevant. “The codes effectively require each company to conduct a complete audit of all their training and procurement in order to generate a score. What is missed by many companies is that these audits might reveal some very interesting information.”

In the case of skills development, a full audit of all training, including on-the-job training, mentorships and the like must be identified and quantified. The output will show who is being trained and on what. It should also assist in developing a comprehensive skills development strategy that is the business’s best interests.

Similarly a complete audit of all procurement has the potential to reveal buying patterns, costs of goods and services and perhaps a few surprises in terms of what is being spent. This knowledge will provide the organisation with the ability to identify new suppliers, negotiate better rates with existing suppliers and ultimately streamline their expenditure.

“These processes will reveal a BEE status in both elements of the scorecard, and will lay the foundations for effective scoring in the future,” he says.

Business opportunities abound on the scorecard. The best place to look for these opportunities is in the enterprise development element. The intention of enterprise development is to assist or accelerate the development, sustainability and ultimate financial and operational independence of Beneficiary Entities. The financial target to achieve the ten points on this part of the scorecard is very high. Instead of making this investment some sort of tax, companies can look at turning this investment into something that will have a direct impact on their business. An example might be the training of a beneficiary to market or support a company’s goods and services in another region. This could result in that company gaining access to a new market.

“There is no doubt that this will require a fair amount of time and money, but if this investment has to be made, then it is fair that the investor should think in terms of what they are going to get back.”

“Perhaps the better view of broad based BEE should be, ‘Ask not what you can do for BEE, but what BEE can do for you.’” Janisch concludes.