Paul Janisch

Gidani yer bike

Uthingo', the former national lottery operator, lost the tender to continue operating the lottery.  The winner was the very controversial Gidani consortium.  There have been numerous reports, articles, blogs and other types of correspondence about the awarding of this tender.  In fact this whole process is a text book understanding of how government procurement is supposed to work.  I'll use this Business Day report (7th October, 2006) as an illustration.

Rule number 1 - understand the legislation governing the business that is being tendered for.

The above article states that there are certain "high profile shareholders included in this consortium are ANC executive committee members Max Sisulu and Chris Nissen, Independent Electoral Commission (IEC) chairwoman Brigalia Bam and former IEC commissioner and businesswoman Dawn Mokhobo. 

Section 13 of the Lotteries Act (1997) has a problem with political office bearers having any connection to the licence holder.  To be more specific - section 13, 2, b, iv states:

(2) Before a licence is granted under this section— (b) the Minister shall be satisfied that—

(iv) no political party in the Republic or political office-bearer has any direct financial interest in the applicant or a shareholder of the applicant.

Rule number 2 - the government tender awarders must now worry about all the other legislation concerned with government procurement.

My post on the 8th of August discussed the Promotion of Administrative Justice Act and the remedies it provides for anyone who feels they have been unfairly treated in the tender process.

The Administrative Justice Act is not the only act.  The Business Day reports that the Igwija consortium (chaired by Danisa Baloyi) is considering using the Promotion of Access to Information Act 2 of 2000 to find out why the minister will not tell them why Gidani won the tender.

The Access to Information Act is designed to ensure that certain constitutional rights are enforced.  The significant section here is section 9 (I've only included those sections that are relevant to Igwija).

9. Objects of Act

The objects of this Act are —

(a) to give effect to the constitutional right of access to —

(i) any information held by the State; and

(ii) any information that is held by another person and that is required for the exercise or protection of any rights;

A comprehensive analysis of the act can be found here.

Rule number 3 - don't forget the the Public Finance Management Act.

Public Finance Management Act (or PFMA) requires that each national department produce an annual report that must contain an opinion from the Auditor General of how well that department managed its finances and implemented its policy.

The PFMA therefore keeps tabs on how the state spends public money, dubious tender practices must be subject to PFMA scrutiny as well.

Rule number 4 - do it right the first time.

It can't be easy being involved in government procurement - but regulations do make it a whole lot easier to get it right the first time.  Because if you don't all hell can and will break loose.

Ingredients to make the economy grow

The Business Day carried this submission today, Ingredients to make an economy grow.  It's written by Augusto Lopez-Claros, the chief economist for World Economic Forum.  Lopez-Claros has identified eight important factors, policies and institutions which best contribute to boost productivity and thus economic growth.

I have long argued that BBBEE is an economic plan with political drivers.  Simply put if we don't implement it we will look like Zimbabwe in a very short space of time.  It makes for an interesting excercise to correlate his eight points with BBBEE principles.

1) Do not live beyond your means.

South Africans (including the self-styled black middle class) do not seem to follow this simple rule.  Perhaps tomorrow's announcement by the Reserve Bank might curb this behaviour.  BBBEE and sustainability are synonymous, a savings culture breeds sustainability.

2) Low taxes are not a miracle cure.

No real BBBEE application here, other than the fact that the more people who have jobs the greater the tax revenue.  Remember empowerment is about people standing on their own two feet and living as far away from the breadline as possible, job creation is the first step in this process.

3) Corruption is a killer of growth.

Difficult to even vaguely disagree with this.  Some South Africans somehow seem to revere people convicted or suspected of corruption.  This can't be sending the best message out to the world.

4) The virtues of judicial independence.

Our legal system has always been regarded as independent (even in the old days).  There has been some talk of how the government chooses to ignore court orders and the like to get their way.  On a slightly unrelated note take a look at Anton Harber's discussion of the PHD graduate from Bulgaria and the SABC in today's Business Day.

5) The evils of red tape.

I did a search on Business Day's web site on red tape and the results were alarming.  Red tape crops up everywhere and in many government departments.  A recent survey shows that it takes something like 30 days to register a new company properly, compared to the two days it takes in Australia.  Trying to get a work permit for a foreign national is another story - and we need to important skills under JIPSA (Joint Initiative on Priority Skills Acquisition).

Lopez-Claros explains this point best.

The World Bank’s Doing Business Report 2006 highlights the high costs of red tape and mindless bureaucracy. The World Economic Forum’s own annual Executive Opinion Survey provides corroboration for the notion that it is precisely in those countries where the emergence of new businesses and an entrepreneurial class is most desperately needed that governments will often erect the most onerous obstacles to the creation of new firms. For governments, the challenge is to strike the right balance between the need for some regulation and excessive bureaucracy which stifles investment and the entrepreneurial spirit.

6) Education as the central pillar.

Education and skills development are core components of the BBBEE scorecard.  At least 40 points on the scorecard have an education aspect - Skills Development (20 points), Enterprise Development (10 points) and Corporate Social Investment (10 points).  There is a chronic shortage of skills in this country (the average age of an artisan is 55 years old - on this subject there are plans to increase the number of new artisans from 5000 to 20 000 under JIPSA).  Lopez-Claros describes the investment in education as "the key driver of productivity".

7) Computers and mobile telephones as the new engines of growth.

To quote Lopez-Claros.

There is a high correlation between the ranks achieved by countries in the World Economic Forum’s Global Competitiveness Index and the penetration rates of these technologies, which contribute to enhance productivity growth.

It comes back to education. Already South Africa is regarded as a market leader in terms of the number of cellular users.  The next step is to provide these consumers with the ability to maximise the power of this technology.  I don't think this will take too long - we just need a dramatic reduction in the telephony costs (this is one of ASGISA's goals).

8) Empowering women.

Every time black people appear on the scorecard there is a separate target for black women.  Lopez-Claros says it best.

There is well established empirical evidence that the most profitable investment a country can make is to educate its women, particularly its girls. Female education, employment and ownership rights greatly empower women and allow them to shape their environment. Literacy helps reduce fertility rates, including the bias against female child mortality. Where women are empowered to participate in the economy and the political process, productivity and growth will benefit.

Rienzo's radio debut

Rienzo Colpo is the other partner in the Caird Group.  He spent a few years running a business in Zambia and has developed a rather refined view on entrepreneurship in Africa.  He tells me that enterprise development is the only element on the BBBEE scorecard that will save the economy.  You can hear him speaking about this and other BEE topics on Raizin' Entrepreneurs on Monday night (16 October).

Raizin' Entrepreneurs is a fantastic show at 7PM every Monday night on Radio 2000 (99.7FM in JHB).  The host is Allon Raiz, a passionate (and I don't use the word lightly) entrepreneur with a wealth of entrepreneurial knowledge and experience. 

Listen to the show and let us know what you think.

New codes coming at the end of October?

Finweek (5 October 2006) reports that it is likely that the codes will be published by the end of October. The interview with Lionel October, conducted by Barrie Terblanche, provides a sneak preview of what is to come.  According to October (the man), the codes were submitted to parliament on the 4th of October (the month), which if true, does make it likely that the codes will be made public within the next few weeks.

We can therefore expect the following from the new codes:

1. The turnover threshold for exempt micro enterprises (EMEs) will be R1 million.
2. Qualifying Small Enterprises (QSE's) fall below a turnover of R20 million (I have it on some authority that this figure will be R25 million).
3. Companies may not be under any obligation to use a rating agency.  October suggests that they can use their auditor or some other person or body to sign off the scorecard.  He also says that companies may rate themselves and that the DTI would be providing on on-line tool for rating purposes.
4. CSI and enterprise development are going to be consolidated into one code rated out of 20 points.  The logic here is to "shift emphasis to entrepreneurship support and for CSI to be directed towards that." In other words - the creation and support of new sustainable enterprises. 

This is good news indeed, especially the turnover thresholds for EMEs and QSEs. 

EE deadline was the 2nd of October

Hopefully those companies that employ more than 150 employees made the 2 Oct deadline.  The Department of Labour is ramping up its inspectorial activities, a "specialised inspectorate has now been established to deal with the matter and some regulations have been amended with the aim of encouraging better and more accurate reporting" (Business Day, 2 Oct 06).

The director general of the DoL is also entitled to conduct a review of the progress of each company and suggest changes.  A failure to make the changes could result in the employer being taken to the Labour Court.

The Act is still a procedural one - but the DoL is trying its utmost to see qualitative changes being made in the workplace.  The success of this will be reported in this blog.

Naspers BEE deals

Naspers has been busy lately with its empowerment deals, Phutuma Nathi for Multichoice and Welkom Yizani for Media 24. 

The deal that's really making the headlines is the Multichoice deal.  Multichoice have dedicated a channel on DSTV (11) to the deal and they have placed ads in the press letting potential investors know how to go about investing.  A good overview of the deal was in the Business Day yesterday.

Most commentators have welcomed the deal, after all the usual suspects are not expressly included and anyone shareholder (private or institutional) is limited to a 10% stake in the vehicle.  I would agree in principle but the cynic in me has to observe:

1. Investors will be locked in for five years (I haven't started on the cynical tack yet), and then they may only sell to BLACK investors.  Oops!  This is a problem.  I can see why they did this, Multichoice needs to show that it has black shareholders and they don't want black people "doing an Mzi" on them.  I said this in my last post - shareholding in a company is an asset and the owner of that asset must be allowed to do with it as they please.  It might be likened to an application of the old Group Areas Act, where black people may only live in one area, they can do business with each other in that area but they are limited to that market.  Perhaps some innovative businessman will set up a stock trading company that matchmakes black buyers and sellers (I might do this in fact).
2. The exclusion of all other race groups was tried by Nedbank with their Eyethu Share scheme.  Jaco Mulder of the Freedom Front Plus attempted to apply for the shares on the scheme claiming he was African.   I'm not too sure how successful the scheme has been - but the M&G report informs us that a white person was allowed to buy shares.
3. Following on from this last point.  What is black and how do you determine it?  If a white person goes to the post office and asks for an application form and is rejected by the teller it could cause all sorts of trouble.  How would the teller know that the person is not black?  Could it be an application of the fabled "pencil test". 

We'll wait and see how the scheme pans out.  In the interim, it does appear to be a good deal and those people that are entitled to benefit from the scheme should investigate it further.