Paul Janisch

Skweyiya calls for basic income grant for poor

Zola Skweyiya, social development minister, expressed support for the idea of a basic income grant to assist the estimated 23-million people living in desperate poverty in the country.  So the Business Day reported on Friday.  This comes on the back of government's forecasts of a budget surplus in coming years.  In other words, SARS continues to overreach its tax collection targets, and we now have more money.

Trevor Manuel has long been opposed the introduction of such a grant because he maintains the state cannot afford the R90billion/year bill.   His concerns extend to fostering a "culture of dependency".   Such a culture would have very negative repercussions if there was an economic downturn - how does the government extricate itself from such a programme?

When you remove the emotional aspects of BEE from the equation: - the usual suspects (now called the big six), entitlement etc, you'll find that there is a serious economic reason behind the policy.  Righting the wrongs of the past should elevate these 23-million people out of the poverty spiral.  And by doing this, the pressure on the government to deliver for these people is reduced substantially.

I am in no position to understand the plight of the poor in South Africa but I do agree with Manuel.  A population that can survive without too much government intervention is a huge asset to any country.

Back to the BBBEE scorecard.  There is no mysterious reason for the inclusion of enterprise development and CSI in the scorecard.  Simply put - the government recognises that it can't foot the social bill, and it needs help from the private sector.

Codes, Codes, wherefore art thou Codes

It's great having insiders in every corner.  Kim and Rienzo forwarded me a little more information on the new codes.  Rienzo and I were going to attend an AmCham conference on the new codes at the end of November.  We got an email this morning informing us that:

"The Minister of Trade & Industry presented the BEE Codes to Cabinet on Wednesday this week (November 8, 2006).  After much discussion the end result was that more changes were required.  The Codes will now be presented to Cabinet on December 6 and will most likely be gazetted after this."
The conference is probably going to happen in Feb next year.

Kim forwarded me a longer explanation that she dug up off the Business Report website. 

"Cabinet has asked the dti to simplify the proposed BEE codes of good practice, and has sought an interdepartmental task team to finalise the work on them.  The task team would finish work on the codes and report back next month."

The article wobbles a bit when it comes to preferential procurement - so I wouldn't read the whole thing.

As Peter Green might say, "Oh well"

Fidentia Top Empowerment Awards 2006

Caird was invited to the Fidentia Top Empowerment Awards at the Xtreme Lifestyle Centre in Fourways (JHB).  It was a lavish affair - big sponsors, no expense spared.   There is a deep cynic in me when it comes to these events - my natural instinct is to ask what the level of empowerment in fact is.  But I was pleasantly surprised - there were a lot of winners that I had never heard of.

The MCs were Laurence Dube and Bronwyn Nielsen (her hair did her no favours) - both entertaining.  I sat a table with Kunyalala Maphisa.  Kunya is a known BEE expert and I included a quote from her in my book - she speculated that directors who don't implement BEE may be liable for a breach of their fiduciary duties.

Here is the list of winners (you heard it first here):

• CSI Company of the year - First Rand Foundation.  The presentation speech (didn't catch his name) mentioned that each company donates 1% of after tax profits, totalling R65million.  This percentage is an internationally accepted average - the generic scorecard requires 3%.
• Emerging gender empowered company - SRS Aviation
• Emerging empowered company - iBurst (worst internet service in the country - they couldn't have considered this when they judged the award?)
• Resources - African Rainbow Minerals
• Manufacturing - ATC
• Food processors and producers - Premier Foods
• Health Care - Life Health Care Group
• Construction - Columbia DBL
• Investment Companies - Community Investment Holdings (why weren't our friends from Nations Capital nominated?)
• Pharmaceuticals - Enaleni Cipla Pharmaceuticals
• Retail - LA Group Ltd (I was not aware that they fulfilled the requisite empowerment credentials)
• Leisure, entertainment and hotels - Tsogo Sun Holdings
• Media and photography - Kagiso Media
• Business support services - Direct Channel Holdings
• Financials - Oasis Group Holdings
• Telecommunications - MTN (usual suspects here - not much to choose from)
• Utilities - Rand Water (all parastatals, why do they bother with this category)
• Transport - Equity Aviation Services
• IT - GijimaAST
• Top Entrepreneur of the year
  • Male - Greg Maloka (Instant Grass)
  • Female - Sibongile Sambo (very likable lady)
• Top personality:government
  • Male - Trevor Manuel (I can't say enough about him)
  • Female - Geraldine Fraser-Moleketi

We don't know who the winners of the top businessman and businesswoman of the year are, the nominees were:

• Male
  • Andile Mazwai - BJM
  • Jabu Mabuza - Tsogo Sun
  • Phutuman Nhleko - MTN
• Female
  • Irene Charnley - MTN
  • Thandi Orleyn - Peotana Holdings
  • Yolanda Cuba - Mvelaphanda Group

Impumelelo: South Africa’s Top Empowerment Companies

Caird has been asked to edit the empowerment section of the next issue.  Rienzo and I are very excited to be involved in this project.  We've been to-ing and fro-ing with Sam Dominy (the major editor) and we've put together an issue that we feel best reflects broad-based empowerment in South Africa.  Our deadline for content is the 15th of December, we can only hope that the codes come out before then.

Mining its own business

The Chamber of Mines has reported back on its AGM.  The industry is forfeiting R5-10billion a year in fixed investment because companies could not invest in projects without legal title.  20 000 jobs have also been dropped in the last two years.

A survey undertaken by the Chamber in July found that (I've only included those aspects that impact on regulation and empowerment), almost all respondents expressed concern about regulatory constraints affecting investment in the mining sector. 

Respondents also highlighted

• delays in issuing new or converted mining rights,
• additional red tape in interpreting the empowerment requirements of the mining charter,
• delays in processing water rights.

The DME disputes that one single factor (like regulation) is the reason for the decline (read about it in the Business Day).

Lazarus Zim, chairman of the Chamber, pointed out some interesting statistics about the mining sector.

• contributes 16% to the GDP
• contributes 50% of merchandise exports
• amounts to 12% of the country's fixed investment
• employs 20% of the country's formal sector working population

Last year, the sector employed 442 000 people (amounting to about 5 million dependents) and paid 36.4billion in wages and benefits.

On the subject of regulation

Zim confirmed that the Chamber was trying to find a solution to the industry's concerns about appropriate compensation for mining rights that were lost through the implementation of the Minerals and Petroleum Resources Development Act.  The act has replaced old order rights (which were in perpetuity) with new order rights (only for 30 years). Companies have to re-apply for new order rights and the deadline is April 30, 2007. 

The problem lies in trying to figure out the loss incurred by converting the rights from a perpetual to a limited term.  Zim would prefer the companies not to resort to litigate, but Peter Leon of law firm Webber Wentzel Bowens speculates that the only way to get compensation will be through the courts. 

It's not as though the DME hasn't got enough problems with existing litigation on their delay to issue prospecting rights.

Empower(DEX) firms do better

A front page story in today's Business Day.  EmpowerDEX conducted a survey of 99 listed companies and found that "companies with the highest empowerment ratings dramatically outperformed their peers when it came to growth in profit margins over the past three years. By contrast, the least empowered 50 companies saw their profit margins grow a more sedate 19% over those three years".

Chia-Chao Wu, the CEO of EmpowerDEX, stated in the article that “companies who have implemented broad-based empowerment enjoyed a higher improvement in their profit margins between 2003 and 2005. If empowerment was costly, we should have expected the opposite, that is growth in profit margins should slow, or go negative when a company maintains a high empowerment score.”

Good point about the cost vs benefits.  I highlighted the words "broad-based empowerment" in the quote because I am not so sure that the measure in this survey was based on broad-based empowerment.  I'll explain.

The survey notes that the trend is most noticeable in sectors where government business plays a role.  This is a very significant point.  Government procurement is governed by the Preferential Procurement Policy Framework Act (PPPFA) and its accompanying regulations.  The regulations use strict narrow-based criteria in determining the empowerment status of a tenderer.  (The regulations will change to take broad-based BEE into account - a 2004 draft prescribes a scorecard for the 80/20 and 90/10 rules Download draft_preferential_procurement_regulations_2004.pdf).

If the government is the main customer then this survey was probably not based on strict broad-based criteria.  I would like to see the results at the end of next year when broad-based scorecards are the de facto measure of empowerment.

Foreign workers' work permits to be doubled

If JIPSA (joint initiative on priority skills acquisition) is to succeed we need to bring in foreign skills to train up our people.  This seems to be an accepted fact, unless you are Cosatu - "the importation of so-called scarce skills undermines the process of local skills development and transfer".  This attitude has been described by Nazmeera Moola in the 3rd of November, 2006 issue of the FM, as a laager mentality - similar to US Republican Congressman. 

The government has decided to ignore these uninformed ruminations and push ahead with the finishing touches to "business-friendly amendments to new immigration legislation, including scrapping the two-year limit imposed on skilled foreign staff." 

This was the headline story in the Business Day on Friday.  The two year limit was designed to force multinationals to pass on necessary skills.  It hasn't worked - more time is needed and at last we'll get it; it's moved to four years.  Greg Durst - Managing Director of Endeavor South Africa  told me they wanted it to be five years.  Four years is a great start.

It seems as though there is also a World Cup aspect to this bill, FIFA partners can now send their experts to South Africa almost immediately.

I think that of all the government's initiatives, JIPSA is the only one that is making serious headway.

Well done to the minister of home affairs, Nosiviwe Mapisa-Nqakula

Standard Bank BEE qualifiers finalised

Google the heading of this post and count the number of sites carrying this article - it must be news then.  I chose to read the article on (surprise, surprise) Business Day.  Standard Bank has identified the 250 black-owned companies that have qualified for shares in the bank as part of its empowerment deal, announced two years ago.

Now to pervert Standard Bank's slogan.

1) Was the deal Inspired?

I would say yes.  In order to qualify, applicants must employ people and have a sustainable track-record (you can read the full list of criteria here.)

2) Was the deal Motivated?

Comes back to sustainability.  They filtered through 600 applications.  I would say this was motivated.  Don't forget the BEE shareholding as a motivation point - hence the limitation to black-owned businesses (it is well worth noting that the definition of black follows the codes' definition).

3) Was the deal Involved?

Probably - there are plenty of legal firms and other players that would make it involved and drawn our.  The beginnings of this process can be traced to October 2004. 

Oh yes - the deal is a little more involved than it appears on the surface.  A notice in the Business Day on 3rd of November (page 24) lays down on-going conditions for the new shareholders.  Two conditions do a Phutuma Nathi.

The SME must

• continue to be black-owned as defined in the Financial Sector Charter
• not cede, use for security, mortgage, pledge or otherwise encumber its entitlement to benefit (from the scheme).

This means that you can only sell to other black people or black-owned companies (50%+); and you can't use the shareholding as security.

In other words "please be a shareholder on our terms and forget about any of the other privileges of ownership. And we'll take out a double page spread in Business Day on Monday telling the world how great it is".

I wonder if these schemes will be the same when the "once empowered, always empowered" rule comes into play. 

Nice attempt Standard Bank - it still smacks of paternalism and gives off a subtle hint of limited-capitalist activity. Wouldn't it have been simpler, better, faster removing some of these conditions?

Lots of posts

I went to Cape Town this weekend and read a lot on the plane.  There is a lot to blog about - I'll try keep them brief.

The corporate way

Government procurement is a complex beast - full of regulations and accountabilities and the like.  Private procurement is different.  This tender notice is in this morning's Business Day (page 13).

GijimaAST is looking for a courier company. The tender conditions are very different to the PPPFA.  And I quote:

GijimaAST does reserve the following rights without prejudice:

• The right to change the RFP scope and or requirement;
• The right not to make any award based upon any submission;
• The right to withdraw this RFP at any point and at any time;
• The right not to award the RFP to the lowest priced submission;
• The right to award the RFP without having to furnish any reasons of any kind to any party; (an application of "the judges' decision is final and no correspondence will be entered into" - my emphasis)
• The right to disqualify late or incomplete, or unduly authorised submissions, or submissions not meeting the RFP stipulated criteria.
• The right to reject or disqualify any submission in the event of any direct contact with GijimaAST or its staff in order to potentially gain an unfair advantage.  Contact may only be made in line with the directives contained in the RFP (similar to competition entry forms "competition not open to staff members and their immediate families")

There is no legislated recourse for jilted tenderers in private tenders - I'm sure there might be civil remedies available.

If you are considering going to tender - it would be a good idea to incorporate these into the tender.

Third umpire

Page 14 of the Business Day today.  Buyelwa Sonjica, minerals and energy minister is given a red light for her department taking so long in awarding mineral rights.  And I quote.

Whether or not Tawana is using the threat of retrenchments as a lever, the fact is the granting of mineral rights is taking too long.

That's what I said last night.  Perhaps the government could provide tax cuts for the time that they take in awarding licences.  I like the idea of tax cuts when it comes to empowerment issues.