Paul Janisch

Tax breaks for good BEE contributors

Rienzo sent this email to the TipsforTrevor email address.  I have blogged about tax breaks for good contributors before - the idea was put to me by Dave Meintjies.  I think it is brilliant idea.  If you like it as well please send him a similar email.

Dear Mr Manuel,

Our business is built to assist South African businesses in understanding BROAD BASED BEE, and in building strategies that are relevant to them and that not only keep them in business, but make them more competitive and better employers.

One of our biggest criticisms of the BEE Act, the dti's Codes of Good Practice and the interpretation thereof, is that invariably there is a "penalty" approach for non compliance.  It becomes a grudge purchase or unwelcome "additional company tax".

We understand that projects such as ASGISA and JIPSA are crucial in reducing the second economy and reducing the financial burden that transformation is having on the State coffers. Indeed, we firmly believe that the Enterprise Development, Skills Development, and Socio-Economic Development elements of the Scorecard are the keys to putting more of the economy into disadvantaged hands.  These are the cornerstones of broad-based economic empowerment

With the above in mind, we would like to suggest that you explore "tax-break" benefits for companies that can conclusively prove that they are investing in these three elements specifically. Our opinion is that if companies were offered a "carrot" rather than a "stick", we may see more defined efforts in these arenas and less of a focus on finding a well connected business person, to hand more wealth.

We cannot see anything but benefit to the majority of South Africans trapped in the second economy, or to the Government in relief from the responsibility of caring for these people alone.

We would value the opportunity of discussing this with you more.

Good luck with the 2007 budget.

Yours,

----------------------
Rienzo Colpo
The Caird Group
"creating BUSINESS sense out of BEE"

Crime makes ASGISA a joke

I have not spoken about the levels of crime on this blog.  I shouldn't have to, the press talks about it all the time.  I've decided that I will start talking about it. 

The murder of David Rattray this weekend is drawing us beyond the last straw.  Forget about the bullshit that is uttered by Mbeki, Selebi and other so-called leaders of South Africa, crime is rife in this country and it is becoming increasingly violent. 

Murders like this do have an impact on the international impression of South Africa.  If you consider that the Deputy President identified tourism in her media briefing of 6 February 2006 as one of three high priority areas.  The briefing says on page 7

"The other high immediate priority sector is tourism. This sector has already grown rapidly in South Africa but is ready for a second phase of growth  that could take its contribution to GDP from about 8% to about 12%, and increase employment by up to 400 000 people."

Phumzile, you've got a huge task ahead of you, perhaps your first move should be introducing Thabo to some of the victims of crime, at least that will keep him busy and in the country for the next 20 years.

I never went on one of Rattray's battlefield trips and I am now really sorry I didn't.  My condolences go to his family.

PIC vs Barloworld

This is taken from today's Business Times, Business Opinion -  Clewlow deserved to get the PIC boot.   I'm not going to go into the story's details but I do think the PIC were right.  The opinion piece concludes with this comment.

"Any business that does not have a management and ownership that reflects, understands and can take advantage of the opportunities created by empowerment, does not have a sustainable future in South Africa.

While Clewlow is taking the fall for the lack of transformation at Barloworld, the three black non- executive directors who served on the company’s board with him should also be asked about the slow pace of empowerment at the company. Until Molefe arrived on the scene, they seemed happy to let Clewlow run the show. Black non-executive directors should be doing more to drive transformation at companies, and should be speaking out more loudly if they find they are being sidelined and ignored by the traditional powers in big companies. They must begin to actively drive change in their companies, not only collect directors’ fees. 

Companies in South Africa are already over-taxed and over-regulated by a government that sees shifting its responsibilities to business as a quick and easy solution for problems it is doing too little to tackle itself. Unless companies take the lead in fulfilling their social and political obligations, they cannot complain when their shareholders grab them by the scruff of the neck."

This paragraph makes two very valid points:

1. Black executives must grab the proverbial bull and push for transformation.  If they don't they run the risk of being perceived as puppets.
2. The government is not doing enough to effect change in this country, it is up to business to make sure that this happens.

Slight Benzing of the norm

DaimlerChrysler has announced a BEE deal.  They are quite insistent that it is going to be broad-based.  Their website provides a succinct analysis of the whole deal. 

The thing that I love about this deal is that they have involved a bunch of prominent celebrities including former Miss South Africa Basetsana Kumalo, pop star Yvonne Chaka Chaka  and former talk-show host Felicia Mabuza-Suttle.  This is a clever move - make really attractive people (although I reserve judgment on Felicia, I actually thought she was has-beened and went back to the States), your shareholders.  Great brand building indeed.

Yvonne Chaka Chaka, front, and Basetsana Kumalo, with Lot Ndlovu of Nedbank, Dr Hansgeorg Nefer of DaimlerChrysler and Roy McAllister (source - The Sunday Times).

PPC to cement its future

Bad pun.  Today's Business Day announced  "PPC’s BEE plan too expensive, analysts warn".    They want to flog off 15%, which is valued at R3.2bn.  Analysts say that the price could deter external financiers.  The article concludes that a broad-based (read - lots of shareholders, not the broad based BEE we understand) deal would be concluded and that "price was unlikely to scupper a deal (as) BEE partners tend to take a 10-year view, looking at dividends to cover paying off the loan and turning it into an unencumbered asset.”

And this brings me to a few points.

Dividend payments

The deal would be paid off through a dividend flow.  Judging by the construction boom, which David Shapiro speculates will continue to at least 2015, the shares will be easily paid off in the allotted time.  This dividend flow interests me - is this a normal payment method, or is it something that has recently arisen because of the BEE necessity.  I'll find out more about this (thanks for your input this morning Dave).

We met a major women's empowerment group who had expressed an interest in a multinational client of ours.  We told them that they could go overseas with a suitcase full of cash and purchase the shares on the international bourse.  They told us that they didn't have that kind of money and that the money for the shares would have to be raised by alternative means.   These guys have done some serious deals - and they can't raise cash.  I don't like this at all.

Why is PPC doing the deal?

Let's face it, there is a construction boom and there is a shortage of cement.  It is therefore unlikely that PPC will do any worse if it doesn't do the deal.  I asked Kath about this and she rightly observed that a deal is the right thing to do.  PPC would be viewed as some sort of money-grabbing entity that does not particularly care about the country, it's people or its employees - the press and the government would have a field decade with it.  It's a good PR exercise to do it, especially seeing that some of its competitors have already done their deals.

Will the usual suspects end up being shareholders?

There is no logical reason for this happening.  John Gomersall, PPC CEO, has said the deal would be broad-based.  Why not make it completely broad-based and leave the regulars and the sub-regulars and their deputies out of it?  It would be nice to see unknowns involved in this deal.  Don't hold your breath though.

When

The moaning that happens from so-called BEE experts about the publishing of the codes.  People it's simple - get a preview copy from someone who knows someone, who met someone, who left it lying around.  That's how we got to have a look at them. 

I spent the afternoon looking through a few codes.  The Enterprise Development code (600) is most certainly geared toward the fostering of black-owned and black women-owned businesses (exclusively).  I blogged about this a while ago.  I still think it's the wrong way to go about it - any new business that employs people on a sustainable basis must be supported.

The new codes are in many cases very thorough, providing very good guidelines as to how to go about implementing each code.  In the case of code 600, the guidelines are very clear, infinitely more-so than the 2005 codes.  I also think the microlending industry is in for a great opportunity to earn 15 or 25 points without changing a thing about their business. 

More on this later.

Teaching an old dog

Yesterday's Business Day carried a headline article on Mbeki's view on the job situation. Right at the end of the article Iraj Abedian suggested that the halving of unemployment by 2014 would depend on how fast South African workers became skilled. 

“The economy has moved through a higher level of job creation capacity.  At some time jobs became more skilled and technical because of the way the economy has moved, so older South Africans have found themselves out of jobs. The unemployment rate will not drop if people do not re-skill.”

The underlined quote is important.  I cannot count the number of times clients have told me that they want to train their older staff members and that these people show no interest in the training.  Here we have it from the experts that these people are engineering their own redundancy.

Then there is the question about skills development and the new codes.  The 3% payroll target remains, and there doesn't seem to be any incentive for results.  In other words, if you spend the money you get the points.  I don't think this is the best idea for a few reasons:

1. You could spend money on wasted causes.
2. How much time will this training take from the staff member's productive office time. 
3. What are the business benefits (other than scorecard points) of spending this money.

Admittedly I haven't seen the new codes yet.  But if this code is going to succeed then there has to be a qualitative aspect to it.

If you have any thoughts, ideas or experience in this matter please comment.  We've all got to get a better understanding of this issue.

 

Yesterday's Business Day carried a headline article on Mbeki's view on the job situation. Right at the end of the article Iraj Abedian suggested that the halving of unemployment by 2014 would depend on how fast South African workers became skilled. 

“The economy has moved through a higher level of job creation capacity.  At some time jobs became more skilled and technical because of the way the economy has moved, so older South Africans have found themselves out of jobs. The unemployment rate will not drop if people do not re-skill.”

The underlined quote is important.  I cannot count the number of times clients have told me that they want to train their older staff members and that these people show no interest in the training.  Here we have it from the experts that these people are engineering their own redundancy.

Then there is the question about skills development and the new codes.  The 3% payroll target remains, and there doesn't seem to be any incentive for results.  In other words, if you spend the money you get the points.  I don't think this is the best idea for a few reasons:

The mad scramble

I can't say that I am vaguely surprised that we are receiving notices about upcoming BEE conferences and seminars.  I love reading them, some of the conferences are hosted by people who helped in the drafting of the (still unpublished) 2006 codes of good practice.  Others fail to mention that the exempt micro enterprise threshold is below R5million annual turnover and are ultimately going to dupe a whole bunch of companies into attending when they are exempt.  One company has gone so far to suggest that even if you are exempt you might want to develop a scorecard because you may get more points that way (a feeble attempt to solicit unsuspecting EMEs).

If you are an EME don't get sucked into the hype and rubbish.  The codes still have to be published and gazetted and this is a drag for companies like Caird.  We have enough information to begin the consultation process but we can go only so far.  Stay away from these courses and seminars until the codes are published.  Even those courses and seminars offered by those who helped draft the codes are no guarantee that this is what is going to be ultimately published.

As far as scorecards go - I think this will happen:

• I think that it is going to take a while for EMEs to convince both existing and prospective clients to understand that they are exempt.  They are probably the companies that will need to understand BBBEE the best, because many of their clients won't know what is going on.
• Most clients want to see some form of a scorecard - it'll take them a while to understand how a score impacts on their own preferential procurement score.

New BBBEE scorecard

We've broken the dti's latest booklet into both QSE and generic scorecards.  You can download it off the Caird website or from here. 

I can't say that I am vaguely surprised that we are receiving notices about upcoming BEE conferences and seminars.  I love reading them, some of the conferences are hosted by people who helped in the drafting of the (still unpublished) 2006 codes of good practice.  Others fail to mention that the exempt micro enterprise threshold is below R5million annual turnover and are ultimately going to dupe a whole bunch of companies into attending when they are exempt.  One company has gone so far to suggest that even if you are exempt you might want to develop a scorecard because you may get more points that way (a feeble attempt to solicit unsuspecting EMEs).

If you are an EME don't get sucked into the hype and rubbish.  The codes still have to be published and gazetted and this is a drag for companies like Caird.  We have enough information to begin the consultation process but we can go only so far.  Stay away from these courses and seminars until the codes are published.  Even those courses and seminars offered by those who helped draft the codes are no guarantee that this is what is going to be ultimately published.

As far as scorecards go - I think this will happen:

• I think that it is going to take a while for EMEs to convince both existing and prospective clients to understand that they are exempt.  They are probably the companies that will need to understand BBBEE the best, because many of their clients won't know what is going on.
• Most clients want to see some form of a scorecard - it'll take them a while to understand how a score impacts on their own preferential procurement score.

New BBBEE scorecard

We've broken the dti's latest booklet into both QSE and generic scorecards.  You can download it off the Caird website or from here. 

I can't say that I am vaguely surprised that we are receiving notices about upcoming BEE conferences and seminars.  I love reading them, some of the conferences are hosted by people who helped in the drafting of the (still unpublished) 2006 codes of good practice.  Others fail to mention that the exempt micro enterprise threshold is below R5million annual turnover and are ultimately going to dupe a whole bunch of companies into attending when they are exempt.  One company has gone so far to suggest that even if you are exempt you might want to develop a scorecard because you may get more points that way (a feeble attempt to solicit unsuspecting EMEs).

If you are an EME don't get sucked into the hype and rubbish.  The codes still have to be published and gazetted and this is a drag for companies like Caird.  We have enough information to begin the consultation process but we can go only so far.  Stay away from these courses and seminars until the codes are published.  Even those courses and seminars offered by those who helped draft the codes are no guarantee that this is what is going to be ultimately published.

As far as scorecards go - I think this will happen:

• I think that it is going to take a while for EMEs to convince both existing and prospective clients to understand that they are exempt.  They are probably the companies that will need to understand BBBEE the best, because many of their clients won't know what is going on.
• Most clients want to see some form of a scorecard - it'll take them a while to understand how a score impacts on their own preferential procurement score.

I think that it is going to take a while for EMEs to convince both existing and prospective clients to understand that they are exempt.  They are probably the companies that will need to understand BBBEE the best, because many of their clients won't know what is going on.

Most clients want to see some form of a scorecard - it'll take them a while to understand how a score impacts on their own preferential procurement score.

New BBBEE scorecard

We've broken the dti's latest booklet into both QSE and generic scorecards.  You can download it off the Caird website or from here. 

The year that was

I'm in New York City at the moment, I came over to meet Julia, my sister Frances's new baby. We've had a fantastic time here. America is an fascinating country and New York is probably its most interesting city. Frances has been living here for five years and has many South African friends in the city - all have managed to keep their South African accents (even though Frances married Chris - an American) so at times it felt like we were at home. I also met up with some old school friends who live in the USA. It would seem that all these ex-South Africans wil remain ex. It has been an important wake-up call for me, all of these people have made lives for themselves in the USA and that is where they have chosen to live. Admittedly the quality of life in Manhattan cannot rival that in Sandton, but that is not enough to entice these people back to the country.

Perhaps this is where the whole concept of BBBEE fits in. If it is regarded as an economic and remedial plan and manages to address the unemployment and violent crime levels in South Africa, we might see some of the ex-pats coming back (both black and white).

But for this process to work we will need to see both government and corporate South Africa taking a mature appproach to BBBEE and suppliers.
I would like to see bigger corporates and parastatals requesting broad-based information from their suppliers. There are many non-black owned companies that are making the requisite broad-based effort that is not being recognised.

BBBEE is a journey - scores will be low initially but this will improve in time. If it doesn't then companies can decide whether they want to use these laggards as suppliers.

The exempt micro enterprise threshold is R5million - EMEs should not be pressured for their BBBEE status.

All forms of entrepreneurship must be recognised and encouraged.

The BBBEE message within companies must be uniform - Caird has developed and implemented education strategies for our customers so that their supplier selection does not fall over because of a lack of information.

And finally a few thank you's. I found myself in a precarious position halfway through this year but with the help of all of our customers and partners we baely skipped a beat. Special thanks must go to Rienzo for bringing a new direction to Caird, to Lesley-Ann at Image Communications for the continued (and fantastic) PR and marketing strategies, to Kath for putting up with a hell of a lot more than she ever anticipated.

Happy New Year - as I write this it is new year in SA, New York still has six hours to go. The Caird Group will continue to provide provocative and innovative thought for business continuity - please continue to read this blog for more ideas.