Paul Janisch

But do they work?

The beauty of blogging is that you get to post knee-jerk reactions to issues and then hope that people who come across your posts will join in the fray.  This post is not quite a knee jerk reaction but I may be wrong.

We all know that the codes were gazetted on the 9th of February this year.  I somehow suspect that they were very hastily drafted and that the proofing department might have been on strike before the ninth.  Other than the obvious typos that crop up here and there, there are some very serious omissions.

Skills Development

I spent a whole afternoon trying to make the calculations for skills development spend work. I wasn't alone, Jacques Swanepoel of WorldsView Technologies was working on them at the same time.  Jacques and I have differed in terms of how the calculations work - but we both agree that the calculation contained on page 5 of code 400 (page 14 in this document) can never work.   

The first problem lies in that the calculations for adjusted recognition for gender (ARFG) ask you to calculate the percentage of black people and black women who are employees NOT the spend on skills development on these people.

The next problem happens when you take this ARFG and put it into the next calculation.  Rienzo and I tried our best to figure it out, at first the score for the first requirement came to 8400 points; and then with a little modification we got it to 84 points (this is a category out of a total of six).  Jacques has managed to reduce this even further to 25 points.

I know where the problem lies - if you calculate the spend you get a more realistic answer (that falls below 6).  Can anybody help me with this at all - am I going wrong somewhere? Kim?

A hint

Don't read the codes without consulting the definitions.  They don't make sense otherwise.

Exit ESKADAAT

Those doing business with ESKOM must be very familiar with their procurement policy, ESKADAAT 6.  The ESKADAAT 6 has all the correct sentiments in place to stimulate and foster black entrepreneurship.  The problem, however, was that it appeared that the ESKOM people implementing it were getting it all wrong (in fact some reports suggested that the purchasing managers would only consider black-owned businesses, irrespective of whether there were black suppliers or not).  This put many businesses under threat resulting in some concluding empowerment deals (you know what I think of deals for compliancy's sake) or just plain fronting (even though the ESKADAAT takes a very dim view of fronting). 

PLEASE NOTE - IT IS NOT MY INTENTION TO INCUR ESKOM'S WRATH (I TOO LIKE TO HAVE ELECTRICITY EVERY NOW AND THEN).  THESE ALLEGATIONS HAVE BEEN TOLD TO ME BY ESKOM'S SUPPLIERS (AND I HAVE SPOKEN TO A FEW), I HAVEN'T CONFIRMED THEM WITH ESKOM.

The good news is that ESKOM is now subject to the BBBEE codes.

Section 3 of BBBEE Code 000 (gazetted on the 9th of February, 2007) states that the codes are applicable to the following PFMA schedules:

• All public entities listed in schedule 2 or 3 (parts A and C) of the PFMA.
• Any public entities listed in schedule 3 (parts B and D) which are trading entities which undertake any business with any organ of state, public entity or any other enterprise

You will notice that ESKOM fits happily within Schedule 2.  Bye,bye ESKADAAT.

Suppliers to ESKOM - start getting your scorecards in order. In fact if you are looking for a reputable rating agency I would strongly recommend Obed de Swardt of BEEMatrix.

BEE self-rating tools - who's going to win

My money's on Integrator.  Last year Robin Woolley told us that when the codes came out he would attach a CD to the FM with a demo of the software.  There is a massive ad in today's Business Day announcing the software will be in the March 2, 07 FM.  We'll be sure to test drive it and report back on it.

I think Integrator has the edge over most of the others, even though it is quite a late entrant into the market.  Rob has been very involved in the development of the codes and has a great eye for detail.  He's also introducing it to the most elite elements of the market by going through the FM.

New scorecard

We spent the morning going through the new codes.  And there are a few little surprises, but all-in-all they don't look too bad. 

I spent a whole day last week trying to understand how the Adjusted Recognition for Gender (ARFG) works - and I think I have it now.  We incorporated it into the embargoed codes we had and it didn't always work, it will probably work with the new codes.

We've summarised the new scorecard - you can download it off the Caird website.

Latest GEM report

The latest Global Entrepreneurship Monitor (GEM) report was published recently.  I can only find a copy of the 2005 report (which has been out for quite a while).  -I suspect the latest one is the 2006 report.  I have drawn this post from the Business Day SA falls down before it can start up. 

The article finds that the South African uptake of entrepreneurship has declined.  The report notes that 

This downward trend spells trouble for the South African economy in the long term. GEM specifically tracks and studies early stage and young businesses. These businesses are critical to an economy because they form the new basis from which it can expand and stimulate accelerated socioeconomic growth and development.
With a young population and without a healthy influx of such businesses into the system, more pressure will be exerted on existing businesses to create wealth.
And if total early-stage entrepreneurial activities are not improved quickly enough, the danger exists that the dependency level on the existing businesses will become too much and the economy will stall.

The report found that the problem lies in the fact that "potential entrepreneurs lack the mindset and skills to become true entrepreneurs".  Part of this is the education level of the business owner.

Some of the recommendations contained in the report include education and training of relevant skills and better mechanisms of support.  It identified nine key areas a being necessary conditions that must be in place for entrepreneurship to thrive.  These areas include:

• access to finance,
• government policies,
• government programmes,
• education and training,
• transfer of research and development,
• commercial, legal and financial infrastructure,
• openness of the domestic market, and
• access to physical infrastructure.

And what then about enterprise development?

Two points

1. These areas could become an integral part of an enterprise development strategy.  If you have an ED policy, incorporate these into it.  It will increase the chances of the programme succeeding.
2. Why on earth has the ED code (600) been limited to black owned businesses?  I've argued this fact before - we need more sustainable businesses, and this report corroborates this fact.  I would want to put my ED money into something that I thought would have the best chance of succeeding - and I wouldn't want to be limited to one race group in looking for beneficiaries.

End quote

SA needs more start-ups and entrepreneurs to make it work, as well as a higher level of business acumen and involvement. If a co-ordinated and focused way of supporting entrepreneurship can be developed and maintained over time, the chances of creating and maintaining a sustainable entrepreneurial SA should be high.

Midmar mile

Rienzo and I schlepped off to the Natal midlands to swim the Midmar Mile, with our good friend Chris Daffy.  There will be much humble pie eaten tomorrow and bottles of Black Bush will be exchanged over the next few days.  I am not looking forward to the final results. 

It's a nice swim and great event - and the midlands are amazing.  This is a very beautiful country indeed.  By the way, if you are ever in Hilton go to the Crossways Pub and tell Ed that Paul Janisch sent you.  It's a fantastic venue, we'll be hosting seminars there soon.

They're here

Strange how the news hasn't generated that much interest in the press.  The codes were gazetted beneath the hype of Mbeki's state of the nation address, perhaps that's the reason.  There is a small article on page 3 of today's Business Times which highlights the necessity to align the codes with the Preferential Procurement Policy Framework Act.  This needs to happen soon.  (By the way, I am presenting a two-day course on 21st and 22nd of Feb in JHB on the PPFA and how the government should go about managing its procurement - if you are interested contact Lisa Helm of the Business Zone).

Back to business.

Charters

Two charters have also been gazetted under section 12 of the BBBEE Act, which means that signatories will still have to produce a dti COGP scorecard when doing business with the government.  Effectively this means that they may rate themselves on two different scorecards.  One for the private sector and the other for the government.

It is strange that the Financial Sector Charter (FSC) was gazetted in its original format.  It still contains narrow-based definitions and a few other strangenesses (like the definitions of managers).  Be that as it may, the FSC is infinitely better that the Construction Sector Charter which was gazetted as well.  The latter lacks descriptions and a guideline as to how to go about implementing it.  I've posted an analysis of the many scorecards contained within it here.

QSEs

There was a fair bit of speculation as to whether the threshold for QSEs would be dropped to R25million.  The embargoed codes that we have show the threshold to be R25million, they were a little old.

That's it for now.  We'll post things on this blog and on the Caird website as they become significant.

More on section 38

Section 38 made the Business Day this week, Changes to law will aid new deals (watch out for this link it is broken on their website - it might be fixed).  The story provides a little history on the complexity of doing deals when they can't be self financed. (I have to type this out - gets to the fingers a bit)

Vendor participation was limited by section 38 and this led to complex and expensive structures being put in place to facilitate the transactions...... there was a huge leakage to advisors and institutions.

An appropriate amendment to Section 38 will lead to simpler and cheaper structures and this is likely to result in more deals.  The amendment is expected to come into force during the first half of this year.

The rules for vendor financing seem to be:

• After the deal is concluded, the company must still be able to pay its debts in the ordinary course.
• The company's assets must exceed its liabilities
• The company must pass a special resolution that requires the approval of 75% of the shareholders

Here is a question for the banking people.   Section 9 of the Financial Sector Charter creates Empowerment Financing as a goal for that sector.  If more deals are enabled through the relaxation of section 38, and the banks are requested to provide financing, will this still be considered as empowerment financing for scorecard purposes?