Paul Janisch

Mazwai's views on empowerment

TOWNSHIP communities need to be empowered to develop their own economies so they can set up and sustain small businesses, said Thami Mazwai, director of the University of Johannesburg’s Centre for Small Business Development (CSBD).

I found this in today's Business Day.  This is typcial of Thami Mazwai's sentiment on empowerment.  He is part of that school that doesn't want 25% of an established company - he advocates 100% black ownership of a competitor to that company.  And he has my full support in this. 

I wrote about Mazwai before.  And I am so pleased to see that he is starting to lay the foundation for this plan.  His position as director of the Centre for Small Business Development at the University of Johannesburg, Soweto campus puts him in the perfect place to start effecting this.

Mazwai is advocating township people supporting their local businesses and not heading into Sandton or town (or any other main CBD) for their purchases.  It is a noble idea and with the correct support from ED funds it can certainly happen.  There has to be a benefit for some companies helping develop small township based businesses - these guys could open up new markets for you.  Nestle has done it quite successfully.

There was a programme in the US (Chicago) where a couple decided to only support black businesses for a year.

I think that if you do not have a structured ED policy you would do well to contact Thami at UJ, I am sure he will put your ED ZARs to good use.

Using this blog

I chose Typepad as the my blog host simply because Fred Wilson was using it at the time and I figured that if Fred was using it then it had to be good.  The Typepad service I use costs me about $70/year but I get a mountain of additional functionality that I suspect most other free blogging service providers don't give you.  I'll go through some of them

RSS feed

I receive updates both through Google reader (which I cannot cope without) and Feedblitz email updates.  The easiest way to receive it using the reader is to go into your reader and click on the add subscription tab and copy this url into it

http://bbbee.typepad.com/paul_janisch/atom.xml.

It will automatically add it to your reader

Email updates

There is an email update box at the top right hand side of the blog where you can subscribe.  I use Feedblitz to manage this. 

I have about 100 regular subscribers and I know that if I get a little more contentious then it gets circulated wildly - jungle jim seems to be a popular topic.

Searching the blog

One of the widgets that Typepad provides is the Blogbar search facility.  I have moved the Blogbar to the top of the page.

It is a very useful feature and should provide you with most of the BEE information you are looking for - if you don't find it write me something in the Comments section below each post and I'll be sure to find it for you and post something on it.

CIDB and BEE

This is a notice that the CIDB sent out last week.

The cidb has commenced the process of reflecting B-BBEE Charter ratings on the cidb Register of Contactors. Please note that this is an optional requirement at this stage and your registration with the cidb will not be affected in any way. You are invited to have your B-BBEE Charter rating reflected on the cidb Register of Contactors if you are in possession of a B-BBEE certificate or Letter of Exemption. B-BBEE Certificates are issued by ratings agencies accredited by the South African National Accreditation System (SANAS). Enterprises that have an annual turnover of less than R 5million, may submit a Letter of Exemption from an auditor / accounting officer.

• It is clear that they want a Construction Charter rating
• It seems that they want a SANAS-accredited certificate
• They only appear to be targeting construction companies and not BEPs

It is worthwhile to note that that it is optional AT THIS STAGE.  Does this mean that the CIDB will make a BEE certificate mandatory at some stage, in keeping with the draft PPPFA regulations?

What is going on with the (police) Captain Renate Barnard case? This is a landmark employment equity issue and that judgement still hasn't been made public. I'm going to set this up on my Google alerts.

NABC responds

I held back on this post because Ivan didn't want me to post it but that was on the 11th of January - it's been two weeks now. 

Ivan van der Merwe has responded to my post on the 31st of December.  He responded in bullet points.

1. Paul does a good job of highlighting some of the issues in the BEE field.
2. He does not seem to see the need for consultants to be organised. One must be half-blind not to see this.
3. "NABC has no common agenda and lacks unified leadership": Here's a wake-up call for Paul: Any organisation that is so 'unified' and has such a 'common agenda' is likely to be a lame duck. If we never have differences we can only produce platitudes and generalities. If he had said that the NABC was lame in not protecting its members against a frontal assault by ABVA, I would have agreed.
4. My message to Paul: Let's talk again at the end of 2010. The NABC has made serious errors in 2009 and we plan to correct those and take some leadership to correct the warped BEE processes in 2010.

I stand by my comment that you have no common agenda which is very different to having members with differing opinions.  This is where ABVA is much stronger than the NABC 

• they have a common agenda and that is to verify companies
• they have a single standard to adhere to - R47
• they have SANAS backing
• they exact bigger membership fees
• as shocking as their website is, it's infinitely better than the NABC's
• most importantly - they have the ear of all the main corporates

I will watch the NABC closely this year and if they start talking the same language then I will join.

Thanks for your response Ivan and all the best for your work with the NABC.  I've seen many emails coming from you and respect your sentiments.

Checked on the dti's website to see if Rob had changed the verification requirements. But alas he has not - this means that we are going to hit a MASSIVE bottle neck. You can check my figures to see the potential http://bbbee.typepad.com/files/va-workload-for-2010.xls

Chancellor House of Cads?

The ANC's controversial investment vehicle, Chancellor House, was the lead story on 702 yesterday morning. The story goes that Phosa promised that the ANC would sell its share in Chancellor House two years ago. 702 reported that ANC secretary general, Gwede Mantashe believes that the ANC has a right to own such investment vehicles and would not be selling their stake. I'm not going to debate the merits of this in this post, suffice to say I do agree that the ANC can have any investment it wants (leather jacket anyone?) but it cannot benefit from government business both legally and morally.

Legally you say – how can you mean legally?

The legal issue revolves around the natural persons who are shareholders of the various Chancellor House companies.

CHANCELLOR HOUSE ENERGY RESOURCES INVESTMENTS		2002/030906/07
CHANCELLOR HOUSE FINANCIAL SERVICES		2005/009126/07
CHANCELLOR HOUSE HOLDINGS		2002/011948/07
CHANCELLOR HOUSE MARINE INVESTMENTS		2002/031466/07
CHANCELLOR HOUSE MINERAL RESOURCES INVESTMENTS		2002/031473/07
CHANCELLOR HOUSE MINERAL RESOURCES INVESTMENTS (NORTH WEST)		2007/017758/07

 This table shows the companies listed on CIPRO's website. Unfortunately I cannot go any further into the site so I can't confirm who each ones' shareholders and directors are. They are all (Pty) Ltd companies and as such can be owned by the ANC. In contemporary BEE language these companies would have no right to claim any ownership points because they are owned by a specialised entity that is deemed incapable of any ownership. This point was stressed in an article that Tim Cohen and Stephen Grootes wrote for the Daily Maverick today (if you are a fan of Cohen's writing then you would do well to read his article on the FSC in the same publication) but I think they didn't quite get the gist of it.

Hitachi's 25% partner in the project is Chancellor House, and Chancellor House is a function of the ANC. This we know. Presumably, Chancellor House is partnered with Hitachi in the project on the basis that it is the BEE partner in the project; 25% is, after all, the general level of BEE participation. But since when is the ANC formally a BEE organisation in terms of empowerment legislation? The ANC, of course, has a large proportion of black voters, but it's a political organisation open to all races. So how could Hitachi claim it has a legitimate BEE partner for the deal?

Chancellor House is a 25% shareholder in Hitachi Power Africa – this is proudly proclaimed on their web page. It is believed that this shareholding secured Hitachi Power Africa with a 20-odd billion deal to supply Eskom with boilers. Grootes and Cohen speculate that Chancellor House would derive about R950million from this deal.

I want to expand on this point on the 25% ownership and the tender process, both from an Eskom and PPPFA perspective - and I need to stress that I am speculating here because I cannot confirm who are what the shareholders of Chancellor House are.

Eskadaat 6

At the time that this tender was awarded Eskom's procurement procedures were contained in the Eskadaat 6. They had created (a very useful) Hierarchy of Procurement that they used to prioritise suppliers

7.2    Hierarchy of Procurement

The following hierarchy must be followed in sourcing products and services, with preference given to manufacturers over stockists:

1.    Drawing from Eskom stores stock.

2.    Drawing off from existing compulsory Framework Agreements.

3.    Procurement from within Eskom Groups/Divisions

4.    Procurement from Eskom Subsidiaries

5.    Procurement from Black Women-owned Suppliers

6.    Procurement from Small Black Suppliers

7.    Procurement from Large Black Suppliers

8.    Procurement from Black Empowering Suppliers

9.    Procurement from other South African manufacturers

10.    Procurement from local stock holders of South African or imported assets and goods

11.    Direct importation.

Any use of non-value adding agents, Black or other, is avoided.

They provide definitions of the various black suppliers for instance a Black Women-owned Enterprise is a "supplier ..... with Black Women ownership, risk and control of not less than 50%". The document does not explain that ownership needs to be in the hands of natural people – but I am quite sure that this is a safe assumption.

The PPPFA

The PPPFA allocates preference points in state tenders. Because the new regulations are still in draft form and this contract goes back a few years then the 2001 regulations would have had to have been used. There are no real hard and fast rules in the allocation of preference points but I have yet to see a bid that does not provide some points for HDI participation. HDI is defined in the regulations as

'Historically Disadvantaged Individual (HDI)' means a South African citizen-

(1) who, due to the apartheid policy that had been in place, had no franchise in national elections prior to the introduction of the Constitution of the Republic of South Africa, 1983 (Act 110 of 1983) or the Constitution of the Republic of South Africa, 1993 (Act 200 of 1993) ('the Interim Constitution'); and / or

(2) who is a female; and / or

(3) who has a disability:

Again the operative word is citizen and the further categories can only apply to natural people.

If Chancellor House's shareholding is the ANC then did the bid committee (whether it used the Eskadaat or the PPPFA) either broke all the rules or decided that they could look at the ANC's membership and determined that it fulfilled the criteria to be black or HDI as the case may be. If this is the case then this is a huge tender irregularity in terms of procedure.

Or could it be that Hitachi Power Africa won the tender based on its price and functionality and that the Chancellor House shareholding didn't play a role – it doesn't seem likely.

Kevin's Leftus

Sorry Kevin - that is a terrible pun.  Kevin Lester has decided to pursue a more strenuous existence in the corporate world.  Our collective loss is definitely his new employer's gain.  I did speak to him about it a few weeks ago and he has told me that I can channel his (if I may) brilliance through this blog. 

This is Kevin's farewell note

To my colleagues and friends in the BEE industry

After seven years of BEE consulting, I am returning to my lawyering roots and will commence employment in the legal department of Anglo American effective 1 February 2010.

My BEE journey has been an interesting and stimulating one.  I have enjoyed my interactions with you and want to take this opportunity to wish you well in the years ahead.  May you prosper and realise the objectives of BEE through your clients and in your own businesses.

I have committed to the NABC executive to remain involved with them for at least another few months, specifically pursuing the objective of unity within and professionalization of the BEE industry.  I have communicated a similar message to a number of the Abva directors.

It has been an honour to work with you all.

There is an incredible amount that can be said about Kevin - and almost all of it is true.  I remember hearing about him six years ago from many sources and to many of the biggest corporates operating in South Africa he is "Mr BEE".  The thing that struck me the most about him was that he was so approachable - you'd expect a partner at a law firm to be an opinionated arrogant moron.  Kevin is anything but.  And then you add in  his incredible knowledge and generosity in sharing it.

Thank you Kevin from me for all that you've done to help me over the last six years and please do not think for a second that I won't be bothering you in future.

Wrote a little bit about Mick Green - Pirates guitarist who died last week. http://bbbee.typepad.com/paul_janisch/mick-green-.html

FSC in ICU but not dead

Two articles this weekend caught my attention. Both discussed the future of the FSC (Financial Sector Charter) and both intimated that it still has a life. I am a major fan of the FSC – without it the unbanked will remain unbanked, the uninsured will remain uncatered for and banks will make up ED points under procurement.

The ownership debate is still stuck in the mud. The Fin24 article puts the issue across very clearly

At the centre of the rift is a coalition of 50 civil society organisations led by labour federation Cosatu and its close ally, the SA Communist Party, which are demanding that the charter not be gazetted if it fails to comply with the code's black direct ownership target of 15%. On the other hand, financial sector trade associations led by the Banking Association of SA (Basa) and the Association for Savings & Investment SA (Asisa) want the charter to be gazetted with a black ownership target of 10% - a level agreed on when the charter was adopted in 2003. The push towards the 15% ownership level could open the door for other black entrepreneurs or for existing black shareholders to increase their stakes, but funding these transactions has been a serious challenge.

I have blogged about this before and to my mind there is a statute that stands in the way of 15% black ownership (and I quote myself)

The reason why the FSC limited (ownership) to 10% is because of the Banks Act most specifically section 37.  I'm not going to summarise it but you can find it on pages 36-8.  The FM gave us a good summary of section 37

Section 37 of the Banks Act was designed to ensure the sustainability of SA's banks through the regulation of anchor investors in banking institutions. Any entity which seeks to acquire a minimum of 15% of an SA bank has to be vetted by the registrar of banks, a division of the SA Reserve Bank. Such investors become shareholders of reference and need healthy balance sheets to back up the banks in times of trouble.

And yet the chief mediator, Modise Motloba, has said

"We will not gazette a charter that flies in the face of transformation. At worst it must meet the targets of the codes or at best exceed them"

And this is what I don't get – if there is a statutory stumbling block then why aren't we hearing how the Banks Act is going to be amended. We would have picked this up on PMG and the financial press would have been screaming about it.

I think that if the FSC is to make its section 9 gazetting then the current status quo will remain. Stuart Theobald, who wrote a very interesting article on the FSC in this Sunday's newspaper, agrees with me. I did find his reference to once-empowered, always empowered the most interesting

The second issue concerns the "once-empowered, always empowered" provision of the charter. The codes are less accommodating of such a principle, which allows banks to continue to claim ownership points even if black shareholders sell their shares. Community groups and labour are dead against it. (They predictably would be)

Hmm – perhaps the resolution of the FSC will shed some proper light on how this principle actually is supposed to work. See my post on the subject from a week ago.