Paul Janisch

Tax cuts for BEE performance mooted

A few years ago I was invited to speak at a conference in Stellenbosch.  I stayed with David Meintjies, who was the former CEO of UUNET South Africa (which is now MTN Business I think).  I worked for David for a few years so I know him quite well and I know him to be a very intuitive man.  On the way to the airport David suggested that if you want implement BEE properly then offer tax cuts.  Lighbulb moment.

I have blogged about this often and it is a such a valid point.  When you read comments by Ajay Lalu, jungle jim and the like - it's all about punishing companies for non-performance.  So how about actually rewarding companies for a certain performance by way of a tax break.  And this is now more pertinent with Zuma's speech last night - where he is speaking of companies hiring unskilled school-leavers.

This is the scenario that I think might work.

If we look back at Zuma's address to the BEE council - specifically

We have to think creatively about ways in which to increase the extent to which communities, workers, cooperatives and other collective enterprises own and manage existing and new enterprises and increasing their access to economic activities, infrastructure and skills training.

AND

strategies of empowering rural and local communities by enabling [their] access to economic activities, land, infrastructure, ownership and skills. 

If a corporate invests in these types of entities with a view to seeing them generate jobs in those areas in a short period of time, say five years, and they can prove that this happened, then they should be rewarded.  The reward must be a tax incentive - either a reduction in tax or the investment becomes deductable.

This will push up the burden of proof but more corporates will go for this.  In fact what you could do is say - if you achieve a certain BEE score on top of this you'll get the tax break.  Suddenly you'll have corporate South Africa running over themselves to start getting their BEE ducks in a row.

I therefore CALL on (so cheesy) Pravin and Jacob and Rob et al - to consider a new tax structure for high BEE achievers.

Zuma's state of the nation - a BEE perspective

This is a BEE blog - hence I only pay attention to those issues that impact on BEE.  I didn't think the speech was that bad - big on ideas and short on plans.  But perhaps he has plans, he has a lot to prove now and perhaps most importantly, he has to prove that we should trust him.  Interestingly he didn't use the old "comrades" term, but chose the word "compatriots".

Moneyweb published a short list of topics which is easier to read than the speech.

The only direct reference to BEE was the advisory council

To ensure the promotion of an inclusive economy, to aid growth and development, we have established the Broad-Based Black Economic Empowerment Advisory Council, chaired by the President.

But there were other things that must impact on BEE and perhaps even a modification of the BEE scorecard to accommodate those things.

Public Private Partnerships (no real scorecard impact)

There was one very humorous faux pas he made which he too thought was rather funny.  He was talking about partnering with the IDC and DBSA in PPPs to improve hospitals and provide finance for projects.  Our nervous leader misread DBSA and said ABSA.  Who needs an advertising budget when you have Jake to do it for you. 

Our feeling on PPPs is that government is not sure about them - my PPP mates will tell you that nothing is happening at the moment.  Does this now mean that government will start considering PPPs again?  Mind if they are going to consider independent power producers then PPPs must be the favoured vehicle.  And when you throw in the passing reference to the NHI

We will also continue preparations for the establishment of a national health insurance system.

This article from a few weeks suggested that PPPs would become more common place if the NHI went ahead.

Investment in youth

Zuma mentioned this a few times. 

We need to invest in our youth to ensure a skilled and capable workforce to support growth and job creation....... We therefore plan to increase the training of 16-25 year olds in further education and training facilities

We must also increase the number of youth who enter learnerships in the private and public sectors.

As you and I well know, the scorecard does not cater for external learnerships.  Learnerships under skills development are clearly 18A learnerships which apply to staff.  It is possible to include this spend under ED.  Perhaps the skills development code should be modified to include external (18B) learnerships.

Proposals will be tabled to subsidise the cost of hiring younger workers, to encourage firms to take on inexperienced staff.

This idea needs a lot of qualification.  It this money going to come out of the SDL - is it a tax break, are there BEE scorecard benefits etc?

An FSC reference

A key new initiative will be to accommodate people whose salaries are too high to get government subsidies, but who earn too little to qualify for a normal bank mortgage.

We will set up a guarantee fund of R1 billion to incentivise the private banking and housing sector, to develop new products to meet this housing demand.

Homeloans and developing products for the poor is one of the targets of the FSC.  I take this to mean that the FSC is going to stay.

Dankie vir Fokol or should that be Fókól

A while ago I came across a red wine called Fókól.    This wine has become my calling card - I first test drove it at  the ATKV a year ago.  I was recently there and I see my good friend Schalk Cilliers still has his bottle.  The think I love about the wine is that there is no english on the bottle at all - everything is in Afrikaans.  It's certainly not drinking wine but it goes down a storm.

The label on the back has the following words of wisdom.

Vir jare al is ons vriendskap Fókól werd. Deur dik en dun het jy my met Fókól bygestaan, gehelp met Fókól, en oor Fókól gepraat, daarom kon ons Fókól bereik. Omdat jy met Fókól tevrede is, het jy my ook geleer om van Fókól te leef, op Fókól te hoop in Fókól te glo en Fókól te verwag of te vertrou. Nou besit jy ook Fókól, kan jy ook Fókól bekostig, sien jy ook uit na Fókól, en leef jy van en vir Fókól. Ek bekommer my oor Fókól. omdat ek weet dat die dag van more vir jou Fókól in die sak gaan bring, en daarom is ek aan jou Fókól verskuldig. Baie dankie vir Fókól. 1998 ©

Thanks to Ostendo for transcribing these kind words.

And if you want me to do some work for you I'll throw in a bottle.

Star Workplace article

Theo Garrun is probably one of the most influential people in the HR/employment world.  For those of you who don't know him - he's the editor of (amongst other things) the Star Workplace.  I have been very lucky to have him publish a few of my articles.  This is the latest one - feel free to syndicate and distribute it, all I want is a byline and a bottle of Fókól (ask Theo or any one of my clients about Fókól).

February marks the third anniversary of the Department of Trade and Industry's (DTI) broad-based black economic empowerment (B-BBEE) codes of good practice being gazetted. I doubt the DTI could ever have imagined that their document could have permeated the economy in the way it has - it's now almost impossible to go about business without being asked for a BEE scorecard.

There was strong evidence in 2009 that BEE was going to become more of a business reality. I'll discuss a few instances.

• BEE verification agencies were finally accredited

It's a myth that the DTI accredits verification agencies. Accreditation is done by the South African National Accreditation System (Sanas). This process is costly and intensive and, as a result, only a handful of agencies have been accredited. To make things more complicated, from February 1 only these agencies and those who have applied for accreditation may issue BEE certificates.
There are two serious ramifications to this regulation:

i) Self-assessments will not be accepted. The codes of good practice do not outlaw self-assessments, so legally they should be accepted. However you will be hard-pressed to find either a corporate or verification agency that will accept one.
ii) It's estimated that somewhere between 40 and 70 verification agencies will be available to provide BEE certificates to the 500,000 odd companies who turn over more than R5-million.

This is going to cause severe bottlenecks as each agency is going to have to do about 6 500 verifications a year (somewhere in the region of 30 per day). It is doubtful that these agencies will be able to cater for the demand; one of the most prominent agencies has done 2 000 verifications in the past five years.

• State tendering might use BEE scorecards

Two standards seem to apply in the commercial world. There is the private sector that insists on BEE scorecards, and the public sector that doesn't. Government tendering regulations are prescribed by the Preferential Procurement Policy Framework Act (PPPFA) that does not measure preference points using a BEE scorecard.
This is likely to change because last year the National Treasury published a draft document that contemplated using BEE scorecards in the allocation of preferential points.
This document is controversial and is unlikely to make it through in its current guise. However, this is a positive move for those companies doing business with the government (both local and multinationals) and we can expect BEE scorecards to be the measurement of empowerment across the economy.

• Each industry has an average BEE score - BEE is almost a competitive advantage

This came as quite a surprise; I firmly believed that any score would be acceptable. Certain companies, notably Sasol and Telkom, are setting BEE score thresholds that must be met in order to bid for certain tenders.
The more generic the tender (eg stationery) the higher the required BEE score. This is a clear indication that there are enough players in that sector that have those kinds of BEE scores. It follows that in order to remain competitive each company must be aware of their competitors' BEE score and must ensure that they stay within that threshold in order to continue operating.

Black economic empowerment is more of a business reality than it has ever been before.The debate about BEE must now move from the antiquated ideological justification for it, to how best to deal with it and to make it work to your advantage.

# Paul Janisch is a director of Caird, a broad-based BEE compliance consultancy. Contact him at 083 227 1375 or email

Regulations published on Tuesday in Zimbabwe declaring that large companies must hand blacks a 51 per cent stake within five years were summarily dismissed as "null and void" by Prime Minister Morgan Tsvangirai. http://bit.ly/95FQbG

I had a firm in Africa

 

This just in from Fin24.  It could be sensational journalism or it could actually happen.  Two years ago I was in Vic Falls for a wedding and I spoke to a few business owners who had predicted this and had kept their businesses lean so that when this happened there wasn't much dispose of.

White businesspeople in Zimbabwe who don't cede control of their companies to black partners could face jail under a law going into effect next month.

An official notice on Tuesday says the law will be enforced from March 1, and includes jail penalties of up to five years. It gives companies worth $500 000 or more 45 days to submit compliance proposals. Foreign investors also need to meet an "empowerment quota."

The law passed by the Harare parliament when it was still dominated by President Robert Mugabe's lawmakers in 2008 is meant to benefit "indigenous" Zimbabweans - those who suffered under colonial-era racial discrimination and their children born after independence in 1980. That effectively excludes the nation's 20 000 whites.

The question is how more can Bob fuck Zim up.  And the answer obviously is - a whole lot more.

More on the BEE Council meeting on Thursday

This blog's job is to be the new aggregator.  As I mentioned in a few posts ago, you get different perspectives of events from different publications and when you put the lot together you can form a clearer view of what actually happened.  I have set myself this task.

The reports about yesterday's meeting are slowly coming through, I am hoping that the full minutes will be released.

Mzwandile Jacks of Business Report wrote mostly about Zumotlanthe's speech although it does seem as though Mothanthe threw in a few of his own opinions too.  He did add something that the council discussed.

Members of the council talked about investigating the sustainability and structure of BEE deals, because some did not seem to change the lives of the poor. This could mean the end of BEE deals where performance is tied to the share price. Most of these deals collapsed when the global financial crisis kicked in two years ago.

"Most members of the council raised their concerns about the appropriateness of these (SPV) structures. We discussed that the council would have to be empowered with enough resources to deal with this," (Jerry) Vilakazi said.

Is there another funding mechanism, or are the traditional funders keeping their mouths shut because they make less cash?

Fin24's article is most interesting as it relates to the new PPPFA regulations

The Department of Trade and Industry's new Industrial Policy Action Plan (IPAP) is currently being discussed by cabinet and will be announced "soon".  Dr Rob Davies said that the IPAP contained a significant number of important questions regarding state procurement which are expected to benefit local industries and black economic empowerment (BEE).

Last year Treasury's draft regulations on state procurement were sharply criticised by local manufacturers, empowerment players and politicians, because they did not give government bodies sufficient incentives to help the domestic economy.

This problem was very apparent in the draft.  It had nothing that would stimulate regional procurement, something that the 2001 regulations catered for through their RDP goals.

So we can expect something like RDP goals to be included in the drafts.  I am starting to see a clearer picture here.

Active companies/entities in SA up to 2009

I was asked by Brigitte Brun where I got my figure of 500,000 enitities that would need a scorecard. I took this information from the latest CIPRO stats. Here is a diagram of the breakdown

 
The actual statistics are

Close Corporations	1,612,481
Public Companies	3,224
Private Companies	188,728
Non Profit (Section 21)	23,293
Limited By Guarantee	84
External Companies under Section 21A	12
External Companies	1,148
Incorporated (Professionals)	9,481
Company Unlimited	6
Co-Operative	16,247
Total	1,854,704

 

If 80% are EMEs then the total figure is 370,941. And if 70% are EMEs then it would be 556,411.

I reckon these figures are close enough.

BEE council met today

And Zumachine Gun was supposed to chair the council meeting but he's tired so he sent Motlanthe to deliver his speech.  It's clear that BEE is going nowhere

The speech makes for interesting reading and I recommend that you do read it. I'll go through a few quotes that I think are significant.

We should always keep in mind that you have been appointed as members of this Council in order to advance a cause that is bigger than ourselves or the constituencies from which we may have been drawn.

And on the subject of the council's mandate

we have to ensure that it conducts its business in a manner that does not expose it to perceptions or charges that it is a narrow interest group. The Council has to make sure that it provides advice to government that is well informed, accurate and seek to advance the cause of broad-based economic transformation of our society.

Zuma lists a few successes over the last 16 years

There are more black and women entrepreneurs today than there were in 1994. (most likely a reference to HDIs)

There are more CEOs of companies who are black and female than was the case at the dawn of our democracy.

And then onto the "usual suspects"

We also have to admit that the "broad-based" part of BEE has seemed elusive. In the main, the story of black economic empowerment in the last 15 years has been a story dominated by a few individuals benefiting a lot.

And how he's not necessarily going to allow this to happen at the expense of the majority

The vast majority of those who are truly marginalised: women, rural poor, workers, the unemployed, and the youth have often stood have often stood at the sidelines. Only a few benefit again and again from the bounty of black economic empowerment.

This is a state of affairs that can no longer be tolerated. Broad-based economic empowerment should achieve exactly what it means. It should benefit all sectors of the target group. This may mean that we look at black economic empowerment beyond business deals and shareholding in companies.

He wants to see more emphasis on these people asking for inclusion of these people in deals and developing their own businesses. This suggests that SAB etc were completely on the mark with their deals

We have to think creatively about ways in which to increase the extent to which communities, workers, cooperatives and other collective enterprises own and manage existing and new enterprises and increasing their access to economic activities, infrastructure and skills training.

And looking after those in the rural areas

strategies of empowering rural and local communities by enabling [their] access to economic activities, land, infrastructure, ownership and skills.

And on the subject of employment (decent jobs again. That term scares me especially when it comes from his mouth – sounds like he is appealing to the left, which he probably is doing)

Fundamentally, we have to constantly strive towards making sure that more people are employed in decent jobs.

And on enterprise development

We must ensure that more are able to start and sustainably run their small businesses. More must be enrolled in skills training and more should have access to arable land.

This is interesting – land reform has been at best a terrible failure, where is he going with this.

And on to the naysayers who he describes as "a section of our society that is opposed to black economic empowerment".

The critics must accept that the exclusion of a large section of our community from productive participation in the economic life of our society, is a significant hindrance to our collective prosperity.

Couldn't agree with you more gun guy

And as a conclusion – Zuma exposes his capitalist roots.

Our prosperity will be delayed if the vast majority our people, especially the youth remain without jobs or skills. Our economy will also not reach its potential as long as the vast majority of its people lack the economic power to buy goods and services, to start businesses as entrepreneurs or till their land as successful farmers.

Bloody right I say. OK council – the ball's in your court, you know what is expected of you. Are you going to serve or do nothing like most other public/private councils?

Mining charter update

I like Peter Leon. I like the way he thinks and other than Hulme Scholes he is pretty much Mr Legal Mining Man. He's been in the press a n incredible amount over the last few months, his PR department works harder than Hulme's. Peter is always the first guy the press asks when it comes to the Mining Charter so you can bet his opinion was requested after today's press conference with Susan Shabangu. I find it quite humourous that various publications picked up on different issues that Shabangu discussed in her speech this morning.

The most important issue was Shabangu's statement that mines would not be nationalised in her lifetime. All the publications mentioned this. Fin24 made it their headline - State mines: 'Not on my watch'

"Nationalisation of mines is not government policy. In my lifetime there will be no nationalisation of mines,"

This fair dinkum pissed the Malemaniacs off

Business Day's headline read "Time to process mining licenses to be slashed"

Mining Minister Susan Shabangu has addressed the second day of a four day mining Indaba in Cape Town and suggested that the time it takes to grant a mining license could be slashed to three months.

Presently it takes up to six months to be granted a mining license, which has implications for costs on hardware and logistics.

Business Report spoke about the change in the Mining Charter's targets "SA not adjusting charter targets: Shabangu"

The South African government will not adjust mining empowerment targets downwards. "Transformation is a critical area," said Shabangu. (She) said the review has been completed and has been referred to stakeholders for their input before it would be made public.Not willing to disclose the results of the review, Shabangu would only say that she was concerned about black economic transactions in the mining sector, procurement levels and the misuse of certain clauses of mining legislation to undermine the charter.

And on the subject of the charter, Mining Weekly wrote "SA's Mining Charter review to be completed by March"

The review of South Africa's Mining Charter would be released to the public by March, at the latest

And what about Peter Leon. A website I had not read before, Ferronews.com quoted Peter at length Minerals Minister's speech a "breath of fresh air"

Peter Leon, head of natural resources and regulatory at Webber Wentzel in Johannesburg, and also chairman of the mining law committee of the International Bar Association (IBA), said that Shabangu's statement that nationalisation would not happen in her lifetime in her post speech press conference, was likely to be welcomed by foreign and domestic investors.

"Her speech seems to mark a significant departure from her and the government's previous hard-line approach towards the South African mining industry.

"Today the Minister's stance was far more inclusive and facilitatative.

"Most encouragingly, she said that the controversial MPRDA (Mineral and Petroleum Resources Development Act) amendment act, signed by the president last April, would not be implemented until all stakeholder concerns had been addressed.

"She also indicated that the contentious codes of good practice would be reviewed."

There was a very interesting debate between Peter Leon and someone else about the Mining Charter in last week's Finweek (I can't find the link because Telkom's internet has come to a dead standstill). Peter recommended that the targets remain as they are – this would ensure there was certainty in the sector.

I like Peter – I like what he says.