NEEEF in detail – a generous reader donates

Sometimes I wonder whether my pleas for information ever reach an audience; every now and then I am pleasantly surprised. A concerned reader has forwarded the New Equitable Economic Empowerment Framework (NEEEF) onto me (thank you reader). It is a very sparse document – running into 23 odd pages, written in a generous font with large spaces, which does make for easy reading. The reader asked me for my thoughts – so here we go.

• Definitions

Very few definitions, and those that are offered have vague explanations. Perhaps the most important definition is that of "previously disadvantaged Namibian" meaning victims of Apartheid policies. The document does refer to various articles in the Namibian constitution for clarity – specifically Article 23 (viz)

(2) Nothing contained in Article 10 hereof shall prevent Parliament from enacting legislation providing directly or indirectly for the advancement of persons within Namibia who have been socially, economically or educationally disadvantaged by past discriminatory laws or practices, or for the implementation of policies and programmes aimed at redressing social, economic or educational imbalances in the Namibian society arising out of past discriminatory laws or practices, or for achieving a balanced structuring of the public service, the defence force, the police force and the correctional service.

Article 23 does not make the definition any clearer for NEEEF purposes – Kosie Pretorius attempts to dissect Article 23 in this Informante piece.

• The liberal use of the word "will"

Documents that talk about what a government "will" do in the future is problematic. If you are putting down something that the private sector is going to follow then you need to be very specific and direct.

• NEEEF replaces TESEF

The NEEEF will supersede all other transformation and empowerment policies of Government as well as provide the framework within which all private sector initiatives….. will be expected to conform to.

• More than a passing resemblance to BEE and other South African policies

There is a reference to "decent work" and the document encourages Employee Share Ownership Programmes (ESOPs). The latter is something that we expect in the new version of the SA BEE codes.

• Red tape

The first thing that struck me was that the NEEEF Board has to approve every ownership transaction. Goodness knows how long this is going to take – it could delay the issuing of a NEEEF scorecard for a long time which might prejudice a company's chances in winning state contracts (more on this below).

• Verification

"Businesses…will be expected to provide audited proof that they have achieved NEEEF targets. This audit will be conducted as an additional component of their annual audits by external auditors."

Another revenue stream for auditors. The sentence does not preclude an auditing firm to conduct a NEEEF audit based on another auditing firm's financial audit. It does appear that the verification agencies that BEE has attracted in SA will not be operating in Namibia.

• Forced voluntary compliance

"Companies that fail to comply with NEEEF targets will not be explicitly penalised. However they will not be eligible to tender for Government or SOE contracts or to receive fishing, mining, telecoms or other licences and may therefore find themselves in a disadvantageous and uncompetitive position."

And those that don't do business with the government

"Companies that do not tender for Government or SOE contracts will also be expected to score themselves according to the NEEEF scorecard is they want to be positively regarded by Government as contributing to empowerment and transformation in Namibia."

Gulp…….. this is immensely problematic. Firstly the government effectively precludes itself from importing anything because they state that you can only do business with government if you have a scorecard, on top of that they are limiting their chances of attracting the best prices in a tender environment because only a finite number of companies will be able to tender (see the scorecard below) because they comply with NEEEF. South Africa's supply chain rules allow them to purchase directly from foreign companies without going local. The PPPFA would not apply under these circumstances.

It's also not clear what be positively regarded by Government as contributing to empowerment and transformation in Namibia means. There is no preferential procurement element here (other than a procurement feature for previously disadvantaged Namibians) – so encouraging companies to comply is not going to happen naturally like it did in SA.

• Mandatory elements and minimum targets

NEEEF will score each business that is required to be compliant according to the NEEEF scorecard. Each business can score up to 100 points in total made up of 20 points per empowerment pillar. To achieve compliance, a business will have to score more than 50 points in total. A minimum of 10 points on each of the three pillars of ownership, management control and employment equity, and human resources and skills development is mandatory.

Not a good idea, not a good idea at all. The stick route has not worked in South Africa. The upshot of this is some sort of social engineering that Apartheid was particularly good at. There is a slight silver lining though

Overachievement on one pillar can be offset against underachievement in another pillar.

The Scorecard

Here is the scorecard (the target group are previously disadvantaged Namibians – no emphasis on women)

Pillar	Minimum	Maximum	TOTAL
Ownership (mandatory) 10 points awarded for 25% ownership. Each additional 7.5% scores another point until 50% is reached.	25% ownership	100% ownership	20
Management Control and Employment Equity (mandatory) 10 points awarded if the combined board and top management is filled. Each additional 10% attracts 2 points to a maximum of 100%	50% board and management	100% board and management	20
Human resources and skills development (mandatory) 10 points for devoting the equivalent of 1.5% of its gross wages to training. Each additional 0.1% attracts 2 points to a maximum of 2%	1.5% of gross wages	2% of gross wages	20
Entrepreneurship Development Points are scored in proportion to the value of procurement spend allocated to businesses owned by previously disadvantaged Namibians up to a maximum of 50%. Additional points may be made available for other support given to those businesses including mentorship programmes, joint ventures, market access and other initiatives. The points awarded for such initiatives will be based on more detailed criteria laid down by the NEEEF commission.	0% of procurement	50% of procurement	20
Community Investment A maximum of 10 points for devoting 1% of after tax profits to community investment. Each additional 0.2% scores an additional 2 points to a maximum of 2%. Businesses will be rewarded for establishing operations in depressed communities. More detailed criteria laid down by the NEEEF commission.	1% of after tax profits	2% of after tax profits	20
TOTAL			100

 

So what do I really think?

A terrible document and policy that is going to govern Namibian transformation until 2036. There are too many contradictions in the document which will make it very difficult to implement. It sets a 50% minimum that very few companies will be able to achieve in the short term which is

1. Stupid – because how are the majority of companies going to comply at the outset
2. This is going to be to the absolute detriment to the Namibian government.

This wouldn't be too bad as an early draft but I have my doubts that it is because the preamble clearly states that the "Cabinet of the Republic of Namibia adopts the NEEEF."