Paul Janisch

Confirming the PPPFA's applicability and the DTI workshop

This notice was issued by Treasury this afternoon regarding the applicability of the PPPFA - it was issued in June but made the front page of www.gov.za today.  Reinforces my earlier post about Eskom and PPPFA.

NOTICE IN TERMS OF SECTION 1 (iii)(f) OF THE PREFERENTIAL PROCUMENT POLICY FRAMEWORK ACT, 2000 (ACT NO. 5 OF 2000) 

I,  Pravin  J.  Gordhan,  Minister  of  Finance,  acting  in  terms  of  section  1 (iii)(f)  of the Preferential  Procurement  Policy  Framework  Act,  2000  (Act  No.  5  of  2000),  hereby give notice that the Preferential  Procurement Policy Framework Act,  2000  (Act  No.  5 of 2000)  and its Regulations shall  apply to all  public  entities listed  in  Schedules 2  and 3  of  the  Public  Finance Management Act,  1999  (Act  No.  1 of  1999)  with  effect from 07 December 2011 . Signed  at Pretoria on this 6th day of June 2011 .

This notice bolsters the Joint statement by the Ministers of Economic Development, Finance and Trade and Industry on designated sectors for local procurement (which I think is great - very much in favour of this.

DTI's workshop today

By the way a little birdy is keeping a running commentary on the developments at this workshop.   It's not looking good - this is what I know so far (tweets have been edited)

• We are going to be measuring degrees of blackness
• In summary take everything jungle jim has said and turn it into your worst nightmare 

Oy vey - can't say I didn't expect as much.  There'll be many submissions from me to the DTI.

Govt names designated products for local procurement

Government has named the "first wave" of products that will require a minimum level of local content in terms of the Preferential Procurement Policy Framework Act, which came into effect on Wednesday.

The list of designated products include power pylons, rolling stock, buses, canned vegetables, clothing, textiles, footwear, leather products and set-top boxes and comes against the background of the recently unveiled ‘Local Procurement Accord’, which commits business, labour and government to increase local procurement.

via www.engineeringnews.co.za

Why does Eskom always get it wrong?

Eskom probably regards themselves as the saviour of black business and on paper you might even be able to agree with them. There is little doubt that Eskadaat 6's intentions were to promote black business but not specifically to the detriment of non-black business. However the practical application of Eskadaat 6 was a huge threat to legitimate white-owned businesses who employed numerous people. The procurement department's interpretation of Eskadaat 6 had the effect of side-lining these businesses because they were not black owned, something that the Eskadaat itself never intended.

Eskadaat 6 is behind us but the practice of set-asides is not. Eskom's latest BEE policies, specifically Implementation of Eskom's Black Economic Empowerment Strategy (32-416), have very clear set-asides built within them. This diagram explains it all

In other words Eskom (and subsidiaries) will prioritise black disabled EMEs and if it can't get what it needs from them then it'll go down the level until eventually they can source what they want.

I was told by a person who knows these things that Eskom is contractually bound to the government to stimulate and promote black business. This is a very noble and honourable thing and would not be open to question if it was not poorly implemented and was in fact legal.

Legality

Why not legal you may ask. Simple; Eskom is subject to the PPPFA. The PPPFA is Treasury's responsibility and Treasury has outlawed set-asides. This will require a lot more explanation.

The now current PPPFA regulations which came into effect today states in paragraph 2 that

Application

2.(1) These regulations apply to organs of state as contemplated in section 1 (iii) of the Act and all public entities listed in schedules 2, 3A, 3B, 3C and 3D to the Public Finance Management Act, 1999, Act No. 1 of 1999,

(as amended by Act 29 of 1999) and municipal entities.

For the purposes of clarity, schedule 2 of the PFMA lists the following (go to page 71)

Schedule 2 - MAJOR PUBLIC ENTITIES

1. Air Traffic and Navigation Services Company Limited

2. Airports Company of South Africa Limited

3. Alexkor Limited

4. Armaments Corporation of South Africa Limited

5. Broadband Infrastructure Company (Pty) Ltd

6. CEF (Pty) Ltd

7. DENEL (Pty) Ltd

8. Development Bank of Southern Africa

9. ESKOM (my emphasis)

10. Independent Development Trust

11. Industrial Development Corporation of South Africa Limited

12. Land and Agricultural Development Bank of South Africa

13. South African Airways (Pty) Limited

14. South African Broadcasting Corporation Limited

15. South African Express (Pty) Limited

16. South African Forestry Company Limited

17. South African Nuclear Energy Corporation Limited

18. South African Post Office Limited

19. Telkom SA Limited

20. Trans-Caledon Tunnel Authority

21. Transnet Limited

All subsidiaries of the above major public entities

It's therefore very clear that Eskom et al are subject to the PPPFA. The legality of Eskom's set-aside policy is questioned by Treasury Practice Note Practice Note SCM 2 of 2006. I've written quite a lot about this before. The practice note states in paragraph 1.1.5 that

The preferences contemplated in the constitution and PPPFA provide for the protection or advancement of categories of persons, disadvantaged by unfair discrimination without prohibiting any category of bidders from bidding for government contracts.

This note is preceded by

"the practice note is applicable to all national and provincial departments, constitutional institutions and public entities as defined in schedule 3A and 3C of the PFMA."

Would Eskom then argue that they have a binding contract between themselves and government and this overrides the Constitution (specifically section 217 which gives the PPPFA its legitimacy)? Any lawyer will tell you that this isn't possible.

What now?

There is little doubt that large sections of 32-146 and other Eskom supply chain policies are unconstitutional and hence illegal. But this has never stopped Eskom from continuing with this practice. My thinking is that the press should chase up on this story. Its relevance is significant especially on the day that the PPPFA regulations come into effect.

Happy PPPFA day

Today is the day that the new PPPFA regulations come into effect.  All bids advertised from today onwards are subject to the new regulations.  If you have a moment, why not read your new tendering bible.  And take a look at the next post about the applicability of the PPPFA and how Eskom is getting it all wrong.

Keeping new balance - Sibonelo Radebe

Still on BEE, we have introduced a series of stories themed Comrades in Business. We aimed to hold accountable individuals who have benefited from BEE. The series was launched on the back of concerns that former political activists, who were supposedly deployed in the mainstream commercial sector as “comrades in business”, have betrayed the mission of transforming the country’s business landscape. Many seem to have merely fitted into the shoes of colonial capital and are assisting the perpetuation of historical imbalances.

via www.thenewage.co.za

Fantastic idea. I look forward to reading this.

BUSA and PPPs

Busa indicated South Africa spent only 0.6% of annual GDP on PPPs in the past 15 years, while other countries with superior economic growth such as India spent up to 1.1%.

Busa believes the business community at large has already shown an interest in deepening PPP relations with government.

"There is real interest from the private sector in more PPPs and a strong official commitment in this regard would therefore be welcome. We believe that strengthening the flow and predictability would further improve this interest in assisting with, for instance, the expeditious roll-out of quality infrastructure,"

via mg.co.za

Chris Hart has a counter argument.

"You can look at PPPs to supplement what government does but there is no model in the world where solely these partnerships provide meaningful economic growth," Hart said. "Furthermore, PPPs are not sustainable in the long run. The real solution to creating jobs in South Africa is to utilise the small business sector by assisting entrepreneurs and getting them to bring people into employment, which will have a knock-on effect of economic growth."

There must be a common meeting point here. PPPs can certainly help in developing regional businesses in depressed areas.

An invitation to the new codes and act amendment workshop (except I wasn't invited)

The attached document is a CLOSED invitation that a reader has been invited to on the 7th of December (same day the PPPFA goes live).  I'd love to attend but alas I am busy (although this is irrelevant as I wasn't invited).  Why not try your luck and see if you can blag your way in, tell them I sent you.  And if you do get in please don't be shy in sending the amended codes and act my way.

The Department of Trade & Industry- BEE Unit 

The dti cordially invites you to a closed Information Session on the proposed amendments to the BEE Act and  Codes of Good Practice for the B-BBEE 
 

Details of the Workshop 

Date:   07 December 2011
Time:  08h00 for 08h30 

Venue:  Gallagher Convention Centre RSVP: Salamina Madisha / Lumka Kemele 

Tel:   012 394 1636 / 012 394 5469
E-mail:  [email protected] / [email protected]

Would it be safe to assume that the amendments will be made public on Wednesday or Thursday this week?

 

Blinded by colour - Jerry Schuitema

We were blinded by colour to one simple truth: empowerment is not about owning things. It’s about doing things.

Empowerment is about making a meaningful contribution to others because that is where our true value lies. The extension of ownership to staff suffers from the same defect. It’s what I previously called the “worker capitalist delusion”. Employee share schemes do little to enable employees in controlling their own or the company’s destiny, largely fail as productivity motivators and certainly have had little effect on labour unrest, flexibility and labour costs. In addition, a large number of people are left out of the empowerment loop. 

“Monopoly capital”, whether white or black, state or private is little more than centralised economic power which is of real concern to everyone, and which is the main grievance driving the Occupy Wall Street movements worldwide.  The simple fact is that market capitalism whether by Smithian default or by financial manipulation has arguably become socially inefficient.

via www.moneyweb.co.za

Schuitema writes very well. I and numerous other "white" people would agree with him. It's however not convenient for the government to drop the anti-white or anti-liberal sentiment because they would need to accept that they themselves have disappointed South Africa completely. Blaming it on apartheid or white capital adequately disguises their ineptitude.

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."

B-BBEE Target Compliancy Increases - not as soon as Ms Kerr surmises

From 9th February 2012 compliance targets for Employment Equity and Preferential Procurement significantly increase.

Employment Equity and Preferential Procurement elements of both the qualifying small enterprises (i.e. enterprises with a turnover of between R5 and R35 million per annum as per the generic scorecard) and generic enterprises (i.e. enterprises with a turnover of over R35 million per annum) will be affected.

“This means that if your business is not already meeting and exceeding the increased targets, your organisation will lose points in these elements. This will result in a decreased BEE Rating for next year, which could have a significant impact on your bottom line,” explains Siyakha Consulting’s executive director Dionne Kerr.

“When looking at the increased targets, you need to know if you are putting the necessary interventions in place to ensure that you remain at your existing rating level, or to improve your score on these elements,” she adds.

via www.themarketingsite.com

NOW HERE IS AN EXPERT.  What she doesn't know about arithmetic she certainly knows about BEE.  I, however disagree with her.