Paul Janisch

New targets: DTI explains - or do they?

This was sent to me by @edeni.  It's the gazette we've all been waiting for (no 35013).  It tell us when the new targets kick in.  The DTI writes:

With effect from the 9 February 2012, the 0-6 year targets will come into operation. However for measured entities whose Measurement Date is prior to 9 February 2012, the 0-5 year targets will still be applicable.  But, for measured entities whose Measurement Date is post 9 February 2012 the new targets will be applicable.

Clear?  Not really.  Is it fair that we the public have to attempt to interpret poorly drafted government notices - what are 0-6 year targets? We all know that they are the 6-10 year targets.  

@edeni also writes

This seems to have come out of the workshops:

1. Any business whose financial year-end is completed as at 9 February 2012, will be measured, on whatever date their rating is conducted, on the 0-5 year targets;
2. Any business whose financial year-end is completed AFTER 9^th February 2012 will be measured on the year 6 – 10 targets

 Also, the new draft Codes will be published in March 2012 and be open for 60 days for commentary. 

This is just unfair.  All those companies that use the standard financial year as their measurement period now are measured using the new targets, even though they only are measured under this for 20 days.  Why not make it the end of February.  

Well thought out DTI - when on earth are you actually going to do something that we like and that makes sense.  It just can't be that hard.

 

 

 

 

The mining indaba, Susan, Tim and a dog named Boo (who is a front)

SA’s mining experts say the way the royalties tax works in practice leans away from the initial idea of a tax on turnover, and towards a tax on profits. In any event, it’s questionable whether SA’s tax is lower than the international average, particularly if the cost of BEE is included. The document itself tabulates mining corporate income tax at 28%. This is the same as Mexico, higher than Canada and a little lower than Australia.

via www.businessday.co.za

I wonder if they've taken the whole BEE cost into account here.  The shareholding cost pales in comparison to the other requirements in the Mining Charter.  Whilst we are looking at mining profitability, a new Deloitte Consulting report has this to say

only a small residual portion of the inherent value of an opportunity finds its way to original private shareholders. In our experience, there are many successful mining projects where this residual value is only a lower single-digit percentage of the primary in-situ value. The remainder, in fact the lion share of the inherent value of any commercial opportunity, ends up in the economy at large, either through state treasury or through private sector spending, where it benefits all and translates into wealth and jobs.

Citigroup Global Markets estimates that “only 7% of the value generated by SA miners gets distributed to shareholders i.e. the entrepreneur and risk taker. The biggest beneficiaries are in fact suppliers to the industry, mining sector employees and the government. To turn opportunity into this value (and many fail along the way) requires substantial upfront investment capital and specialised and scarce skills.

 7% is all you get once everything else is considered.  Not much left to nationalise, not that Shabangu is entertaining nationalisation, although she does say that all this "fronting" brought on nationalisation.  This is a head scratching moment

Manus Booysen, head of the mining, energy and natural resources practice group at Webber Wentzel said "I disagree with the minister for placing the blame for the nationalisation debate on fronting and on the inability of the mining industry to respond to the social needs of affected communities.  The debate was sparked by suspended ANC Youth League president Julius Malema as a political ploy to get support.”

I wonder who Susan was chatting to before the mining indaba?  This lack of transformation argument is getting old now, and it is largely incorrect anyway.  More on this in a later post

Draft codes seem to have been leaked

And they came to me (thank you to the person who sent them to me).  This is a presentation that really forms a wishlist - the term they use is "proposed".  I think they are racist and give a legal framework to the concept of "degrees of blackness".  They do this under the guise of EAP (economically active population).  The presentation has jungle jim's stamp all over it (for those of you who don't know who jungle jim is, this might give you an idea of who he is and what he represents).  Where does this racism go to next? Watch this space it's going to take on a tribal hue if we don't nip it in the bud.

Anyway - the good news is that it is a wishlist and not open for comment or anything.  Please don't let this blog be the only piece of cyber real estate that voices its concern - take it to the boardrooms of South Africa.

Here is the presentation in all its glory (believe me I am writing with a very heavy heart). 

Woolley doesn't even know

This is dire.  An email sent out by Transcend regarding the new targets read

THE NEW 2012 Employment Equity and Preferential Procurement targets affect you...

If your BEE rating period is anytime after March 2012, you will more than likely be Verified according to the 2012 targets (years 6 - 10 of the BBBEE Generic codes) on Employment Equity and Preferential Procurement.

If you havent taken this into account for your BEE rating, you could lose up to 7 points when going for Verification.

Hell - if WoolleyMammothHuntTait and co don't know, then what is the situation?  Wait I know, let's ask the expert................................................................................

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

whatever you do - don't ask the DTI

My comments to the DTI regarding the bill

There are only seven days left in which to comment. My comments are below but I would like you to send me your comments and I'll post them up on a separate page. If you don't have any comments then why not send the DTI my comments, the more we object to this bill the better. Their email addresses are here.

------------------------------------------------------------------------------------------

Thank you for inviting public comment on the BEE bill. Please consider my comments below.

May I preface my comments with the fact that I believe that the bill in its current form is deeply flawed and that it is unnecessary to go the lengths that the bill proposes to implement BEE. The bill appears to be working on the premise that BEE is not working and attempts to over-regulate those entities who find themselves in a position to implement the codes of good practice. More research needs to go into the actual implementation across the economy to determine the success or failure of broad-based black economic empowerment. The act should not have to regulate to same extent that it intends to.

Paragraph 6 – Composition of the BEE Council

The majority of companies that need to implement BEE are not owned by black people. There are numerous challenges that face these businesses that the current BEE Council has demonstrated little or no understanding of. If BEE is to be adequately implemented there must be a requirement for these businesses to be represented on the council and this should be more than one person. As it stands the composition of the BEE Council is not representative of the economy and cannot be expected to provide any assistance for those businesses.

The council appears to be made up of mostly political appointees – and as a result is unlikely to garner any respect within the business community.

Section 12 A - Transformation policy

This requirement will add more complexity to an already complex process. It allows organs of state to insist on compliance with a code of good practice that might be completely different to the generic codes of good practice. It would then become a requirement that a supplier to this organ of state might need to implement a variety of, possibly conflicting, programmes in their business so that they can be scored on it. Besides the cost implications of this section, it will result in complete confusion as to what is required to comply.

Section 21: "all spheres of government, public entities, and organs of state must report on their compliance with B-BBEE in their audited annual financial statements..."

This conflicts with the PFMA Section 89:

"Functions of Board.—(1) The Accounting Standards Board (ASB) must—

1. set standards of generally recognised accounting practice as required by section 216 (1) (a) of the Constitution, for the annual financial statements of—
   1. departments;
   2. public entities;
   3. constitutional institutions;
   4. municipalities and boards, commissions, companies, corporations, funds or other entities under the ownership control of a municipality; and
   5. Parliament and the provincial legislatures;

      (Id est words every entity that is legally bound by the PPPFA and BEE Act)

(b) prepare and publish directives and guidelines concerning the standards set in terms of paragraph (a);

(c) recommend to the Minister effective dates of implementation of these standards for the different categories of institutions to which these standards apply; and

(d) perform any other function incidental to advancing financial reporting in the public sector.

(2) In setting standards the Board must take into account all relevant factors, including—

1. best accounting practices, both locally and internationally; and
2. the capacity of the relevant institutions to comply with the standards.

(3) The Board may set different standards for different categories of institutions to which these standards apply.

(4) The standards set by the Board must promote transparency in and effective management of revenue, expenditure, assets and liabilities of the institutions to which these standards apply."

To the best of my knowledge the DTI may not amend the PFMA and as such that section is unlawful

Section 23 suggests that the BEE Act takes precedence over other legislation like the PPPFA/PFMA/MFMA etc. Whilst not a constitutional expert by any means, my reading of the constitution suggests that this is problematicl and will lock the bill in litigation for many years to come.

The DTI is now required to show some exceptional leadership in the implementation of BEE, something that I believe the DTI has not done up until now. By making the process and requirements so draconian the bill has the potential to cause the whole of BEE to fall down and has huge implications for the DTI's reputation.

I respectfully submit that this bill should be rejected in its entirety and that the DTI conducts proper research into what the challenges are that the economy faces and not to hide behind convenient justifications like fronting and racism. Once this process has been completed a new bill and possibly new codes of good practice could be drafted that will effect the changes that the government strives to achieve.

New codes may open new holes

Another of the proposed changes would entail the revision of existing BEE codes to place more emphasis on support for black entrepreneurs through enterprise development and procurement. This is an attempt to correct an overemphasis on the equity transfer component of the original legislation, which resulted in the enrichment of a handful of high-profile, politically connected and already powerful people and little tangible benefit to ordinary black South Africans.

Yet by insisting that the new law trump all existing BEE legislation, including sector-specific codes negotiated with much blood, sweat and tears over several years, the government risks generating a new and potentially calamitous unintended consequence to which the existing ones would pale by comparison.

Numerous empowerment deals worth billions of rand have been completed in terms of the existing codes, whose minimum equity requirements vary according to the agreements that were reached. Moving the goalposts now might threaten some companies’ ability to bid for state contracts, or even nullify new-order mining rights.

The point is that any attempt to plug the acknowledged holes in SA’s BEE policies will have to be approached with extreme caution lest it end up doing more economic harm than social good.

via www.businessday.co.za

Too true. We need to be so scared of this bill and the new codes. It's already a disaster and we can't sit by and watch this unravel at our expense. Rob is being VERY badly advised (something his principal is also a victim of), and the solution can only be a court challenge. Let's prevent this from coming about by opposing this bill actively.