In October 2013, the DTI gazetted their latest BEE codes (gazette number 36928). These codes have courted controversy ever since they were published in draft format a year ago. The SED code ruffled a great number of feathers in its draft format, so much so that the DTI was forced to withdraw it and reverted back to the original code that was published in 2007. Those who now think the battle has been won should not lay down their arms just yet.
The issues with the draft SED code centred around two provisions. The first related to the fact that contributions had to be given to charities where the beneficiaries were 100% black (black being African, Coloured and Indians who were born in South Africa), the second related to the fact that contributions had to be made with the specific objective of "facilitating income generating activities", this is opposed to the 2007 code that spoke of "facilitating access to the economy". The first issue was the most problematic because proving blackness amongst the needy is difficult, if not impossible. The implication was the beneficiaries could be turned away because they did not satisfy the test for blackness. If you consider that the possession of an ID book is regarded as sufficient evidence then you'd be turning away millions of South African who either don't have ID books or might just have been born.
When the non-profit sector started raising the concerns the DTI responded with a sense of surprise, claiming that they weren't impinging on those charities' income generating activities. All they were saying is that corporates who have an SED and corporate social investment (CSI) policy need to follow the rules under the codes for SED points – they could continue doing whatever they liked doing under CSI. This statement exposed the DTI's fundamental lack of understanding when it came to corporate charitable contributions (and black economic empowerment in general). In almost every case a corporate has one policy for giving and that falls under socio-economic development – very few corporates have a separate policy that might be called CSI. When the sector pointed out that it receives the majority of its contributions under SED in exchange for BEE points the DTI back tracked and withdrew the code. The SED code under the new codes is very similar to the 2007 code but the feature about "facilitating income generating activities" has not been removed.
The ultimate withdrawal of the SED code is a hollow victory that the non-profit sector seems to be revelling in. The one issue that remains completely beyond their control is that the new codes are ridiculously hard to implement. On top of this the DTI have seen fit to raise the scorecard entry level from 30 to 40 points. In other words to become a level 8 contributor a company needs to reach 40 points. This is hard enough for most companies but when you consider that three of the five elements are priority elements and non-compliance with any one of them will push a company down a level then you see that a level 8 is incredibly difficult to achieve. The reader might be asking why this is of any concern to any cause that might be a recipient under SED. The answer is very simple – companies donate to causes in exchange for BEE points that will make a difference to their ultimate BEE score. If the five points that a charity might provide a corporate in exchange for a donation does not make any difference to their ultimate score or does not get them onto the scorecard the incentive to donate disappears. I predict that if these codes are not blocked by concerned society then we will see a substantial reduction in charitable donations within the next three years, with them drying up almost completely by 2018.
A further issue is that the DTI have still managed to set the requirement for SED as "facilitating income generating activities for beneficiaries". This after withdrawing the SED code in 2012 and stating in their press release that "in practice this means no change to the Socio Economic Developments elements (sic)". There are two problems here. The first involves mala fides where they withdrew the code yet inserted those words into the final codes. It would appear that only those words were changed, the balance of the SED code is the same as the 2007 SED code. This does cast doubt that the words could have been inadvertently inserted. Secondly this small insertion constitutes an amendment. All amendments need to follow the procedure contained in section 9(5) of the BEE Act.
(5) The Minister must before issuing, replacing or amending a code of good practice in terms of subsection (1)
(a) publish the draft code of good practice or amendment in the Gazette for public comment; and
(b) grant interested persons a period of at least 60 days to comment on the draft code of good practice or amendment as the case may be.
We don't have to accept this, what we can do is submit our objections about the codes to the DTI under section 5 of the Promotion of Administrative Justice Act (96 of 2000). An application under section 5 is a formal request to the DTI to explain in writing why they believe that their administrative act (in this case the gazetting of 36928) will not detrimentally affect the non-profit sector. A proforma document can be downloaded here.
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Paul Janisch is a black economic empowerment consultant, analyst and blogger who has taken exception to the new codes and is determined to have them set aside. If you would like assist in this process please phone him on +2783 227 1375 or email him.
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