Here are my comments. It took about a day to draft them. The word document is here - please download these comments and make all the changes you want, but most importantly send the comments to Jacques Manus. The dti claims that they received 550 comments on the the revised codes and they probably ignored all of those that suggested their amendments were ridiculous. I would like to get a factor of 10 out to the dti. If they publish a document that we know ignores these comments then I will embark on a campaign to get this administrative active reviewed under PAJA.
Comments on BEE Amendment – gazette number 41546
Attention: Jacques Manus
The dti Campus
77 Meintjies street
Sunnyside, Pretoria, 0002
02 May 2018
E-mail: [email protected]
Dear Mr Manus
Thank you for affording us the opportunity to comment on the proposed amendments to the current generic B-BBEE codes of good practice. The 2013 codes have been given four years to make their mark within the business community. In some cases they have been successful and in many cases not – in fact they have resulted in large numbers of companies falling off the BEE radar altogether due to their complexity and the priority elements. I welcome the Department of Trade and Industry’s willingness to amend the codes to reflect current economic and political challenges but will take the opportunity to provide the department with an overview of the challenges facing many companies in the implementation of the revised codes and their allied industry charters. It is hoped that the DTI will consider these comments as being constructive as they are intended as such.
This response has been divided into three sections.
- Specific comments on statement 000
- Specific comments on statement 300
- General comments. These are based on the experience that many companies have gone through in attempting to comply with the revised codes
Statement 000
Use of the flow through principle for enhanced recognition
This is a fair amendment – no comments are submitted under this
Paragraph 6.3 under statement 000, specifically promotion of 51% black owned companies (using the flow through principle) to a level 2 and 100% black owned companies to a level 1
I speculate that black-owned companies alerted the department of trade and industry to the complexity and expense of compliance under the revised codes. This is perhaps the reason why the minister has decided to exempt those companies from adhering to each element. I would like to draw the following to the minister’s attention
- As the number of 51% black owned companies increases – as they will, so will the requirement to comply under the codes disappear. This means that procurement (which is the cornerstone of empowerment in South Africa) becomes obsolete. If these large black companies are no longer concerned about empowerment performance then they will make use of service providers who themselves do not need to comply with any scorecard. These same majority or totally black owned companies will not make any contributions to supplier and enterprise development as well as socio-economic development. In short there will be a greater drive to get 51% black owned using schemes that the Commissioner will not be able to keep up with. The empowerment process eventually disappears, and the social and economic ills of the current South Africa remain
- I refer you to paragraph 3.4 of ”South Africa’s Economic Transformation: A Strategy for Broad-Based Black Economic Empowerment”. Specifically paragraphs 3.4.1 and 3.4.2
3.4 Key principles
3.4.1 Black Economic Empowerment is broad-based.
Societies that are characterised by racial or ethnically defined wealth disparities are not likely to be socially and politically stable. The process of BEE seeks to accelerate the deracialisation of the South African economy and fast track the re-entry of historically marginalised communities into the mainstream of the economy.
3.4.2 Black Economic Empowerment is an inclusive process.
A more equitable economy will benefit all South Africans, individuals and enterprises. The process of BEE is an inclusive one, and all enterprises operating within South Africa can, and indeed should, participate in this process. This strategy will be implemented throughout all sectors of the economy and is not limited only to those enterprises that derive income from government procurement or those where the sector is regulated by government.
The revised BEE codes (in paragraph 2.2 of statement 000) states ”In interpreting the provisions of the codes any reasonable interpretation consistent with the B-BBEE Act as amended and the B-BBEE Strategy must take precedence”
Promotion of large enterprises to levels that render them immune from any form of BEE performance under the remaining elements appears to deviate from these two principles contained in the strategy. Promotion on the basis of ownership is narrow-based and excluding those companies from scorecard criteria is not inclusive. I submit that this is an unreasonable deviation from paragraph 2.2 of the revised codes and paragraphs 3.2.1 and 2 of the strategy document.
- I refer the minister to the conclusion of the president’s state of the nation (delivered on 16 February 2018). Please consult this website for a complete transcription of the speech.
Together we are going to make history. We have done it before and we will do it again – bonded by our common love for our country, resolute in our determination to overcome the challenges that lie ahead and convinced that by working together we will build the fair and just and decent society to which Nelson Mandela dedicated his life.
As I conclude, allow me to recall the words of the late great Bra Hugh Masekela. In his song, ‘Thuma Mina’, he anticipated a day of renewal, of new beginnings. He sang:
“I wanna be there when the people start to turn it around
When they triumph over poverty
I wanna be there when the people win the battle against AIDS
I wanna lend a hand
I wanna be there for the alcoholic
I wanna be there for the drug addict
I wanna be there for the victims of violence and abuse
I wanna lend a hand
Send me.”
We are at a moment in the history of our nation when the people, through their determination, have started to turn the country around. We can envisage the triumph over poverty, we can see the end of the battle against AIDS. Now is the time to lend a hand. Now is the time for each of us to say ‘send me’.
Now is the time for all of us to work together, in honour of Nelson Mandela, to build a new, better South Africa for all.
The minister, by excluding every company with the requisite levels of ownership from attempting to contribute to the welfare of all South Africans is not keeping with the message of hope that the president offered a beaten and battered South Africa.
Suggestion
Perhaps it might be an idea to promote a 51% black owned large entity to a level 8 and 100% owned to a level 7.
Start-up and join venture certificates
The clarity is welcomed.
Youth Employment Service
The inclusion of the YES is welcomed. It is more welcomed if all companies irrespective of ownership are incentivised to make use of the service. There is no doubt that the inclusion of YES in a BEE scorecard environment will result in a number of positive developments for the programme and for black economic empowerment. It is somewhat perplexing that the minister would see fit to set onerous targets for companies to meet in order to comply.
As the minister has learned if you set unreasonable targets then such noble schemes like the YES will fail at the outset. The minister’s withdrawal of full compliance with paragraph 11.2.1.2 is very welcomed. However I beg the minister to consider the feasibility of setting any type of restriction other than the YES targets themselves. Paragraph 11.2.1.2 refers. The minister has already decided that significantly black owned companies need not concern themselves with the YES promotion because they have already achieved an unfair advantage by way of their ownership. It stands that the companies that would benefit the most would be those that have between 0 and 50.9% black ownership. Setting priority element targets in order to gain the advantage is a dampener on the programme at the outset. I return to the likelihood that large black owned entities have already alerted the minister that compliance with the codes is both expensive and onerous. The targets set in 11.2.1.1 are counterproductive and will result in the YES suffering. That the minister has seen fit to set an even larger financial target for black further education bursaries makes the compliance a tall task and not likely under the current Zuma-torn economy. Also consider that the likelihood of meeting the priority level under procurement will become reduced as BEE scores start dropping significantly – demotion under this sub-element is an inevitability.
Suggestion
Drop all priority element targets for a company to gain the benefit of achieving and over achieving the targets under YES.
Amended Code 300
It is not known where the minister got the figure of 6% of payroll for the spend on skills development of black people, it probably comes from the original target of 3% of payroll – which is a more affordable target. The revised target is simply not achievable in terms of Rand spend. When considered in the context of what constitutes skills development of the code it appears that compliance can only be achieved by sending black staff on a number of courses which will take them out of the workplace. Academic qualifications are a small part of a person’s ability to fulfil a function in the workplace. In effect the code does not encourage work excellence which will weigh against any employee’s potential to advance in an organisation.
A positive consequence that has resulted from the revised code is that more black staff members are embarking on learnerships etc because their salaries can contribute a large amount to meeting this 6% target.
By setting a target of 2.5% of payroll on bursaries for 4 points the minister is surely expecting failure. He would do well to assess the cost to the average small, medium and large company and then consider whether companies are able to begin to afford a fraction of that amount. Under the amendment this target only applies to companies with 50.9% black ownership or less. The minister may know that these expenses are direct expenses and have the potential to threaten the profitability of almost every company wishing to comply with this target. The table below are figures derived from a number of annual reports and should be seen as an illustration of the cost.
The cost per point is unlikely to induce companies to support this programme. This could result in not meeting the 50% average across all three priority elements. This has a potential impact on meeting the targets under 11.1.2.1 of statement 000. Thereby threatening the success of the YES.
|
Company |
Salary bill |
Target spend (6%) |
Target bursary spend (2.5%) |
|
Standard Bank |
14 796 000 000 |
887 760 000 |
369,900,000 |
|
MTN |
6 709 000 000 |
402 540 000 |
167,725,000 |
|
NASPERS |
8 738 000 000 |
524 280 000 |
218,450,000 |
|
AECI |
2 976 000 000 |
178 560 000 |
74,400,000 |
|
FirstRand |
10 620 000 000 |
637 200 000 |
265,500,000 |
|
Telkom |
9 861 000 000 |
591 660 000 |
246,525,000 |
|
Nampak |
3 535 000 000 |
212 100 000 |
88,375,000 |
|
JSE |
405 000 000 |
24 300 000 |
10,125,000 |
|
Nedbank |
9 349 000 000 |
560 940 000 |
233,725,000 |
Suggestion:
Drop the target to no more than 0.5% of the leviable amount. You would have a far greater uptake and it would generate much better goodwill with the government’s potential voters.
Paragraph 2.1.1.3.
Changing the word disabled employees to people could have a very positive impact on skills development of black disabled people. Other BEE codes have used the work people in place of employees. Skilled disabled people have a better chance of gaining meaningful employment.
Paragraph 3.4
The clarification is welcomed.
Paragraph 5.8
Please remove this paragraph. It negates all training that a black person may receive in a foreign branch or country. If the object is to skill up black people I cannot assume that only South Africa is able to skill up its own people in a bubble. People could go on training overseas and gain vital skills that might meet the minister’s industrialist programme as an example. If the intention of black economic empowerment is to provide skills to black people then surely best practices developed in a foreign country must contribute to the achievement of this goal.
General comments
Removal of priority elements
The BEE Commissioner has in all probability got her finger on the pulse on the uptake of these BEE codes. Many companies who have not opted to extend ownership to black people are unlikely to get to a better level than a 7 or 8. It does not serve the future of black empowerment to continuously punish these companies to the extent that they will either never improve their score or it will decrease. If empowerment as a programme is designed to improve the lives of black people across the board then any genuine programme must be considered and rewarded. The priority elements are a deterrent to the programme’s success. A cynic would observe that they have been put in place as a punishment for not meeting high levels of black ownership. It would be in the minister’s favour to conduct a poll on employees to establish whether they are happy to be employees and not specifically shareholders. The poll should also consider the value of the shares in the average company and whether these shares are actually worth the black person’s investment to own them.
Suggestion:
If empowerment is to succeed then the priority elements must be scrapped.
SANAS
There are, at last count, 70-odd verification agencies (please see SANAS’ webpage for the total number of active BEE verification agencies. It’s estimated that these 70 agencies are servicing in the region of twenty thousand companies (Editor note - there are 69 active agencies, here's the latest list). There is a ridiculous bottleneck. SANAS is solely to blame here as they have the set the requirements to become a verification agency at such a high level that there is no incentive to increase this number. In fact it appears that the number of verification agencies is steadily decreasing. The loss of IRBA has had a detrimental effect on the issuing of BEE certificates. Some other method or issuing authority needs to be created to meet this demand.
The Minister should become more available to those companies that are compelled to comply with the BEE codes – not only those who are exempt.
There is a perception that the minister has a closed-door policy when it comes to discussing challenges faced by businesses in the country. This policy become very entrenched under the last president resulting in an atmosphere of resigned hopelessness. The Ramaphosa administration has ushered in a certain positivity where it is felt that all people in the country can contribute to its future, not a select few. I would encourage the minister to open dialogue with the business community and start taking business into his confidence and hearing their concerns as this programme’s success relies on them. We have seen in Namibia that their NEEEF scorecard is being modified to meet business’s concerns. It is possible to achieve empowerment’s goals by considering all perspectives.
I thank you for the opportunity to submit these comments and hope they are received in a positive light, as this is the intention.
Paul Janisch (BEE Consultant)
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