Paul Janisch

ZungGwabber politely assessed by Chris Barron. And the ICT Charter

(Sandile Zungu's) contemptuous attitude to BEE hand-outs is rich given that he himself was only too keen to accept what would have been one of the biggest hand-outs in the history of BEE through a stake in the Ayigobi consortium which he was invited to join shortly before it scored an R800-million deal with ArcelorMittal SA.

Sadly for him, and for one of Zuma's sons who was another member of the well-connected consortium, the deal went sour.

Zungu was widely reported at the time as conceding that it was "money for jam".

He denies that he said that, but there is little doubt that he is, in the words of BEE authority Reg Rumney, "one of these guys who's always been in the right place at the right time". (Yes but will he when Zoomer is booted out?)

via www.businesslive.co.za

The contemptuousness refers to Prasa's Lucky Montana telling Zungu and his BBC ilk to mind their own business when it comes to the fleet renewal tender.  A little different to what I thought the BBC were up to with the Prasa fleet renewal programme. They are a complete waste of time.  

On the subject of a waste of time (even though we will have to waste our time with it), Rob has gazetted the ICT Charter under section 9 (1).  Gazette number 35423.  He's known about it for two months plus - now we know about it.

New state bid to make BEE more hands-on

New state bid to make BEE more hands-on (edited)

CAPE TOWN — Amendments to the Broad-Based Black Economic Empowerment Act, aimed at shifting its focus from equity deals to enterprise development, will be tabled in Parliament by July.

They would also address sharp criticism of black economic empowerment (BEE) as only benefiting a small elite and creating a class of passive black shareholders rather than entrepreneurs actively engaged in economic activity.

Department of Trade and Industry acting director-general Lionel October said the recommendations of the advisory council  would shift the focus of BEE away from equity investment and ownership towards productive activities.

Currently, companies scored high marks on the BEE scorecard for black ownership, which gave them a high overall score even when they performed poorly in areas such as enterprise development and procurement.

A proposal being examined by the economic cluster is that minimum scores would be required for enterprise development and procurement — or the overall score would suffer. This would compel companies to aim for achievement in all areas.

Mr Davies said what was under consideration was that points would be deducted from the overall score if minimum scores for enterprise development and procurement from small companies were not achieved.

It would also not be enough to merely hand over money for an incubator or enterprise development project. Companies would have to be actively involved in fostering small businesses.

"In Asia, small and big businesses have a symbiotic relationship where big business gets a lot of input from small business and works hard to ensure that it has the required capacity and the technology," Mr Davies said.
via www.businessday.co.za

So what do you do, clap your hands vigorously and chant "should have happened a long time ago".  

The italicised and highlighted sentences are relevant.  But there are concerns

1. What's with the stick - why punish companies for not achieving a sub-minimum.  The proliferation of BEE certificates in the economy shows how many companies are taking this BEE thing seriously. Many businesses cannot purchase from smaller businesses because they buy 90% of their products from a single supplier.  And if that supplier is improving on their own BEE scorecard then we are seeing progress.  
2. I have a huge concern about companies now having to become involved with their ED beneficiaries.  This is stupid and won't work - I don't care if it works in Asia. Here companies do what they do best which is run their own businesses - not helping other businesses.

Come on Rob, the ED principle has done wonders for so many businesses - why do you want to overhaul something that isn't broken, it just needs a little refinement which includes tax breaks and other types of incentives.  And also fire that useless Zungu, what the hell has he done for any business in South Africa - other than being a professional black.

Richard Ferrer just called me and asked if outsourced incubators and other types of ED facilitators are now going to be out of a job.  I don't think so - they will need to get closer to the companies who are paying them.  They'll also need to become the bridge between the two entities.  It'll take a little creativity but they will become more relevant than ever.

Zuma chairs, BBBEE codes to be revised and fronting is a vile practice

The BEE council (with that Zungu in it) met today and had a long pow wow about stuff - and I am rather happy with the result.  If this is what the council is talking about then we are definitely making progress.  We were all shitting ourselves that Zungu would push for a greater level of ownership - sort of Zimbabwe mining style.

Quite a few publications wrote something on it but the best one comes from Moneyweb.  If you are interested you should read the whole article.

1. The meeting underscored that BBBEE is central to inclusive growth. Provisions in the New Growth Path were supported which require a much stronger focus on the broad-based elements of the BEE regulations, such as ownership by communities and workers, increased skills development and career-pathing for all working people and support for small enterprise and cooperatives, as well as a new emphasis on procurement from local producers in order to support employment creation.
2. It was pointed out that to contribute to job creation, BBBEE has to, amongst others, promote new enterprise development, encourage local procurement and enhance skills development and employment equity.
3. The shortcomings in the implementation of BEE were noted, especially the over-emphasis on diversity of ownership and senior management. "The unintended consequence of this over-emphasis is fronting and tender abuse. 

And then sayeth Zuma

We are happy that the Council spoke out so strongly against fronting which is one of the major obstacles to the implementation of BBBEE. Fronting is an insult to the dignity of the poor and we have to act decisively against it. I am pleased that the Council is so determined to work with us to act against this heinous practice,''

They must have an incredible amount of evidence of fronting.  If they don't then they could always ask our invaluable whistle blower, Keith Levenstein, who has not only irrefutable evidence of scorecard fronting, but also of how it's a scourge to his business society.  Watch how he is going to claim that this meeting was as a direct result of his tireless work.  Hands up all those companies and verification agencies who are going to want to do business with Levenstein and his little band of angels after his last email.  

I am sure that more about Levenstein and fronting will appear in the near future, don't forget to consult the press.

 

Is this all they are doing - Rob content

It was supposed to be a great moment in the history of empowerment, a milestone that was some seven years overdue.  Alas they have done nothing but disappoint.

The venerated BEE council met last week, chaired by Rob.  And all that came out of it was some babbling about fronting.  Of all the articles written about this doleful topic, the best came from Kim Cloete who writes for Moneyweb.  She writes

Minister of Trade and Industry Rob Davies, has charged that 75% of companies in the private sector are still not fully compliant with BEE, especially in the areas of enterprise and skills development. And he's particularly worried about "fronting", often used to acquire business from government departments and municipalities.  

This is so safe.  There are real issues with BEE that do involve a variety of things ranging from the skills deficit to the useless SETAs through to too few 100% black owned businesses.  Think about it, so many companies struggle to find decent learnership programmes because their governing SETAs don't offer courses that they actually need and don't offer any constructive help  in overcoming their problems (W&RSETA is a prime example).  

And Rob chooses to talk about FRONTING. 

What about the impact of the new companies act and King III (and numerous other acts) that provide really good reasons not to bring on more directors.  These are real challenges.

And Rob chooses to talk about FRONTING!

I think I know why he's talking about this - let's go back to Kim (quoting Jenny Cargill, who is referring to government business)

"Ownership punches above its weight. You don't get in the door if you don't do black shareholding,"

She's right (here is my about face) - Rob really has no choice because Treasury (and rightly so in my book) is reluctant to move away from the current procurement regime.  Hence if Rob wants to make a point that goes across all procurement within the country he has to focus on ownership.

In spite of this, and my sympathies are with Rob, the inept BEE Council is not looking at the real issues that South African businesses face.  I don't believe they have the balls or the desire to do so.  And fronting allows them to play the RACE CARD (which must be used in all circumstances.)

So we wait with bated breath for the next meeting to bark wildly away at more issues of FRONTING.

On the subject of SETA's I see that Blade has

recently signed a performance agreement with Mr Zuma to ensure SA produces 10000 artisans a year by 2014.

Good luck Lem, let us know how we can help you with this.

 

(If this post seems to be a lot like the Lefsetz Letter it is being done on purpose).

 

KPMG BEE survey

KPMG worked with iQuad on this survey.  They didn't ask me for my opinion on this so I'll give it now.

The last three years of the codes have revealed a few interesting trends

1. BEE scorecards are becoming a lot more prevalent. 
2. Industries are starting to show a certain average score. 

The upshot of the latter point is that the bigger corporates are now making certain types of demands on their suppliers to meet those average scores.  Companies that fall below this are now under a lot more pressure to improve their scores.  I suppose you could draw a conclusion that transformation is happening (if you can equate a high BEE score to a level of transformation). 

But a high score without ownership is not good enough for Duma

However, Duma Gqubule, the founder of KIO Advisory Services, said the problem with many companies was that they got to level four of the Department of Trade and Industry's BEE scorecard by concentrating on skills development, employment equity and preferential procurement in order to avoid ownership.

"The presidential advisory council on BEE must develop mechanisms to close these loopholes. This is urgent because these companies score high without ownership. They pick and choose," he said.

Goes to show that the old ownership thing is never going to go away (it should because it's a total waste of time - we would be much better off with 100% black-owned companies that give the bigger companies a run for their money).  But Duma is missing the point here - if there are industry averages then companies are going to have to aggressively chase all elements to remain in business.

The last thing we need is the BEE council to start pronouncing on this subject - all that will happen is that Zungu will end up making a total mockery of BEE deals (as he has up until now).  And we don't want that - in fact he needs to be fired from the council.

It was the title that put me off

It's a very sensational heading but Zungu does make a little bit of sense. 

Sandile Zungu, Executive Chairman of Zungu Investments Company and member of President Zuma's newly established BBBEE Council, says that SA's corporates are unpatriotic because they are not prepared to implement BEE in a meaningful way. This, he cautions, will have dire consequences for the country in the longer term.

I don't know why he chooses to use such a strong and unwarranted word. Agreed if BEE is not properly implemented then we'll have a problem - but why the hell can't people like Zungu stop criticising what's not being done and talk about what is being done. 

I'll tell you why he does this - it's because the overwhelming message from our esteemed government is one of criticism.  He's just following the trend.  Take a look at this

The government certainly seemed suitably welcoming last week when Volkswagen SA opened a new distribution centre in Centurion and announced that it would make further investments in its Uitenhage plant (R500m).

Not only will the plant be making many more VW Polos for export, it will also create a few thousand more jobs. And with VWSA planning to increase the local content of its Polos from 40% to 70%, there should be some new jobs, too, at the component manufacturers and other local suppliers.

The trade and industry minister was there last week to welcome it all. So too was Deputy President Kgalema Motlanthe .

But the disturbing thing last week about Motlanthe, in particular, was that he gave VW such a qualified welcome. He wasted no time laying into the company, and its industry, for failing to do their bit for black economic empowerment. After a cursory remark or two about how nice VWSA’s investment was, and how wonderful was SA’s new (but as yet unimplemented) industrial policy action plan, the deputy president moved straight along to the findings of a Wits University study of the metals, engineering and automotive industries. The study, he said, showed a “less than rosy picture” of broad-based empowerment in these industries. Only 1% of the businesses were black-owned. The race and gender mix wasn’t right at all. Skills training was no good either.

The Business Day then poses the very relevant question

You have to ask, does the government want jobs or doesn’t it? Does it care whether private companies invest? Does it understand the risks companies take to invest?

And comes to the conclusion that

When governments invest, they do so with other people’s money: for companies it’s different, but it’s not clear how well politicians appreciate that.

Hence Zungu using the word unpatriotic.  In fact Mr Zungu suggests that the government is the dog's bollocks

"It is in the long-term interests of business and the country that we should embrace socio-economic transformation that has been promoted by a caring South African government," he said

Yeah right Sandile, this is the same "caring" government that passes an act that is binding on itself and yet does not actually come up with a vehicle that it is able to implement.

And as a passing observation - this is taken from the big fours' annual reports.  The figures are in millions.  In other words the banking sector invested about 867.9million rand in enterprise development.  You can't tell me that is unpatriotic Sandile.

Institution	NPAT 2009	SED spend	ED spend
ABSA	7,502	75.02	225.06
First Rand	7,838	78.38	235.14
Nedbank	5,412	54.12	162.36
Standard Bank	8,180	81.80	245.4
TOTAL	28,932	289.32	867.96

They just can’t do it

You might have read that recent Mzwandile Jacks article where he quoted the ultimate bright spark, Keith Levenstain. Our PLT is quoted as saying "We would like to see the government and public enterprises obtaining a scorecard because it would show the government's commitment towards its own policies". Beautiful words – sadly uninformed and stupid. It's one thing to mouth off (as Levenstain does) but it's another thing to mouth off and actually know what you are talking about (which Levenstain doesn't).

I'll help our learned friend. Simply put – the government cannot do it.

The codes would love to let us think that government can implement them. After all the codes are really only applicable to those entities contained in schedules 2 and 3 of the PFMA, and by implication the MFMA.

Code Series 000, Statement 000: General principles and the generic scorecard – paragraph 3

3.1.1 all public entities listed in schedule 2 or schedule 3 (Parts A and C) of the Public Finance Management Act;

3.1.2 any public entity listed in schedule 3 (Parts B and D) which are trading entities which undertake any business with any organ of state, public entity or any other Enterprise;

To then add more credence to this statement they created a separate scorecard for specialised entities (Statement 004: Scorecards for SPECIALISED Enterprises). This scorecard is actually applicable to government entities – the complete list is

• companies limited by guarantee;
• Higher Education Institutions:
• Non-profit Organisations:
• public entities and other Enterprises wholly owned by organs of state;
• Public Benefit Schemes; and
• section 21 companies: and
• specify scorecards applicable to Measured Entities subject to this statement

Unfortunately the codes don't specify a scorecard so we have to guess what it might look like. This is the first problem – no scorecard is specified.

Now onto the actual scorecard.

Ownership

Strange that they left this element out. Logically they are right – the government (and section 21 companies et al) cannot be owned. However the ANC has somehow managed to convince Hitachi that they are black owned enough to be a suitable BEE partner. Be that as it may – ownership is excluded.

Management

This is one element that a government entity can implement and implement it well. They do it anyway – although it does seem as though it follows a jobs for buddies regime as opposed to merit.

Employment equity

Similar to management. In fact they are a little too good at this element, possibly even illegally too good at (as Captain Barnard will attest).

Skills development

This is where things get interesting. The government cannot favour any one race group over another when it comes to training. And the skills development element requires a vast amount of money to be spent on the training of black people (simply put) – this is quite easy to do in the private sector but not in government. They can however achieve these targets if the overwhelming majority of their staff are black – but does this then mean that they would need to request extra money from treasury to achieve it?

Any government policy that states they will favour the training of one race group over another is a huge problem and is discriminatory – which the constitution outlaws. More on this in preferential procurement.

Preferential procurement

The PPPFA might favour certain types of entities but it CANNOT and I stress CANNOT favour those entities at the expense of others. I mean, it can't exclude bidders from bidding because they don't fulfill a certain criteria which preferential procurement has to do. I'm not going to go into the finer details of the PPPFA, and I don't recommend that you ask Levenstain to explain them to you either. The best thing a government department can do is measure their procurement, it cannot target certain types of entities at the expense of others. This would be a gross violation of section 217 of the constitution. Tenderpreneurs are a different type of targeting – not something that preferential procurement envisaged either.

Enterprise development and SED

Both are no-goes. Complete and utter no-goes (not sure how to spell that). Firstly they measure it using NPAT (or some other convoluted way which no-one understands), and NPAT is not something that government understands or needs to measure. Secondly that if a government department did try and implement these two they could not favour 50% black owned companies and 75% type charities because this would be discriminatory. Thirdly if they wanted to do this they would have to go off to treasury and ask for more bucks to do it – and there is no way treasury would give it to them.

Technically speaking they can actually measure these two elements (according to Obed de Swardt). Every non-profit entity can declare a profit in the form of a surplus and it would be a percentage of that that would be measured – but I can't see that this would work in a government context.

 

I have been a little verbose here but it is abundantly clear that the DTI has not figured out a method to include government departments in their broad-based system. I told the same to Mzwandile when he called me about this story but he chose to go with Ajay Lalu (Udge – I hope you were quoted wrongly in this article because if not it does not bode well for your knowledge of the codes). My thinking is that the DTI is acutely aware of this problem and has decided to leave BEE in the capable hands of the private sector. Unless of course they are going to throw this problem at the BEE Council just to test their mettle.

More on the BEE Council meeting on Thursday

This blog's job is to be the new aggregator.  As I mentioned in a few posts ago, you get different perspectives of events from different publications and when you put the lot together you can form a clearer view of what actually happened.  I have set myself this task.

The reports about yesterday's meeting are slowly coming through, I am hoping that the full minutes will be released.

Mzwandile Jacks of Business Report wrote mostly about Zumotlanthe's speech although it does seem as though Mothanthe threw in a few of his own opinions too.  He did add something that the council discussed.

Members of the council talked about investigating the sustainability and structure of BEE deals, because some did not seem to change the lives of the poor. This could mean the end of BEE deals where performance is tied to the share price. Most of these deals collapsed when the global financial crisis kicked in two years ago.

"Most members of the council raised their concerns about the appropriateness of these (SPV) structures. We discussed that the council would have to be empowered with enough resources to deal with this," (Jerry) Vilakazi said.

Is there another funding mechanism, or are the traditional funders keeping their mouths shut because they make less cash?

Fin24's article is most interesting as it relates to the new PPPFA regulations

The Department of Trade and Industry's new Industrial Policy Action Plan (IPAP) is currently being discussed by cabinet and will be announced "soon".  Dr Rob Davies said that the IPAP contained a significant number of important questions regarding state procurement which are expected to benefit local industries and black economic empowerment (BEE).

Last year Treasury's draft regulations on state procurement were sharply criticised by local manufacturers, empowerment players and politicians, because they did not give government bodies sufficient incentives to help the domestic economy.

This problem was very apparent in the draft.  It had nothing that would stimulate regional procurement, something that the 2001 regulations catered for through their RDP goals.

So we can expect something like RDP goals to be included in the drafts.  I am starting to see a clearer picture here.

BEE council met today

And Zumachine Gun was supposed to chair the council meeting but he's tired so he sent Motlanthe to deliver his speech.  It's clear that BEE is going nowhere

The speech makes for interesting reading and I recommend that you do read it. I'll go through a few quotes that I think are significant.

We should always keep in mind that you have been appointed as members of this Council in order to advance a cause that is bigger than ourselves or the constituencies from which we may have been drawn.

And on the subject of the council's mandate

we have to ensure that it conducts its business in a manner that does not expose it to perceptions or charges that it is a narrow interest group. The Council has to make sure that it provides advice to government that is well informed, accurate and seek to advance the cause of broad-based economic transformation of our society.

Zuma lists a few successes over the last 16 years

There are more black and women entrepreneurs today than there were in 1994. (most likely a reference to HDIs)

There are more CEOs of companies who are black and female than was the case at the dawn of our democracy.

And then onto the "usual suspects"

We also have to admit that the "broad-based" part of BEE has seemed elusive. In the main, the story of black economic empowerment in the last 15 years has been a story dominated by a few individuals benefiting a lot.

And how he's not necessarily going to allow this to happen at the expense of the majority

The vast majority of those who are truly marginalised: women, rural poor, workers, the unemployed, and the youth have often stood have often stood at the sidelines. Only a few benefit again and again from the bounty of black economic empowerment.

This is a state of affairs that can no longer be tolerated. Broad-based economic empowerment should achieve exactly what it means. It should benefit all sectors of the target group. This may mean that we look at black economic empowerment beyond business deals and shareholding in companies.

He wants to see more emphasis on these people asking for inclusion of these people in deals and developing their own businesses. This suggests that SAB etc were completely on the mark with their deals

We have to think creatively about ways in which to increase the extent to which communities, workers, cooperatives and other collective enterprises own and manage existing and new enterprises and increasing their access to economic activities, infrastructure and skills training.

And looking after those in the rural areas

strategies of empowering rural and local communities by enabling [their] access to economic activities, land, infrastructure, ownership and skills.

And on the subject of employment (decent jobs again. That term scares me especially when it comes from his mouth – sounds like he is appealing to the left, which he probably is doing)

Fundamentally, we have to constantly strive towards making sure that more people are employed in decent jobs.

And on enterprise development

We must ensure that more are able to start and sustainably run their small businesses. More must be enrolled in skills training and more should have access to arable land.

This is interesting – land reform has been at best a terrible failure, where is he going with this.

And on to the naysayers who he describes as "a section of our society that is opposed to black economic empowerment".

The critics must accept that the exclusion of a large section of our community from productive participation in the economic life of our society, is a significant hindrance to our collective prosperity.

Couldn't agree with you more gun guy

And as a conclusion – Zuma exposes his capitalist roots.

Our prosperity will be delayed if the vast majority our people, especially the youth remain without jobs or skills. Our economy will also not reach its potential as long as the vast majority of its people lack the economic power to buy goods and services, to start businesses as entrepreneurs or till their land as successful farmers.

Bloody right I say. OK council – the ball's in your court, you know what is expected of you. Are you going to serve or do nothing like most other public/private councils?

Apartheid's legacy

BEE is to right the wrongs of the past, it's the right thing to do, wealth needs to be redistributed from the 5% who have etc.  We've all heard these justifications from numerous commentators and agitators.

I have a different perspective. I don't view BEE as being so much about righting the wrongs of the past, I see it as investing in the future of South Africa.  The righting the wrongs argument inevitably leads to people justifying their behaviour with "they did it to us, now it's their turn".   There are two examples of apartheid's legacy that have become very relevant to me

• The matric results

The Sunday Independent carried an article on Verwoerd's Bantu education policy and its legacy.  The author, Graeme Bloch, argues that Verwoerd's policy of not teaching black people maths if they were never going to use it is still being felt today.  This policy when coupled with job reservation effectively only allowed the black middle class to become nurses and teachers (I am summarising this article that IOL has deemed premier so I can't post a hyperlink on this post).  The result is that teachers were ill-equipped to teach maths and this problem continues.  Bloch suggests that it will take another generation to fix.

• Bantustan policy

Last year I worked on a proposed PPP in Mt Ayliffe.  Mt Ayliffe is a desolate and forgotten place in the Eastern Cape.  It falls under the Alfred Nzo municipality which is one of the ISDP nodes (in other words - where the poorest of the poor live).  My job was to conduct a socio-economic study and determine the best BEE scorecard for the PPP.  The study was showed an area that has yet to recover from the Bantustan policy.  Mt Ayliffe was a labour resourcing area for South Africa, men were migrant labourers and the women and children stayed behind and fended for themselves.  Nothing has changed.  The economically active population is still made up of women who live under the most challenging conditions.  Education is a luxury that that few can afford because the HIV-infection rate (about 30%) has forced younger people to stay home and support the family.  There is little formal employment and almost no basic infrastructure.  We concluded that whilst this PPP would have a positive effect on the community it was nowhere near enough.

The upshot in both of these circumstances is that both the matric failures and those who live in areas like Mt Ayliffe are left with few choices and prospects.  They could become dependents of the state or resort to crime - either way it places a greater burden on the tax payer.  And this South Africa can ill afford.

No one likes to be told to do something because it's the right thing to do.  People like to know what they will get in the short term.  The BEE message is not about that - the question is that can we as South African's afford not to do it.  I am hoping that when the BEE advisory council meets they look at things like SED, enterprise development and smarter ways to create sustainable economic activity in those decimated rural areas.

I have posted an old document on the ISRDP and URP nodes - they featured in an earlier version of the codes.  They were removed in the final version.