Paul Janisch

More codes

Not like me to post twice in one day.  Apropo to my earlier post, the DTI has published a notice on info.gov

Three Sector Charters have been gazetted as Sector Codes, in terms of Section 9(1) of the Broad-Based Black Empowerment (B-BBEE) Act.

The gazetting of the Tourism, Construction, and Forestry Sector Charters into Sector Codes follows months of consultation and alignment of the Charters with the objectives of the B-BBEE Act and Codes of Good Practice. These Sector Codes are amended versions of the Draft Sector Charters, gazetted in terms of Section 9(5) of the B-BBEE Act.

There you have it.  Our Kev does know a thing or two.

Something is afoot, or the DTI is constructing something

Last week I got an SMS from Kevin telling me that the construction sector charter had been gazetted.  I could find no evidence that it had been done.  The best source for this information is the South Africa Government Online website.  I did a search on the DTI and came up with this and this but nothing on the construction sector charter.  (Oh yes the first this is a notice that says PetroSA is now a BEE facilitator which means they get the full 20 points for ownership - why not just use the specialised entities' scorecard, is it that no one understands it?)

And there is nothing on the construction sector charter on the info.gov site. As luck would have it I met a company of engineers who were asking me about the construction charter and could they up their score by using that one.  I hadn't looked at the re-gazetted construction charter yet, but upon the looking I noticed that its 60 days were up and it had yet to be gazetted. So I called the DTI and they actually answered and were very helpful (I spoke to Xolisile and Jacob, give them a raise).  Apparently the DTI is going to announce something about these section 9 charters in the next few days -  they wouldn't tell me what it was.

And then I get an email from Kevin's company announcing a course on the GAZETTED construction charter.

Interesting.

I took a look through the new charter and it's not bad - they've plugged up a lot of the holes that pepper the codes (I'm going to have to stop saying that if it is gazetted - because it becomes a code). 

KPMG surveys whilst ABVA gets the moer in

There has been a fair amount of BEE activity over the last few weeks.  We all know that narrow-based BEE is now over, kaput, klaar and finish.  What we don't know is whether the FSC shares a similar fate - it appears that they have been given a stay of execution.  And then there is the keenly awaited DTI assessment tool which was supposed to be launched last Monday (the link to the Business Day site is broken so you'll have to take my word for it).  I can't wait to see it and I have it on some authority that we will see it next week.

And then ABVA starts questioning why SANAS has put the verification process on hold.  And so they should, accreditation will add so much more legitimacy to BEE.  Vuyo thinks that it's not a bad idea that they have extended it because they now need to measure them against that stupid manual that they published.  I noted with interest Vuyo's comment about the complexities of verification

The potential downside effect of the manual is that the prescribed procedures require adequate capacity. This lengthens the time spent on the verification process, affecting the profitability of the agency. Gone are the days when a big company could be verified in two days.

Trust me - this is not a good thing for the industry.

OK back to ABVA, Kim sent me this story.  I'm going to focus on a small from Abva director Ridwana Jooma-Cook  quote in the article,

"In effect, the codes of good practice are fantastic, but they have failed on implementation."

What rubbish is this, the codes are definitely not  fantastic.  They are a terrible concoction of inflexibility, lack of thought, bad business sense, poor spelling and worse arithmetic.  But that's my opinion.

Which brings me to the KPMG survey.  I read about it here and was drawn in by the opening paragraph

Companies across the board are falling behind on their black economic empowerment (BEE) compliance, a survey by forensic auditing firm KPMG has found

The report is very good and thorough and asks some very poignant  questions and produces some interesting results it makes for an interesting read.  I think the results are quite obvious in certain places, for instance the mining sector will place more emphasis on ownership because they have to.  But I do not agree with the contention that a scorecard makes a company more competitive and I think we are a long way from that happening.  A scorecard is still a tick box requirement, companies do not purchase from companies that have high scorecards, especially strategic items, they purchase for numerous other reasons ranging from price to relationships.  The scorecard just gets the messy empowerment criteria out of the way. 

And as a final note - I wrote this for the Namibian Economist .  Namibia are in the early stages of their own BEE implementation and they could learn a fair amount from South Africa.  The article discusses where South Africa needs to improve if this policy is to succeed.

Fronting and equity equivalents

If you read the published codes you might have noticed that the fronting code, or more correctly "statement" (002) was missing.  This is no longer the case.  I was having a little browse on the BEE section of the dti's website and lo and behold.  They snuck in two updates.

• Equity Equivalent Programme for Multinationals, and
• Complex Structures & Transactions, and Fronting (Previously Statement 002)

If you haven't seen these yet, tell your friends.

By the way - Caird has an article in today's (9 May, 07) Star Workplace.  I was talking about weightloss and transformation.  I blogged about this before.

Code facts

I was asked by a client to submit my observations about the codes, he has the ear of the government. 

However I did not mention anything about value adding suppliers. 

The value-adding enterprise appears in preferential procurement in section 3.3.2: the recognisable broad-based black economic empowerment procurement spend that can be attributed to that supplier is multiplied by a factor of 1.25

The definition of a value-added supplier is:
Means an entity registered as a vendor under the Value-Added Tax of 1991, whose net profit before tax (NPBT) summed with its total labour cost exceeds 25% of the value of its total revenue.

Another feature is that the value-added supplier is not accorded a racial profile.  Any company could then apply this status.  I'm sure they've got this wrong.

I can tell you this much - Caird is most certainly a value-adding supplier.

Counting sheep

The puns just get worse (the title is a reference to Woolley).  I have been using FastFind feature that Ownership Solutions has developed.  My initial exuberance has been somewhat tempered.  The application is still extremely useful but it has its errors.  In some cases the formulas are wrong and a really glaring error is the inclusion of the ownership scorecard in the Specialised Enterprises scorecard section.   It will probably be corrected in time, but I do recommend that you read the gazetted codes at the same time.  I found a copy of the codes that you can lift text from.

There are a few real corkers contained in the gazetted codes as well - the one that really cracks me up is the omission of a decimal point in the definition of black new entrants.  This omission suggests that black new entrants should have "not held equity instruments in any other entity which has a total value of more than R20 000 00000" (that's 2billion - not the 20million that was in the 2005 codes).

They're here

Strange how the news hasn't generated that much interest in the press.  The codes were gazetted beneath the hype of Mbeki's state of the nation address, perhaps that's the reason.  There is a small article on page 3 of today's Business Times which highlights the necessity to align the codes with the Preferential Procurement Policy Framework Act.  This needs to happen soon.  (By the way, I am presenting a two-day course on 21st and 22nd of Feb in JHB on the PPFA and how the government should go about managing its procurement - if you are interested contact Lisa Helm of the Business Zone).

Back to business.

Charters

Two charters have also been gazetted under section 12 of the BBBEE Act, which means that signatories will still have to produce a dti COGP scorecard when doing business with the government.  Effectively this means that they may rate themselves on two different scorecards.  One for the private sector and the other for the government.

It is strange that the Financial Sector Charter (FSC) was gazetted in its original format.  It still contains narrow-based definitions and a few other strangenesses (like the definitions of managers).  Be that as it may, the FSC is infinitely better that the Construction Sector Charter which was gazetted as well.  The latter lacks descriptions and a guideline as to how to go about implementing it.  I've posted an analysis of the many scorecards contained within it here.

QSEs

There was a fair bit of speculation as to whether the threshold for QSEs would be dropped to R25million.  The embargoed codes that we have show the threshold to be R25million, they were a little old.

That's it for now.  We'll post things on this blog and on the Caird website as they become significant.

When

The moaning that happens from so-called BEE experts about the publishing of the codes.  People it's simple - get a preview copy from someone who knows someone, who met someone, who left it lying around.  That's how we got to have a look at them. 

I spent the afternoon looking through a few codes.  The Enterprise Development code (600) is most certainly geared toward the fostering of black-owned and black women-owned businesses (exclusively).  I blogged about this a while ago.  I still think it's the wrong way to go about it - any new business that employs people on a sustainable basis must be supported.

The new codes are in many cases very thorough, providing very good guidelines as to how to go about implementing each code.  In the case of code 600, the guidelines are very clear, infinitely more-so than the 2005 codes.  I also think the microlending industry is in for a great opportunity to earn 15 or 25 points without changing a thing about their business. 

More on this later.

December 2006 scorecard

I have been speaking to numerous people about the new scorecard.  It's amazing how this so-called confidential information becomes so public so quickly.  It is now a matter of time before we get to see the complete codes before they are officially released.  I got sent a copy of the new scorecard which doesn't make that much sense out of context.  There are a few new concepts that I have never seen before, examples are:

• Gender Recognition Factor (employment equity)
• Skills development spend on learning programmes (skills development)
• In-service training programmes (skills development)

I've attached a copy of the scorecard here.

How the dti should keep things confidential

Some people will go to any lengths to keep their property pristine.

Good, practical codes - approved

Old Lionel has announced that cabinet has approved them.  The question is, can we trust him?  He's said many things in the last few months that have either not materialised or have been contradicted by Polo.  I am inclined to believe him this time, after all he addressed the media late on Wednesday afternoon telling them about it. 

I'm not going to get into what the press has said about thresholds and the like, there is plethora of web sites talking about it anyway.  We were provided with a comprehensive overview of the codes yesterday and they make for interesting reading.  This overview is somebody else's summary and they might have missed out on issues that are more interesting to us.  I can say that the multinational codes are a lot more comprehensive than last year and they do set targets that are measurable and quanitfiable.  It also appears as though Trevor is going to have to do something about exchange control if all the equity equivalent options are to be made available.  Perhaps we'll see a run of inwarding listings.

The final word is left to Lionel, a very telling remark indeed.

“What was clearly emphasised in the Cabinet discussion was that we needed to make more effective use of government procurement and licencing processes to further black economic-empowerment,” October said, adding that work was under way to align other legislation with the BEE ambitions.