Paul Janisch

Deaf Coffee One

That South Africa needs more employment is not even vaguely open to debate. That disabled people require employment is also not open to debate. There are a number of service providers that will come to you and advise you on disability and place candidates etc etc etc. I'm a cynic when it comes to the latter. But then again, I'm just a loudmouthed so and so who happens to control the editorial content of this blog – just like Hlaudi, although unlike Hlaudi I don't increase my salary unreasonably, I do have matric and I am able to string a sentence together in English (Hlaudi does have an advantage over me in his mother tongue although his English logic suggests that even his mother tongue utterances might not be that coherent). Once again I digress.

My old friend Gary Hopkins told me about a business that he was involved in called "I love Coffee". This was discussed at a lunch overlooking Muizenberg beach a few weeks ago (oops – I am now sounding a little bit like Justice Malala), we hadn't seen each other in about 20 years so the beer and the good times took priority eventually. Gary's idea is actually really simple – start a company that sells good coffee and that is run and staffed by Deaf people. But it goes beyond this – if you want their coffee (and I would imagine that most people would) you are going to have to learn basic sign language. This is so much bigger than just mumbling an order at Starbucks – this is about engagement, it's about understanding the world of the Deaf and getting a decent cup of coffee in the process.

Gary has found a gym in Cape Town that is willing to host the pilot coffee shop. This is the start. The project has immense potential. I spoke to Gary yesterday and he was expounding vocally about this thing going global and that there was a great deal of interest. But in order for this pilot to succeed they are going to need a little bit of seed and operational capital. And I can see massive opportunities within that BEE scorecard that I so often deride. First I must focus on the benefits.

This is new, it's not a case of putting Deaf people in positions where they are never customer focusing or hiding them in the back room whilst they type up annual reports after cleaning cars and just before they sort out the mail. This is giving the Deaf an opportunity to feel integrated, to interact with customers and make a difference. I think every large corporate should have one of these shops or at least a kiosk in their lobbies. Engen Garages should have something like this in places where they don't have Muggs or anything like that. Every Pick 'n Pay should have one.

There must be some benefit to that organisation that is now involved. Here are a few (BEE) ideas – the business benefits will flow out of this.

1. Skills Development. I have waxed lyrical about the sheer cost of Davies' ill thought out codes. However for those who have excess money to donate for skills purposes should you contribute to the ultimate training of these baristas and customer facing people you will be contributing to your BEE scorecard and the welfare of those who go through this training. Ignore Bolshie Bob and his deluded notion of black industrialists. What we need are skilled people across the board. Coffee is major business. It's huge in the cycling and running fraternities (used as a generic term and is not intended as an insult to the Oxford student whose voice makes it difficult to identify his actual gender), have you ever tried to get a seat at Croft in Parkview between 7 and 8 on a weekend morning. The queue at Motherland at 6:30AM, every morning is 10 minutes long.
2. Enterprise and supplier development. Again we are forced to interpret Davies and his patsies' myopia when it comes to understanding what a supplier is. My interpretation is that the ED beneficiary should be on the supplier database to be a supplier. Technically this could be them selling you one Bic lighter a year. But if you have these guys in your lobby and you place orders for coffee and brownies etc then they are a supplier. The sky is the limit to what you could do as a team. If they are in your lobby then you have a day to day experience of their business and can start contributing a variety of skills to ensure that they become a sustainable and viable concern. Hell if you like the woman behind the counter, perhaps you could hire her.
3. SED – this is a SED programme but I think that it's not intended to be one. This is not about handouts, it's about careers, self-esteem, integration and good service and coffee. Your relationship with this company must be strictly commercial.

And then there are tax benefits. I'm a little scratchy here, but I think there are tax benefits for hiring or supporting disabled people.

Please watch this video, Gary would love your financial support during the initial phases. I will make sure that all the BEE documentation you require is completed and done and looks fantastic. I'm excited about this. You can contact Gary directly or through me, send him an email – even if it is to tell how great this thing is.

And – the company has all of its BEE credentials in place.

Now all we need is a Deaf-owned and managed brewery.

Fifty One Thirty - your new magic number

This post has been written often in my head.  It's proper title should be - "the future of empowerment is......... Fifty One Thirty".  You're going to see a lot of 5130.  The correct representation is actually 51/30,  51% black owned with 30% black women ownership.  You're going to see a lot of those companies sprouting up within the next few years.  

It works like this.  

The smallest percentage of black ownership that is acceptable under the codes is 30% black women owned.  25% black ownership will get you points but doesn't provide any benefits under procurement.  30% black women ownership does - 4 points.  The next best level is 51% black ownership - that'll attract a further 9 points under procurement.  You then get 100% black ownership which promotes you to a level 1 but actually doesn't do much more than that.   Clever companies will go the 51/30 route.  This gives your company access to 13 points under preferential procurement (more if they turnover less than R50m) and sets you up as an enterprise/supplier development beneficiary.  The balance of the shares can then be held by white people (or foreigners).  

What are the 51/30 benefits.

• If your turnover is less than R50m then you are a level 2.  This means that you don't have to worry about a BEE scorecard.  You can hire white people who you don't have to train.  White suppliers will seek you out to supply to the larger corporates and government and they won't have to give you a BEE scorecard
• You can insist on COD payment because you are an ED/SD beneficiary
• When your company turns over more than R50m you can refuse to implement any of the elements in the codes because your blackness provides your clients with 13 of the 25 procurement points.

The white/foreign/infidel co-owner can still sit there calling the shots because the company that is supplying Eskom is made up of a staff trust and he's put up the cash for the company.  The company is effectively a front  but because there are so many of them out there,  Eskom will never be able to check (don't worry Levenstain will attempt to out you).  Eskom won't check because it wants to support black owned businesses.  Larger corporates won't check either.

These 51/30s will go from strength to strength and monopolise procurement within the larger parastatals and corporates, effectively squeezing out those 100% black-owned businesses who are no longer competitive.  The 51/30s will also become the conduit for the rest of the companies that cannot/will not comply with the BEE codes to gain access to the larger corporates.  Their BEE status now becomes irrelevant.  

And then what? Nothing changes, white companies have adapted and hid behind their fronts.  Emerging businesses will struggle to get a foothold now that the larger corporates no longer need worry about them.  

Skilled people who sell their labour at competitive prices will not struggle to find positions in the 51/30s or their suppliers.  Yes you will still have those unpolicable pieces of labour legislation attempting to ensure that Manyi's distopian dream of companies reflecting the national demographics, but these will become less relevant because they cannot be policed as the government cannot afford to hire more people to police them.

If you ask me what to do with your business I would tell you to create a trust that provides for 51/30.   Even if I succeed in getting rid of the revised codes (and I am quite confident that I will)  51/30 is the future of empowerment irrespective of what codes exist.

If you don't know how to do this - speak to me, I have a few good ideas.

Related articles

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BEE timeline

2009 Mining Charter is still on hold

This is a fantastic idea - Grand-Pa and Wits Business School

WITS Business School and headache powder brand Grand-Pa on Wednesday announced a partnership aimed at helping spaza shop owners grow their businesses. The Grand-Pa Spaza Shop Programme will be offered by the school’s Centre for Entrepreneurial Development and will provide owners of small shops with the tools to ensure the sustainable growth of their stores.  

Topics such as cash flow management, marketing, competitive buying and pricing, and daily business functions would be covered in the new course. The programme is being piloted with 40 spaza shop owners from areas such as Soweto, Cosmo City, Pretoria North and Diepsloot. Wits Business School employees, who would usually not qualify for admission into courses offered at the business school, will be among the candidates.

Courtesy of BDLive.

It'd be fantastic if this works.  What does concern me is that the lecturers do not understand the business of micro-businesses.  One hopes that they are sensitive to this fact.  If they want to make a success of this I strongly recommend that they look at the SANZAF project which has a 60% success rate.  In case anyone forwards this onto Wits Business School, I've included an overview of the SANZAF ED programme. 

 

 

Is that a hole in your umbrella dear Cyril, dear Cyril?

-From: Admin [mailto:support@shandukablackpages.co.za]

Sent: 19 April 2013 03:44 PM

To: paul@227.co.za

Subject: Application to access blackpages website declined

Dear Paul,

We regret to inform you that you have not complied with our requirements to gain access to blackpages website. Therefore you application has been declined.

Only buying organisations which would like to search blackpages for potential suppliers will be granted access.

We appreciate your interest in blackpages.

Yours in enterprise development (but not the ED of those who form part of our Umbrella)

Malope Mashifane

blackpages Project Manager

Tel: 010 590 5555

Fax: 086 219 5384

Email: malope@shandukablackpages.co.za

Website:www.shandukablackpages.co.za

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

I assume then that these suppliers are in such demand that someone like me who has a definite need to find black suppliers is not needed to assist in their sustainability.  Italics are my emphasis

 

A good news post on this blog

Good news is hard to come by these days and this blog doesn't exactly stand out as the great good news blog. At the moment the mining industry is not happy with our esteemed leaders' incompetence (that's plural) that manifests itself in (this list in not exclusive) mixed messages, inconsistent BEE policies and the application thereof and the perpetual threat of licence withdrawal by the ANC (read government because they are unable to differentiate between the two). At long last certain miners are starting to tell these myopic politicians that there polices aren't nice and that they won't invest in South Africa whilst they are in place.

In spite of all this there is some good news. Those with a keen BEE eye might view this story as even better than the article makes out. Business Day ran a story about Woolies' ED programme last week.

Johannesburg-based Classique Bags and Boxes is one of 40 small businesses that have benefited from Woolworths' enterprise development programme, producing and supplying recyclable paper shopping bags for Trenery and Country Road stores. Through the Woolworths enterprise development programme, Classique received a R100,000 loan to secure separate premises and additional equipment (to manufacture paper bags). "The programme boosted our business and helps us manage our monthly cash flow since beneficiaries of the programme are on shorter payment terms and invoices are settled within seven to 14 working days. We can also lean on them for business advice and guidance relating to anything from finance to improving eco-friendly practices."

For those who are new to the concept of ED then you'd do well to look at this paragraph critically. Pay special attention to the following

• A R100,000 loan
• Purchasing from the ED beneficiary (yes this is Rob's wish – but Rob has missed most of the point with his supplier development concept)
• Shorter payment terms
• On-going assistance and guidance

All of these make for an effective ED programme. The codes are desperate for companies to dish out money to beneficiaries for free in the form of grants. This is plainly counter-intuitive. Nowhere in the world does money come for free. It is a pity that the codes reward interest free loans without any security more than other loans. But in this case the story tells us that Woolies loaned money to gear this company up to deliver the products. Woolies now has a bunch of skin in the deal – they require the merchandise otherwise they'll have a bunch of unhappy customers so they go to extra lengths to ensure that this company's cash flow remains optimal.

I love this. However we cannot assume that it will work in everybody's case. It was Anglo American who aptly explained that mines are not well suited to supplier development because they mine stuff out of the ground. They know nothing about supplying Caterpillars or toilet paper or guards (which mines need in abundance now). But they do know how to get raw material out of the ground. They would therefore have a much more interest in beneficiating that raw material and developing those companies is more akin to the nature of their business. At the very least it involves their basic product so they will have a basic understanding of some of the beneficiary's business. We need this type of flexibility in our ED programmes.

Whether all of an Enterprise Development contribution needs to be consumed within the measurement period

It has been brought to my notice that a certain verification agency in KZN is insisting that an ED contribution must be spent within the period that it is made. I don't agree and have written an opinion on this which you can download here.  For those who don't download, read on below.

Caird Holdings has been requested to publish an opinion as to whether a contribution made for Enterprise Development (ED) purposes needs to be completely consumed within the measurement period in order to fulfil the requirements to be awarded points under code series 600, statement 600 of the DTI's B-BBEE codes of good practice (gazette number 29617).

This opinion takes it as understood that a measured entity may outsource their ED requirements to a third party for fulfilment of their ED obligations. It is also assumed that all other requirements for an ED contribution are adhered to. The issue that this opinion addresses is that of whether the measured entity may attract the full number of points by making the contribution, be it monetary or non-monetary, during the measurement period, but that contribution is not consumed in that same period.

In addressing this question we were drawn to paragraph 3.2 of code series 600 - Recognition of Enterprise Development Contributions. This paragraph states,

3.2.1 Enterprise Development Contributions consist of monetary or non-monetary, recoverable or non-recoverable contributions actually initiated and implemented in favour of beneficiary entities by a Measured Entity

The pertinent phrase here is "actually initiated and implemented". Our reading of this statement is that the contribution must be initiated and at the very least implemented during that period. It does not state that the contribution needs to be consumed during the same period. We believe that the rationale behind this paragraph is to allow beneficiaries to continue benefiting from the contribution on a longer-term basis because this will ultimately contribute to the development, sustainability and financial and operational independence of those beneficiaries.

Our view is confirmed by Vuyo Jack and Kyle Harris in their book "Broad-based BEE: the complete guide". Jack and Harris write on page 327

Section (3.2.1) includes the words "actually initiated and implemented", which is further addressed in the statement by confirming that initiatives may not be included in the measurement unless the expenditure has already been incurred. Future commitments may not be included in the measurement. Funds set aside for initiatives not yet implemented are also not measurable as part of the contribution.

We concur with this opinion and would like to add that the measured entity will not be permitted to use the outstanding amounts that have not been consumed within the measurement period as future enterprise development contributions.

It is therefore our considered opinion that measured entity will have fulfilled their ED obligations by initiating the contribution and that there is no requirement under gazette number 29617 that the contribution has to be consumed within the measurement period.

Malema’s marchers strangers to world of work - Linda Master

The world is moving into unpredictable socioeconomic terrain. South Africans need to take responsibility and work themselves out of unemployment. There are very few adults who cannot learn something at almost any age. If only the marchers would shift their focus away from Malema’s exuberant fantasy life towards focusing on establishing and supporting microbusinesses. Tiny businesses may never make them rich, but will certainly go a long way towards healing the devastating indignity of unemployment.

via www.businessday.co.za

Tragically apt - South Africa cannot afford to lose another generation.  Throwing ED money at these people is not going to work either.

FSC still struggling - but not with ED

Is it on, is it off?  I spoke to someone who has been involved in the Financial Sector Charter negotiations last week and they told me it was still on.  I was told that the once empowered, always empowered details had been finalised and that signatures were imminent.  My most excellent friend Leila told me what she knew - which is that it was still on.

But yesterday the City Press reported that banks were contemplating pulling out of the charter.  

The threatened walkout by the banks appears to be over a disagreement with social partners, most notably labour and NGOs, over ownership targets. This disagreement has effectively rendered the charter paralysed, with no yearly report filed to the Financial Sector Charter Council since 2008.  Civil society wants the black ownership targets of financial services raised from the current level of 10% to 15% by 2014. But the industry frequently argues that international banking regulations mitigate against this. 

The same perennial argument that keeps on rearing its ugly head.  The author of the City Press article, Thebe Mabanga, puts the issue in the friendliest possible way (if you want a more complicated explanation take a look at my post from April, 2009)

This is because in banking ownership shareholding above 10% confers a status known as shareholder of reference.  This means that in the event that a bank needs to be recapitalised, as happened to some American and European banks during the financial crisis, a shareholder of reference has to contribute according to their shareholding. 
Thus if, say, Standard Bank were to go to the wall and required a R1 billion bailout, the Industrial Commercial Bank of China, as a 20% shareholder, would have to stump up R200 million.  A 15% shareholder would need R150 million, the kind of sum that empowerment partners – who often have to borrow to finance their deals in the first place – would struggle to raise. Smaller shareholders do not face such obligations. 
But labour has refused to budge on the matter, first staging its own walkout from the charter in 2008.  It argues that the financial crisis showed that government bears the ultimate cost of a bailout. It further argues that the probability of a bailout being needed is low. 

Thebe informs us that the banks have approached Pravin with a new charter that they are willing to abide by.

This has gone on too long now.  The FSC is completely vital to South Africa's future.  It is a far more fluid document than the DTI's codes (or any of the other annoying transformation charters).  Most importantly - it is the only one that adequately deals with the once empowered, always empowered rule.  End this rubbish now, let's move on

AND NOW ONTO A LITTLE ED RUMOUR

I got a frantic phone call from a concerned citizen the other day.  She informed me that she had heard (still a vicious rumour) that a certain financial institution who shall remain nameless for now is/or is going to take ED money from their clients and then loan this money to black businesses.  The deal would go along these lines

• The financial institution will take 15% of this money for admin purposes (which seems to be the industry norm for ED providers)
• They'll loan the balance to black businesses at prime
• They'll write a lovely letter to the ED donor saying "here are your 15 points etc"

Whilst I like the idea there are a few problems 

1. Can a financial institution with a banking licence loan money to other people on behalf of others.  I was told that they'd need some sort of fund to do this
2. What happens to the interest and the repayment of the capital amount.  The money being loaned does not belong to the (let's call it a bank), it belongs to the ED contributors.  Surely the interest and repayment of the capital amount must be paid over to the ED donor (I don't want to call them that).  I know that a repayment of a loan messes with the long term ED points but money is never free.

I'd like to see this concept develop but it does need a mountain of refinement before it goes out.

NEF Enterprise Development project - not convincing enough

This has to be approached with a certain amount of caution.  Other than the fact that the NEF itself instills very little confidence in me, this information we get to read is sketchy, and for an investment of R5m you'd want a lot more information.

The first issue is their "blackness", they claim in the prospectus that they are a BEE facilitator.  I can't comment what they are - but I suspect they are correct.  BEE facilitators are considered in paragraph 3 of code 100

the Minister may by notice in the gazette, designate certain Public Entities as BEE Facilitators. In calculatingtheir Ownership score, Measured Enterprises must treat BEE Facilitators as having rights of Ownership held: 

• 100% by Black People; 
• 40% by Black Women; 
• 10% by black designated groups: 
•  without any acquisition debts; and 
• without any third-party rights. 

In other words they can claim the full 20 points for ownership.  I was not aware that this same status could now be used to claim themselves as black for enterprise development purposes.  They however do think this is possible

NEF has been designated as a BEE Facilitator in terms of the Codes.........Since NEF is deemed to be 100% owned by black people, the NEF qualifies as a beneficiary for Enterprise Development.  In addition, in terms of Code 600, payments made by Measured Entities to third parties to perform Enterprise Development  on behalf of the Measured Entities, qualify as Enterprise  Development contributions. NEF is therefore suitably qualified to act as a recipient of Enterprise  Development contributions and to carrying out Enterprise  Development activities.  

They've hedged their bets a bit here - claiming that they are also allowed to perform ED facilities on behalf of measured etcs.  Even though the bets are hedged they are either calling themselves category A or B beneficiaries - I can't find a BEE scorecard that confirms either status (it's based on turnover or contributor level if turnover is more than R35m).

Rule number 1 - GET A BEE CERTIFICATE FROM THE NEF BEFORE YOU DO ANYTHING

The minimum investment amount is R5m and for this you will get a section 18(A) certificate.  Even though they qualify this in a disclaimer remember no more than 10% of your income can be donated for tax deductability purposes.  

It also seems that each contribution will last for five years; viz

The NEF ED Fund will have a 5 year term for each Contributor

I read this as saying that you can contribute R5m upfront and you will accrue ED points for five years for the contribution, subject to the rules.  Effectively a company would have to project five years into the future to get to a cumulative NPAT of R5m.  I'll do the basic maths here:

• Assume that R5m target is evened out over five years.  
• This would mean that for 15 points a company would need to contribute R1m per year (this is 3% of NPAT).  
• Therefore 1% would be R333,333 per year
• Which amounts to a total NPAT figure of  R33,333,333.
• The complexity comes in determining turnover.  However the fine people at BEE-Matrix tell me that the industry average profit margin is 6.17%.  
• The turnover would therefore be R540,248, 514.32 - that's just over half a billion rand - and this is smallest company that can make a contribution.

 

I don't know how many companies there are that turnover this amount of money - but there are at least 10 that the NEF wants to contribute to them on an annual basis (that's 10 x 5 years - 50 companies).

The business case here is flimsy - it'll be a lot cheaper and I think more beneficial for you to hire a decent ED facilitator who might be able to sweat this money more effectively for you.  Someone who understands your business and looks for greater business opportunities in your ED project.

Just as I have done with EMEX - the NEF is free to post a stronger justification in the comments, in the absence of this my advice is to steer clear of it for two reasons

1. there are two many holes in the concept 
2. they are a government organisation, and I don't believe that they can do anything for enterprise development that the private sector can't do better.

The DTI's big stick

Do we need to be concerned about what Rob and the souls are the DTI are sprouting from their mouths,  especially when it comes to enterprise development?

The first thing I paid attention to was Rob muttering  "companies would have to be actively involved in fostering small businesses" in April this year.  I thought this was the stupidest idea ever (amidst all the competition for stupid ideas), and I have not changed my opinion on this.  However it has now found a close competitor.  

This quote is attributed to Sipho Zikode who is the deputy director-general for empowerment and enterprise development at the DTI.  He mentioned this at the launch of the NEF's ED plan (which we need to approach with a great deal of caution).

Zikode gave warning at the launch that there were proposals to increase the requirements of the scorecard. He aimed his warning specifically at so-called qualifying small enterprises.  We have found that some of these companies quote things they were going to do anyway as part of their empowerment efforts and claim that as a credit for participation in the transformation of the economy"

And then threatened us with 

"That is why there is a proposal now that all seven elements will have to apply (to these companies too)."

Let's go back to the first paragraph, it's quite clear that he is referring to enterprise development (he was after all speaking at an ED launch).  Is he saying that ED should be extraneous to your business - like Rob is suggesting.  In other words if you do do something that benefits both your business and the ED beneficiary but it is linked to your business you can't claim the points.  That's how I read this. 

This is quite simply ludicrous.  And again it demonstrates how little the DTI understands both capitalism and how BEE might grow the economy.  Which of course should not come a surprise considering that Rob is a serious player in the SACP.

But then who are we as the people who actually pay the taxes that fund the tenderpreneurs and other scam artists to tell the DTI how to go about BEE et al.  What the fuck, we'll try anyway even though we know that we will be continuously threatened with more onerous policies, taxes and other types of blackmail, for so-called "lack of transformation".  Never once has the DTI actually recognised the BEE strides that the private sector has made in the last four years - it's always another threat and another law.   What the DTI should do is claim (undeserved) credit for what has been done - maybe that's the converse approach.

And so, as a result of a clear lack of understanding, the DTI is going to make compliance even more onerous.  The upshot will be that scores will drop dramatically.  If this should happen I will go on a single person crusade to educate the larger corporates that they cannot expect such great scores under procurement because the DTI have now made it twice as difficult to comply with a concept that they barely understand.