Stop the confusion – we need clarity – EconoBEE Newsletter – 22 September 2014

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Stop the confusion – we need clarity

We call upon the dti minister to issue a notice as soon as possible about the status of the sector codes, the QSE codes and the amended codes.
The intention is that the amended codes will come into effect on 1st May 2015. The problem is the sector codes and the QSE codes have not yet been issued, with just over 7 months to go to the start date.

The dti has been saying since October 2013 that they will be issuing the codes shortly. Initially it was the first quarter of 2014, then by June, now before the end of the third quarter. This has probably satisfied the minister that the outstanding codes are under control.

There is the possibility that the dti will issue the outstanding codes in time. However the chances are the job will not be done in time. Either way we need clarity. If the codes are not ready, we need to know how the dti will react and what they expect of us – the businesses wanting to support the transformation process. We cannot do this without the minister issuing a notice guiding us.

If the QSE codes are not finalised, do we follow the 2007 codes? What do companies with a turnover of between R35m and R50 million do? The 2007 codes define a QSE as one with a turnover of R5m to R35m. The Amended codes define a QSE as one with a turnover of up to R50m. For example a R49m company is in no man’s land.

Similar issues exist for the sector codes. If they are not ready what set of codes will an ICT company follow? If they continue to use the current ICT codes, it will be quite unfair to all others using the Amended codes. It is a serious contradiction for some companies to be allowed to use the more lenient sector codes while others have to use the amended codes. At the same time it will be unfair to companies in the sectors to be told on 1st May 2015 that they now have to follow the Amended Codes.

We have been saying and have heard rumours that if a sector code is not ready the dti will expect a company to follow the Amended codes. While not perfect this is an acceptable solution. However, the dti minister needs to make this announcement soon! It is already too late for companies to start planning for the amended codes. They could be excused for saying they were awaiting their sector code prior to planning for it!

Let us assume that all sector codes will be ready by 1st May 2015. There is still no harm in the minister issuing a notice as a precautionary measure just in case one of the sector codes are delayed.

We know there is a problem if the minister does announce that sector codes will be scrapped on 1st May, leaving the amended codes as the only code to follow until the new sector code is released. The problem is the sector councils are working furiously to try to release their sector code, and if the minister gives them an out – an extension, they will take their foot off the pedal.

While a delay in sector codes have a potential solution, we see no solution to the potential delay in issuing the QSE codes. If the dti does not get the QSE codes ready, the minister cannot reinstate code 800 of the 2007 codes. We cannot see any solution other than to delay the amended codes by a further 12 months, or exempt all QSEs from BEE, ie extend the threshold of EMEs – and watch fronting increase dramatically!

By delaying the issuing of some of the codes and not thinking through the whole process, the dti has painted itself into a corner.

This really means that short of scrapping the codes completely the dti has to get the QSE codes out in time. Let us recognise that the draft amended codes on 2012 stated that draft QSE codes will be issued shortly after the drafts of 2012, but when the final amended codes were issued, the QSE codes were still not issued as a draft. Nearly a year later the draft QSE codes, now delayed since 2012 are still not available. Even if the QSE codes are released as a draft, it still requires a 60 day public commentary period. Thereafter all public submissions must be analysed and collated. The QSE codes will then have to be re-drafted to take into account submissions received. Since QSEs outnumber generics, and this is an important policy for all businesses, we expect that many detailed and positive submissions will be given to the dti for consideration. With seven months to go, including the holiday season and parliament in recess for 3 months of this time, this is a tall order.

In terms of the B-BBEE Act, all changes to the codes must be gazetted as a draft code in terms of section 9(5) of the act prior to becoming a final codes issued in terms of 9(1).

The sector councils themselves are struggling to draft their own sector codes for many reasons, but also because they have to include QSEs, which they cannot until the QSE codes are finalised.

Lack of clarity will cause loss of transformation. Fewer companies will make the effort.
We urgently call upon the minister to make it clear what will happen as from 1st May 2015.

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EconoBEE Newsletter
 22 September 2014

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    • Stop the confusion – we need clarity

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