Comments on BEE Advisory meeting held on 20 September 2012 – Narrow-Based BEE makes an unwelcome return

Original publish date – Tue, 25 Sep 2012 07:29:42 +0000, Keith

It was reported that the President chaired a meeting of the BEE Advisory Council on 20th September 2012. See http://www.info.gov.za/speech/DynamicAction?pageid=461&sid=30860&tid=84460

Interesting aspects:

The long awaited BEE Amendment Bill has again been delayed. It was initially reported that it would be submitted to parliament some weeks ago. Current reports are that the bill is with the State Law Advisors. Thereafter the portfolio committee will hold public hearings. The chances that it will be enacted into law this year law are now diminished.

The council also reported on the proposed revisions to the codes. Note: once the revisions are gazetted they will be open for public comments and only after that process will they become a final code of good practice. This takes up to a year. It has already been reported that the codes will be reduced to 5 elements.

Controversial features:
EMEs and QSEs that are 100% black owned will be level 1

EMEs and QSEs that are more than 50% black owned will be level 2

The above is going to be quite controversial. Currently EMEs (exempt micro enterprises – annual turnover less than R5 million – depending on industry) have been regarded as level 4, and EMEs that are more than 50% black owned are level 3. All QSEs currently need to produce a scorecard by choosing 4 elements. The proposal by the BEE Advisory Council is to exempt all black owned businesses from BEE requirements if they are EMEs or QSEs. The highest level of compliance is level 1, and any 100% black owned QSE business is automatically level 1.

This takes us way back to the bad days of narrow-based BEE – where the only criterion was black ownership. We liked broad-based because it supported the economy, employees, skills, enterprise development and society via socio-economic development. We disliked narrow-based because it only looked at black ownership, and it was a major cause of fronting and corruption. We accepted the slight benefit given to black owned EMEs, as it was seen as enterprise development.

We are very unhappy with a blanket dispensation given to all black owned QSEs to exclude them from BEE requirements. It will encourage fronting and it is counter productive to the aims and objectives of the B-BBEE Act.

Background:
There is some background to be taken into account. The PPPFA (Preferential Procurement Poicy Framework Act, the act governing all statement procurement and tenders, had never fully followed B-BBEE principles or the codes of good practice. Tenders were adjudicated on the basis of black ownership and management only. There had been calls for many years to align the PPPFA with the B-BBEE act, i.e take into account the B-BBEE status of the service provider – using broad-based principles. Finally in 2011 the finance minister issued new PPPFA regulations to take B-BBEE into account. This caused an out cry from some black businesses – that they would lose out on business because they either did not have a good BEE status, or that other “white” owned businesses were able to compete by also obtaining a good BEE status. As a result, when the new PPPFA regulations came into effect on December 2011 to align the PPPFA with B-BBEE, the finance minister issued an exemption to all SOEs (state owned enterprises) allowing them to continue their old methods of evaluating tenders. This exemption is due to expire in December 2012, and makes nonsense of government’s intention of streamlining and reconciling all government regulation in line with BEE principles.

There has obviously been a lot of lobbying by vested interests to solve the PPPFA problem. The finance minister cannot easily continue issuing extensions, and the big parastatals cannot be seen to be going against BEE principles. For example even though Eskom also has this PPPFA extension it continues supporting B-BBEE principles. This has obviously been a problem for many black owned businesses that refuse to obtain a better B-BBEE level than their opposition.

The solution to the above problems is now contained in the revised codes. According to the BEE Council, majority black owned QSEs are to be exempted from BEE. It’s an elegant political solution, but is going to harm true transformation.

Remember that QSEs (companies with an annual turnover of generally less than R35 million) make up the majority of businesses in South Africa. At the same time we note there are too few black owned businesses – especially QSEs, and we do encourage the creation, development and support of black owned businesses. A black owned QSE can easily reach a high BEE level, and if it has a turnover of say R20 million, it can be argued that it has as much a duty to contribute towards true empowerment by obtaining a good and valid BEE certificate as anyone else. It was acceptable to give a small benefit to black owned EMEs – level 3 instead of level 4, but to give a 100% black owned QSE a level 1 is too much.

 

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