Incorrect implementation of BEE could cost R550bn per annum – EconoBEE Newsletter – 21 September 2010

EconoBEE - BEE Points = Business
Incorrect implementation of BEE could cost R550bn per annum

A recent study conducted by Stellenbosch University highlighted the impact illiteracy is having on the SA economy. Their findings are staggering. As a result of the poor education quality the economy is significantly worse off. They say that if the quality of schools were where they should have been the GDP would be 23 to 30 percent higher.

Incorrect BEE implementation could indirectly cost the SA economy more than R550bn per annum. This is in stark contrast to the estimated BEE Ownership deals cumulatively accounting for R550bn.

The root cause of these problems lie in policies implemented 30 to 40 years ago. In the norm those people affected are black people.

Broad-Based BEE is the solution. The Skills Development element encourages companies to invest in training their staff. Increased training can also result in better quality service and products, more efficiency and happier staff.

Eligible training includes;

  • in-house training
    • associated training expenses such as travel or accommodation
  • formal training
  • informal training
  • ABET
  • Learnerships

ABET has specifically been taken into account in the B-BBEE Codes of Good Practice. Significantly, any spend on ABET training results in an enhanced claim of 125% which means the actual value of spend is less than the value claimed on the BEE Scorecard. Although this looks like a loophole, the BEE Codes have deliberately included the enhanced spend based on known “problem areas”.

The B-BBEE Codes of Good Practice have been designed incredibly well. They take into account many of the problems we are currently facing and they encourage businesses to take the lead and make South Africa a great place to live.

Latest information, tips, tricks and how to earn points for BEE Procurement and Enterprise Development – more info…

B-BBEE is not a box ticking exercise

Many people often refer to B-BBEE as a “box ticking” exercise. They use this to explain why B-BBEE can’t work, doesn’t work, won’t work. Some use it to justify the need for a change in B-BBEE policy.

The fact of the matter is B-BBEE is no box ticking exercise. You do not earn BEE points by ticking various boxes. B-BBEE is a policy that measures the success of many transformation indicators. It is similar to a company’s financial statements. No one would say that producing financial statements is a typing exercise, or that applying for a loan a box ticking exercise. If a company has an annual turnover of R1billion and a net profit of R75 million, then while the financial statements may only show numbers, those numbers have huge meaning and a long story behind them. To turnover R1billion implies people have worked hard to find customers, make sales, produce goods or services and supply them to their customers. To make a profit means careful analysis of costs and turnover.

In the same way a company that states “Level 2″, is not just writing something on a piece of paper. It means that the company had made serious efforts in many areas – ownership, management, employment equity, skills development, procurement, enterprise development and socio-economic development to achieve that Level 2. They may have spent R750 000 on donations to charity. They may have spent R3 million on staff training. They may have contacted 3000 suppliers to request their scorecard. A significant amount of work was done in order to reach their Level 2. It was definitely not just ticking a box on a piece of paper.

The financial statements give a good indication of the financial well-being of a business. The statements are not always perfect – there could be errors, or the full story may not be included in the statements. Items such as customer goodwill are not easily measurable, and external factors are not always taken into account. By and large the financial statements reflect as best the financial situation of the business as can be expected.

The same again goes for a B-BBEE scorecard. The scorecard tells a story – how transformed the company is. It is not always entirely accurate and sometime ignores aspects of transformation that some companies consider important. It is based on nearly 40 indicators, and is a far better indicator of the progress that a company is making than a subjective assessment.

It can be argued that some indicators are allocated too much importance on the scorecard, or too low an importance. It can be said that some of the weightings are too low, or the targets too low and easy to achieve. It can be said that the rules and interpretations are too loosely defined. If any of the above is true, all it means is that by discussion and negotiation those rules should be changed, the weightings and targets adjusted. It does not mean that B-BBEE needs an overhaul, or that the concept of a scorecard is wrong. If we need more indicators, we should add them. If B-BBEE is too complicated, with too many indicators, some should be removed.

As it stands the scorecard covers those seven elements, with nearly 40 indicators. Many of those indicators are closely linked to other indicators making it more difficult to front or misrepresent the score. Each indicator and element certainly does provide an excellent indicator of the progress that a company is making and helping their country towards true transformation.

Almost every complaint about B-BBEE can be answered by looking at the indicators, for example “It enriches only a few”. Not so – if only a few people are involved in an ownership deal, the company will only earn a few points. The only way to earn lots of points is by working on all the elements.

The indicators award points for diverse activities, such as “black new entrants” – including people in an ownership deal who are “new entrants” i.e. have not done any big deals previously. Points are awarded for employing black disabled people, and bonuses for training those disabled people. Points are awarded for purchasing from small businesses, black owned and even black female owned businesses. Points are awarded for helping small businesses and donating to certain charitable institutions.

If one had to try to identify what is needed to transform the country, they would probably come up with the exact B-BBEE policy that we have – and it is no box ticking exercise.

DMR announced their newly updated Broad-Based Socio-Economic Empowerment Charter last week.

The purpose of the BBSEE charter is to fast track empowerment in the mining sector. The DMR has traditionally bypassed the dti in the implementation of its empowerment charter and this charter is no different.

The essence of what the DMR is trying to achieve is good. They have highlighted areas of concern and set targets for mining companies to achieve. If they do not achieve the targets they stand to lose their mineral rights or never be issued/re-issued with mining rights.

If we compare the initial versions of the Mining Charter to the latest, it is clear that the DMR has made great leaps forward in their thinking and approach to empowerment. Unquestionably it has become more broad-based. It has also placed (slightly) less emphasis on Ownership alone but also includes forms of Skills Development and Employment Equity.

The next logical step for the mining charter would be a consolidation into the current B-BBEE Codes of Good Practice although it is unlikely that the DMR will hand over their charter to the dti.

Mining companies will need to pay attention to these new changes and make absolutely certain that they meet the new targets.

Download a copy of the latest Broad-Based Socio-Economic Empowerment charter from our website. Mining Scorecard and Mining Charter.

Earn BEE Points – BEE Procurement and Enterprise Development

Some of the easiest and most attainable points on the B-BBEE scorecard can be achieved through BEE Procurement and Enterprise Development. If done correctly these two elements alone can help you reach a compliant level. Better yet, it is possible to earn the points at a fraction of the cost of other elements on the BEE Scorecard. Get the latest news, information, documents, tips & tricks and earn points on BEE Procurement and Enterprise Development.

EconoBEE is hosting the third annual BEE Procurement and Enterprise Development Conference this November. Book early and take advantage of our early bird specials.

How to be “verification Ready”?
Use our pre-prepared “Verification Ready” documents and templates in your business – contact us for more.

While there is demand for a BBBEE Scorecard someone will be taking advantage, shouldn’t that someone be you…

Want us to manage your BEE Process – simple 10 steps to BEE Compliance.

Not sure how to get a BEE Scorecard, click here to see a demonstration of how best to produce your own BEE scorecard.

Turnover below R5 million – find out how to get your BEE Exemption.

Is BEE procurement a pain? Sort it out quick and easy – click here.

EconoBEE Newsletter
21 September 2010

In this issue

  • Incorrect implementation of BEE could cost R550bn per annum
  • B-BBEE is not a box ticking exercise
  • DMR announced their newly updated Broad-Based Socio-Economic Empowerment Charter last week.
  • Earn BEE Points – BEE Procurement and Enterprise Development

In other news

About EconoBEE

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Gavin and the EconoBEE Team

Executive summary of B-BBEE

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