THE NEW CABINET, BUSINESS AND BEE

COMMENT FROM KEITH LEVENSTEIN, CEO, ECONOSERV

THE NEW CABINET, BUSINESS AND BEE

“President Jacob Zuma ushered in a new cabinet this week amid much fan fare and finery! Once the media and public enterties in the new order dies down, all eyes will be watching to see just how the new dispensation fares and one of the areas of interest will no doubt be B-BBEE policy.

In his new cabinet announcement, President Zuma has appointed a new Minister of Trade and Industry, Dr Rob Davies. At the same time he announced the establishment of a new ministry focused on economic policy making, called Economic Development headed by Mr Ebrahim Patel.  Another new ministry – quoted by President Zuma as “a very powerful structure”  – is the  National Planning Commission to be headed by Mr Trevor Manuel.
B-BBEE is a very different act to many others, but like many acts consists of two parts:

1) The policy aspect

2) Implementation

At the moment the dti has been responsible for both policy and implementation. The dti is responsible for a much needed act, and an excellent concept with regards to broad-based black economic empowerment, but has been pathetic at moving that policy forward and implementing it.

Policy
Like many acts B-BBEE policy changes rapidly. The act itself is very short, but created the concept of “Codes of Good Practice”. The codes are a working manual of how to become BEE compliant. It is the codes that defined the scorecard, the various types of entities (generic, QSE and EME). It took the dti and its task group nearly 4 years to finally gazette the codes in February 2007.The codes, good as they are, have many weaknesses: There are areas of interpretation which are still undefined. There is no repository of knowledge about the codes and how to implement them. No court has yet been asked to rule on aspects of how to calculate a score, or interpret a particular clause in the codes. The acts allowed charters to be created – codes of good practice for a particular industry. It took until this month – May 2009 for the first three charters – construction, tourism and forestry to be finalised. The codes also speak about verification and the dti has appointed SANAS to accredit verification agencies. Once again it took until February 2009 to get the first batch of agencies accredited. Due to the delay and the inactivity of the dti a private organisation ABVA has taken upon itself to decide how verification should work. It decided, against dti policy, to only allow BEE certificates that had been produced by its members. After a complaint was lodged by this author with the Competition Commission ABVA change its policy somewhat to only allow certificates which had been produced by organisations that had applied to SANAS to become a verification agency knowing full well that it was only their members who had applied.

The dti has steadfastly refused to issue gazetted clarifications, and comments by its staff are often contradictory. (The chief director of BEE was quoted in the press as saying self-rating is acceptable and if a company required a certificate from its supplier it should elect to pay for the cost of that certificate.)

There are other, more important aspects of where the dti has failed in its policy. The BEE act and codes conflict with many other acts, i.e. the PPPFA, the mining act, and petroleum act. The objective of the B-BBEE act should be to ensure consistency amongst government departments. The dti has failed. The mining act (coincidentally called the mining charter) is in direct conflict with the BEE codes. A mining house must therefore follow two contradictory acts with vastly different requirements in order to become BEE compliant. Until recently even enterprises like ESKOM chose not to follow the codes. The dti had told us how difficult it is for them to get ESKOM to change – their chain of command goes from the DG to the minister to the minister of public works to the DG to ESKOM. Long ago the financial sector has proposed a financial charter. This charter tried to use definitions and targets that were in conflict with the codes, and as a result was never gazetted. Nevertheless many banks chose to use the financial charter, with the blessing of the department of finance.

To some extent the dti was the wrong ministry to create BEE policy and implement it across all departments and private enterprise. The new ministries, especially economic development, but also national planning would be better placed to try to get the various departments working together to produce a consolidated and consistent method of becoming BEE compliant. Trevor Manuel was a competent finance minister, but proved not to support the B-BBEE codes. One can only hope that in his new position he will ensure consistent planning.

It would appear as if it will be these three ministries that will be most concerned with designing and implementing B-BBEE policy. Because of this, I would not be surprised to see BEE being moved to the Economic Development portfolio as BEE is essentially an economic development policy.

Implementation
In addition, comments like “BEE should be implemented from grassroots level, not from the top downwards.” are being made, that I think are not entirely negative and in fact indicate  an appreciation that real B-BBEE comes from empowering the majority not only a small percentage of the population.

I have always stated that it’s a pity that the BEE codes did not start with the elements in the reverse order – in other words with a focus more on Socio-economic Development (SED), followed by Enterprise Development (ED) then a focus on Procurement, Skills Development and Ownership.

It would seem that the first murmurings from our new cabinet indicate revived focus on BEE issues and this will mean business will need to do the same.

The point I wish to make here is that sometimes enterprises themselves are to blame, not necessarily government, for the poor implementation of BEE in the past. The policy itself is well thought out and I believe is excellent but the way that many companies have gone about the implementation in the past is not only poor, often it makes no business sense. I can never understand why a company will, for example, sell shares at a huge discount and in the process earn very few BEE points at a high cost to themselves. They have so many other alternatives that do earn more points, cost less and will have a far bigger beneficial impact on the country and their own company. For example, why not spend money on skills development for employees? It will increase productivity, allow room for personal development and help the company become a lot more compliant than simply selling shares to a big investor.

Many commentators complain that BEE enriches a small handful of businessmen. I do not deny that some businessmen (both black and white) have become wealthy as a result of the BEE policy of certain companies. I simply question those companies as to WHY they chose to implement such a policy. They could far easier, and more cheaply have earned points on other areas.

What is even worse is that some of the share deals are under water due to the JSE dropping. This means that the entire shareholding deal of some companies is going to cost them more money, and will earn them absolutely no points. This is due to enterprises making wrong decisions about how to implement the BEE policy, not because the policy itself is bad.

It is my feeling therefore that to a large extent the criticism and sometimes fearful reaction to BEE issues should be directed at business and not the government and the time is right now for business to work hand in hand with the new dispensation to promote implementation of BEE from the grassroots level upwards!

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