Opinion piece by Gavin Levenstein, consultant at EconoBEE
This article aims to showcase some of the highlights and low-downs of Broad-Based Black Economic Empowerment in 2009 as well as to give experiential insight into 2010’s expectations.
In the very early days of B-BBEE, many, including myself, thought that by 2009 we would be a long way further than we actually are.
Unfortunately, empowerment has taken a back-seat for many who still do not understand the true implications of Black Economic Empowerment. A case in point is the continuous calls for BEE to become more broad-based. The tragedy is that BEE is already broad-based and encourages businesses to commit more towards true empowerment in the form of Education, Entrepreneurship and Innovation through Procurement.
2009, however, has been the most successful year thus far for B-BBEE. Even though we still had many unresolved issues, it was the first year that saw some of the issues being solved and it also created wonderful opportunities for positive discussion to sort out the rest.
9th February 2009 was the date that the first batch of verification agencies were accredited. Initially, a small batch of only 11 companies were accredited. By the end of the year this number had increased to nearly 30 agencies. Many others had also received their pre-assessment letters.
Even though SANAS has been able to accredit agencies, much confusion still exists. Additionally, documentation accuracy is still in question with many agencies offering different and often contradictory interpretations.
Time delays due to verification agency capacity have been a big gripe for business as well. Most agencies are still very small and have limited time to complete a verification in short periods of time. In general, waiting for months to schedule a verification and then a further few weeks to have a final scorecard issued, is still a reality for most businesses wanting to get a verified BEE scorecard. The largest verification agencies, by company size, are still small when compared to other industries.
The cost of verification is still quite high – this is due to the extremely high cost of complying with SANAS accreditation requirements. 2010 will hopefully see a significant reduction in the total cost of BEE verification.
Self assessment has been an on-going discussion and in some respects empowerment has been wounded most by the self assessment argument. Verification agencies and consultants are fighting to “get the best deal” while true empowerment is suffering.
Verification agencies do not support self assessment which is significantly cheaper and can provide service much quicker than traditional verification. However, consultants who help prepare self assessments have to fight very hard to find themselves market space. The next move forward for self assessment should not be the argument – is it acceptable or not acceptable – but rather how can self assessment help me improve my BEE scorecard. The self assessment is a critical management tool which forms part of the bigger true empowerment picture.
Preparation for BEE verification has previously been misinterpreted; businesses would approach a verification agency thinking that the agency will do it for them. The key when preparing for verification is to have a complete scorecard with documentation prior to the verification. Many businesses that were “caught out” by lack of preparation and received a low score will in all likelihood start preparing much earlier. Similarly businesses that discovered that they could earn easy BEE points, but didn’t because they ran out of time, will actively earn these points.
Business Sense and BEE Sense
Empowerment is a long-term goal that requires long-term commitment in order to see real success. Unfortunately 2009 saw many companies achieving low BEE scores and some were non-compliant. There is not much point in having a verified but non-compliant BEE scorecard. The entire process to becoming BEE compliant requires money that should then be spent on strategic initiatives, without which companies will not see great success. This year we can expect to see many more companies increasing their scorecard level. Now more than ever, the number of points companies achieve have a direct link to the chances of winning a tender or being awarded a contract.
A good BEE scorecard is built on a sound understanding of BEE. In the past many people were quoted as being critical of BEE primarily because of the number of “Ownership deals” and how these deals were structured. These arguments are very likely to continue; however, given enough time most will discover that BEE is actually broad-based, taking into account seven elements – Ownership, Management, Employment Equity, Skills Development, Preferential Procurement, Enterprise Development and Socio-economic Development.
Scorecard optimization was very successful for those businesses that saw the need. Companies that had not done very much last year will certainly start looking harder and further for BEE points. Most important, earning BEE points does not have to cost money. The best areas to earn BEE points are those that are relatively cheap, easy and in many instances can earn further profits. It is best to search for areas on the scorecard that earn points in multiple elements. The best link which is expected to grow substantially is Procurement and Enterprise development extending to Employment Equity and Skills Development.
The PPPFA (Preferential Procurement Policy Framework Act) is possibly the most important act to ensure BEE is implemented correctly. BEE is ultimately accelerated by business and their need to give good service by submitting a BEE scorecard. If governments’ PPPFA did not require a BEE status then far too many businesses would effectively be exempt from producing a scorecard. In August last year, a draft policy was introduced which when gazetted will make BEE scorecards the standard measurement.
Government departments will slowly start implementing this policy, even though the PPPFA changes are still in draft, because of the pressure from the private sector for consistency in adjudicating the tender process.
The very newly introduced BEE Council gives a high level political face to BEE. We are hoping that the council is used correctly by ensuring that empowerment benefits the right people and continues to highlight the positive aspects of true empowerment.
President Jacob Zuma seems to have placed far more emphasis on “True Empowerment”. In all of his comments to the press, Zuma places priority on Skills Development, Enterprise Development, Employment Equity, Socio-economic Development and less emphasis on the direct empowerment which is Ownership and Management.
Complimentary BEE acts such as the Mining act remain a huge problem. In summary these acts are outdated and quite contradictory to the current B-BBEE codes of good practice. The effect has been quite negative. Companies who are legally required to follow these acts must still comply with BEE which creates confusion. This also unfortunately gives companies an excuse not to comply with BEE. These problems will probably persist in 2010.
Other government departments and industries have been hard at work creating different BEE sector codes. Although some have been very well thought out, most still have not been gazetted. The BEE charters much like the contradictory acts cause confusion and gives companies an excuse not to implement BEE. I expect to see more charters being introduced in 2010. I would also expect a number of proposed charters to use the codes of good practice instead.
The industry is in desperate need for a central and consistent knowledge base.
The Dti’s (Department of Trade and Industry) BEE unit has been far from the resource industry needs. Although the unit is significantly better than it has been in the past it does not lead the industry.
SANAS is the accreditation body. They have previously been positioned by the Dti to maintain consistent standards. This has been difficult since SANAS needs to be guided by the Dti. Verification agencies have had a hard time dealing with SANAS, in particularly SANAS will check systems rather than correct methodologies. This is evidenced in the fact that two different agencies will offer two very different interpretations to a relatively simple concept.
Our hope is that the Dti guides SANAS; that verification agencies and consultancies consolidate their interpretations and follow one methodology which is then guaranteed to give the same results.
Private sector commitment
2009 was undoubtedly the best and most productive year for BEE. More companies produced a scorecard, more points were earned and in general true empowerment gained greatly.
2010 should produce better results. Although issues still do exist, as with any other industry, to a large extent BEE has become more important which will result in more compliance. We are also approaching the first 5 year threshold change which will amongst other things see the procurement targets increase from 50% to 70%. With the planned target increases looming, companies need to start planning now to ensure they reach the new targets.
We can also expect to see more corporate and government pressure to implement BEE. BEE in the past was not very competitive. If you had a score you were among a small percentage, now a score is not good enough. If you do not have enough points then you stand the same chance of losing business as if you had no scorecard. The only alternative is to strive to do better on the scorecard.