Time to Abolish the Sector Codes

The sector codes have been a problem since the day they were first released. They add no value to the transformation process – in fact many companies use the “imminent release” of a sector code as a reason to continue delaying their own BEE activities. Companies choose to follow a sector code only if it is in their interests. We have complained countless time about the tourism sector codes being inconsistent with the standard codes and not being followed. Many sector councils are dysfunctional. In the case of the ICT sector the minister only appointed the council less than a week ago.

When the amended codes were published as a draft in 2012, the dti stated that the sector councils would be expected to align the sector codes with the amended codes. The dti released some of the codes in 2013 and the remaining codes in May 2015, but to date not one sector code has been finalised.

The process is complicated: Once any sector council has reached agreement with its stakeholders, it drafts its code and sends it to the dti for approval. Then the dti issues it as an official draft in terms of section 9(5) of the B-BBEE Act. There must be a public commentary of AT LEAST 60 days, before the dti and sector council work towards a final sector code which can be issued in terms of section 9(1) of the Act. In reality this takes much longer – sometimes up to a year, and in certain cases the sector code is never finalized.

There are nine existing sector codes. Of those only the tourism sector code has been aligned and released as a draft. The MAC charter, which has never previously been a sector code has also been published for comment. Rumours are that Property is also ready for a draft gazette. Other sector codes are in various stages of disarray (ie the stakeholders are unable to reach a consensus).

The minister’s clarification notice of 15 May 2015 (the one that withdrew the controversial broad-based and ESOPs notice) also has this important paragraph:

(c) Further extend the transitional period for the alignment of Sector Codes to 30 October 2015. From 1 November 2015, Sector Codes that are aligned shall be effective in accordance with paragraph (b) of this Notice. Consideration shall be given to repealing any Sector Codes that are not aligned and ready for gazetting by 30 October 2015.

There is of course no such concept as a transitional period for sector codes. The minister was trying to send a message to the sector council that he considers them a problem and is trying to hurry them up. What is important is the minister will consider repealing the sector codes if they are not ready by 30 October. THEY WILL NOT BE READY AND WE ENCOURAGE THE MINISTER TO ABOLISH THEM.

The Problem
Until the sector code is either repealed or amended, companies in the sector MUST follow the sector code. Right now the Amended codes are in effect for companies not in a sector code. Those companies will be using the new points to levels table and new rules. Companies will drop 3-5 levels, but those in a sector will still be using the old points to levels tale and old but far easier rules. It seems unfair that a large ICT company, a bank, a hotel group, a construction, accountancy or transport company will have far easier codes and earn more points than even a small QSE that has to use the new codes. If the sector codes are never aligned, the Amended codes will have served no purpose. It is possibly understandable that there can be some delays, but at some point the minister has to step in and abolish the sector codes that will not be ready by about April next year – a full year after the Amended codes came into effect. The April deadline will probably effect most sector codes. We do not know how long the sector councils will take before agreeing sufficiently to issue a draft. Even if they are all issued by 30 October 2015, the minimum 60 day commentary period, the holidays, the year-ends of businesses, approvals of ministers and stakeholders is very likely to ensure that the sector codes are ONLY MORE THAN ONE YEAR LATE.

We know what is going to happen if the sector codes are not repealed: Many companies are going to “discover” that they belong to a sector and choose to use the easier sector code than the harsher amended codes. We try very hard to encourage companies genuinely in a sector to follow the sector code – soon we are going to see “sector code” fronting.
In most cases companies will do better by following an old sector code. In some instances – black owned EMEs and QSEs are being harmed by the sector codes not being aligned. A black owned QSE following the Amended codes is automatically level 1, but by following a sector code will have to create a scorecard. This has already led to fronting!

The Status Quo
Until the sector codes are repealed, companies genuinely in those sectors must follow them. In order to repeal a sector code, the minister must give notice of his intention “before issuing, replacing or amending a code of good practice in terms of subsection (1)”. Thereafter he must give the public a minimum of 60 days to comment on his proposal. In other words it will take at least 60 days simply for the minister to repeal and replace a sector code with the Amended codes. If you belong to a sector code you have at least until December, and most likely until end January to continue using that old sector code. In terms of the Act, the sector codes do not end on 30 October 2015 – though we wish they did.

The nine already finalized, but old sector codes are: Tourism, Construction, Transport, Forestry, Property, ICT, Accounting, Finance (FSC) and Agriculture (AgriBEE). In some cases like Transport, Construction, Property and FSC there are multiple sub-sector codes to complicate matters.

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