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BEE in the KnowOur fortnightly newsletter "BEE in the Know" provides you with practical insights into everyday BEE issues. You can download issues or subscribe here >

Have you considered Year 6 target revisions?

October 26th, 2011

As the implementation date for increased BEE targets approaches, practitioners are still unsure about when the new targets become effective.  The Codes of Good practice define stepped targets for the elements of Employment Equity and Procurement and stipulate simply that they should be applied from Year 6 to Year 10.

But the commencement of year 6 has been interpreted differently even within the dti.   Reports from the BEE unit have indicated with equal authority that:

-          Year 6 is determined by counting 6 years from when the measured entity first received a verified BEE Certificate; and in contradiction

-          Year 6 is determined by counting 6 years from the date that the codes were implemented i.e. 9 Feb 2007

Even if this conflict is resolved, it has yet to be determined whether the targets should be measured at the conclusion of 6th year, or for all certificates issued from the commencement of the 6th year.

Our view, is that the targets become applicable from the commencement of year 6, calculated from the date of implementation of the codes.   In line with this view, a measured entity must achieve the higher targets during the 6th year of implementation, and at the conclusion of the Year 6 financial period the achievement of the higher targets would be verified.   Year 6 commences on the 10 Feb 2012.

So if your company has a February year-end, then the first BEE Certificate issued on the new targets would be for the financial period ended 28 February 2013.

The targets affect the Employment Equity and Procurement elements as follows:

 

Generic Scorecard

QSE Scorecard

 

Years 0-5

Years 6-10

Years 0-5

Years 6-10

Employment Equity

       

Black Disabled employees

2%

3%

N/A

N/A

Black Senior Management

43%

60%

40%

60%

Black Middle Management

63%

75%

Black Junior Management

68%

80%

All Black Employees

N/A

N/A

60%

70%

         

Preferential Procurement

       

All Suppliers

50%

70%

40%

50%

QSE and EME Suppliers

10%

15%

N/A

N/A

Black Owned Suppliers

15%

20%

N/A

N/A

 

Once these targets become measurable, companies that have not increased their compliance may find themselves dropping a level or two on the scorecard.


Understanding Preferential Procurement

October 26th, 2011

The preferential procurement element is fundamentally simple, yet many measured entities find the variables confusing.  Listed below are a few key elements about preferential procurement.

How to score points?

Points are awarded when a company can prove that it has spent money with suppliers that have made a B-BBEE contribution.  This contribution is demonstrated through the provision of a  B-BBEE certificate.  

Certain categories of suppliers are counted twice on the scorecard or receive enhanced recognition; for example, if R100 is spent from a QSE that is black-owned, the spend is recognized three times on the generic scorecard. If that supplier is considered a value-adding supplier, the R100 is multiplied by 125%.

A value-adding supplier is a supplier whose net profit after tax, combined with labour costs, exceeds 25% of its turnover. Therefore, businesses with a high labour cost and high profit margins are more likely to be considered value-adding suppliers.

The target on which recognition is based is derived from the total amount of money spent by a company in the financial period, known as the Total Measured Procurement Spend (TMPS).  Certain categories of expenditure can be excluded from the TMPS, thus reducing the target. The number of points awarded for PP can be increased either by spending more money with BEE suppliers or by reducing the TMPS.

Codes, Targets and Indicators

Preferential Procurement can contribute a maximum of 20 points on the B-BBEE scorecard for Generic Enterprises and 25 points for Qualifying Small Enterprises.

This generic scorecard has 3 indicators:  General procurement indicator, QSE and EME indicator, and Black- owned indicator.  The last indicator is divided into Black-owned suppliers and Black Women-owned suppliers.

How points are lost in procurement?

-          Using non-compliant suppliers

-          Compliant suppliers are unable to prove their compliance with a suitable BEE certificate.

-          Failure to use EMEs and QSEs in the supply chain of generic scorecards

-          Inadequate records of spend per supplier

-          Not understanding what can be excluded from Total Measured Procurement Spend

-          Overstating spend per supplier by incorrectly including VAT

For detailed information on Preferential Procurement, click here to read our BEE Guide and for an easy explanation on the calculations, read our article
in Issue 6.


BEE Compliance Notice: December deadline

October 26th, 2011

The following notice was recently issued on the South African government website, stating that the Gauteng Provincial Government (GPG) is in the process of updating its Central Vendor Database with all mandatory vendor requirements in particular the B-BBEE (Broad-Based Black Economic Empowerment) Certificates and Tax Clearance Certificates.

“All business owners and suppliers currently conducting business with GPG are required to be B-BBEE Compliant by 7 December 2011.

The aim is to ensure that service providers keep their active status of continuing to conduct business transactions with government.

Suppliers are encouraged to submit their B-BBEE certificate or a letter from a professional (i.e. a bookkeeper or accountant) immediately to avoid that last minute rush.

Any South African National Accreditation System (SANAS) endorsed BEE (Black Economic Empowerment) rating company can assist service providers in obtaining a valid B-BBEE Certificate. Service providers are requested to update their company profile urgently by providing a valid B-BBEE Certificate (only SANAS approved) as well as a valid and original Tax Clearance Certificate.

Exempt Micro Enterprises (EME’s) are not compelled to submit a B-BBEE certificate but a letter from a professional (i.e. a bookkeeper or accountant) bearing the professional’s practice number. The letter must confirm that the Exempt Micro Enterprise (EME)’s turnover is less than R5 million per annum.

The implications of not submitting either the letter or the B-BBEE certificate is the forfeiture of Preference points and hence, putting the company in a disadvantageous position in both Request for Quotation (RFQ) and Tenders.

The update of information is free and to the benefit of all parties.”

Sourced from www.info.gov.za.  See notice – click here.

 


Registered auditors enter BEE verification industry

October 6th, 2011

On 23 September, government legislated an amendment to the Codes of Good Practice which gives Registered Auditors in addition to SANAS accredited Verification agencies the ability to issue BEE Verification Certificates.   Previously, only a verification agency accredited by The South African National Accreditation System (SANAS) could issue BEE Verification Certificates.

Effective immediately, auditors registered with the International Regulatory Board of Auditors (IRBA), may apply to IRBA to obtain approval to issue BEE Verification Certificates.  Approval to do so is granted at IRBA’s discretion, after taking into account:

-  The applicants standing with the Regulatory Body;

-  The applicants compliance with IRBA’s prescribed Code of Professional Conduct, Standards of Quality Control and Assurance Standards;

-  Evidence that the applicant has completed the Standardized B-BBEE Management Development Programme and Certification offered prescribed by the  dti;

-  The applicants compliance with the Verification Manual;

-  Whether the applicants has met the minimum Level 3 B-BBEE Contribution

Once approved by IRBA, the applicant becomes an “Approved Registered Auditor” (for B-BBEE) and may issue recognized B-BBEE Verification Certificates.

Existing B-BBEE verification agencies approved by SANAS, retain the ability to issue recognized B-BBEE Verification certificates, having already complied with similar requirements under the direction of SANAS, and not IRBA.  Applications for new verification agencies by non registered auditors or auditors choosing to be accredited by SANAS will continue to be accepted by SANAS.

The entry of auditors into the profession is welcomed as it provides both an injection of capacity and an additional barometer of quality to an industry critical to the success of transformation in South Africa.

Go here for the full amendment.


Verification manual upheld as minimum standard

October 6th, 2011

Measured entities hoping for a more relaxed BEE verification environment through the entry of Registered auditors will be disappointed with the latest announcement by the dti.   On 23 September, government legislated an amendment to the codes of good practice which gives Registered Auditors in addition to SANAS accredited Verification agencies the ability to issue BEE Verification Certificates.   In doing so however, government has re-affirmed the sanctity of the Verification Manual (Gazetted in July 2008) as the minimum standard for determining BEE contributions.

The Verification manual codifies the minimum procedures to be performed when conducting BEE verification.  Some practitioners have argued that the manual is too rigid, driving up the cost and complexity of BEE verification.   It was hoped that the entry of auditors would usher in a more reasonable dispensation, influenced by a pragmatic approach under the skilled hands of registered auditors.   But Section 8 of the applicable new statement 005 requires that “the Verification Manual shall be applied as a minimum guideline when performing B-BBEE Verification and determining the B-BBEE rating to be awarded”

The re-affirmation that the verification manual is king ensures at least that registered auditors and SANAS accredited Verification agencies are working from the same base methodologies.

Whether or not the dti will publish other amendments to the codes clarifying the numerous interpretive variations remains to be seen.  Among the most urgent are interpretations around shorter payment periods for Enterprise Development; a final word on cumulative Enterprise Development measurement; clarification on the application of Year 5-10 targets; and the widely controversial recognition of discretionary trusts for Black Ownership.


IT systems simplify BEE process

October 6th, 2011

A vision by an automotive industry veteran, passionate about transformation, has led to innovative BEE IT solutions.

In 2003 a requirement existed to establish an IT system that would enable an assessment into the state of transformation within the automotive industry, and today, BEE IT systems are an integral element of the Mpowered business strategy.  These continually evolving systems have become the benchmark for BEE IT systems, through encouraging consultants and IT developers to work closely together addressing the needs of corporate South Africa.

The company now offers a range of services addressing various BEE IT needs, including the BEE Toolkit, the Supplier Management System and a Scorecard Certificate Database Solution.

1.     The BEE Toolkit is designed to manage the BEE process, from scorecard tracking and measurement up to the point of independent scorecard verification. The functionality of the system includes a scorecard calculator (for ongoing continuous scorecard measurement and tracking), a gap analysis and a scenario planning tool, a project management tool and functionality that allows companies to manage the process of preparing for the verification of the BBBEE scorecard. The BEE Toolkit allows companies to manage their B-BBEE process via a single user interface.  

2.     The Supplier Management System is designed to automate and manage the Preferential Procurement scorecard process. It enables companies to automate the process of calculating their Preferential Procurement scorecard and to maintain the B-BBEE status of their suppliers.  This system is designed to address the management of two sets of dynamic data required as input to the Preferential Procurement calculation, namely supplier spend and the BEE compliance of suppliers.

3.     Mpowered has launched a scorecard certificate database technology solution used by specific industries and specialist organizations to create industry specific databases of B-BBEE scorecards. This solution is offered as a value-added service to an industry, whereby industry stakeholders participate in sharing B-BBEE scorecard information via one central database. This enables Mpowered clients, and the public, to easily search for supplier B-BBEE scorecards, and it enables industries to track the B-BBEE compliance of their industry sectors. All industry scorecard databases are linked, thereby, enabling various industries to access the B-BBEE scorecards of entities across many supply chains. The objective of this database is to offer accredited B-BBEE verification agencies a one-stop solution for publishing client scorecards into a central database, thereby improving their internal process efficiency.

BEE IT systems thus streamline, what has become a largely manual and administrative process, freeing up functional experts, such as transformation managers or BEE scorecard champions, to focus on providing value back into the business, with the objective of driving real transformation.   These systems also provide managers with visibility of scorecard compliance across the organization at any time; on the basis, visibility enables managers to establish accountability for achieving transformation objectives and targets. 

Bruce Rowe adds, “We are seeing companies moving toward a much more pro-active approach in managing BEE compliance. As companies have improved their understanding of BEE and transformation, they are seeking value from the process.  The principles of BEE and transformation are closely aligned to the global concept of sustainability, and from a governance point of view, sustainability must become a key business imperative.  The BEE Act and the Codes of Good Practice have become a great catalyst for driving transformation in South Africa.”

For more information, go to www.mpowered.co.za


In the Media

September 23rd, 2011

This issue reflects on current and significant BEE issues in the media

We felt that this issue should be central to the media due to the volume of BEE issues at present. Here follows a couple of the most significant articles.

Cabinet to draft BEE bill soon

The Cabinet is expected to start deliberations on a draft empowerment bill next week, aimed at overhauling transformation in the manufacturing, retail and agricultural sectors.

The bill proposes amendments to the black economic empowerment (BEE) legislation such as the criminalisation of fronting, and speeding up transformation in the three targeted sectors.

It also seeks to move beyond mere ownership and look at ways in which black people will play a meaningful role in procurement and production processes.

The director-general of the Department of Trade and Industry, Lionel October, said black people had been involved in the running of factories at a floor manager level and understood production processes.

“There was a conflict of legislation which saw industries in the retail, agricultural and manufacturing (sectors) avoid empowerment. We will shift empowerment to production and move BEE from the margins to the mainstream. The policy was not strong on retail and manufacturing,” he said.

The bill seeks to put a greater emphasis on using skilled black workers, and helping them start their own businesses.

The flaws in the Broad-based BEE Act resulted in companies avoiding implementing BEE measures. The draft bill aimed to reverse that and would ensure that BEE was not just about government contracts and licences, he explained.

To read the rest of the article, click here.   

Department of Labour embarking on annual EE roadshows

The Department of Labour is targeting a 25 percent increase in the number of employment equity (EE) reports to be analysed for the current reporting cycle – and to achieve this it will this month embark on a national roadshow hosting a series of workshops with stakeholders.

Department of Labour EE Advisory Unit assistant director and project leader of the roadshows Zoleka Ntshoza said it was imperative to host the roadshows to create awareness in relation compliance with the law and help employers on how to follow requirements of the Act. She said the goal was to promote equal opportunity and fair treatment in employment through the elimination of unfair discrimination.

In the EE reporting for 2011 only larger employees, those employing more than 150 employees are expected to submit their EE reports. The EE Unit of the Department of Labour plans to analyse 4 211 EE reports compared with 3 369 reports in the 2009 reporting period.

The EE reporting for 2011 will exclude smaller employees, those that employ between 50 and 149 people because they report bi-annually. Submissions for both manual and online submissions opened on September 1. The closing date for manual submission is 03 October 2011 and online submission 16 January 2012. 

To read the rest of the article, click here.    

In the News…..

Speaking at the Confederation of Black Business Organisations (CBBO) two weeks ago, President Jacob Zuma said, “The unity of the business sector is paramount in ensuring the achievement of the transformation goals. As government we need a unified and united business voice to work with.   We have achieved a lot in less than two decades of democracy at political, social and economic levels.  However, we have not achieved the economic transformation that is outlined in the Freedom Charter, to achieve a society in which all share in the country’s wealth”.

 

BEE IN THE KNOW – evolving with the BEE movement

In 1951, The Drum magazine was created and became the first anti-apartheid magazine that advocated the belief in the freedom and the power of the press to faithfully report conditions as they were rather than what the government of the time would have you believe.  Many of the stories told in the magazine created awareness and although took place within a historical context, they were not meant to be an analysis of history.  It was more about the evolution of society than a commentary of a single stagnated point in time.

BEE, personally, is part of the same equation. 

IQuad created BEE IN THE KNOW almost two years ago and the goal was to provide informative coverage on all B-BBEE related issues, from a topical, technical and a human interest level in order to provide you with current (albeit sometimes critical) information, as well as see the positive impact that it has had in our country.  We feel we have achieved this goal, but just as any new venture develops, it is an ever-evolving learning curve.

B-BBEE is one of the biggest, most controversial and yet one of the most beneficial developments that South Africa has ever implemented.  The government still continue to refine, debate and balance the challenges of the future and successes of this process and it may very well take another few years to get it right.

The main goal therefore, whether it is with a magazine, a newsletter or a controversial development iniative, is to continue to strive to improve, refine and learn from the past.  As for BEE IN THE KNOW, we are only just beginning.

And some Further Interesting Reading

BEE Deal an example of how not to do it

http://www.thenewage.co.za/29165-9-53-Sasol%E2%80%99s_BEE_deal_an_example_of_how_not_to_do_it

A response to Zuma’s speech above.

http://www.news24.com/SouthAfrica/Politics/Zuma-Black-people-have-no-opportunities-20110907


DTI, UNISA and WITS create Management Development Programme

September 9th, 2011

The B-BBEE Management Development Programme (MDP), created by the dti and Unisa School of Business Leadership (including Wits), has recently been launched.

The Department of Trade and Industry (the dti) partnered with these two prominent institutions to develop a standardised national Broad-Based Black Economic Empowerment (B-BBEE) Management Development Programme (MDP). The program gives impetus to institutionalisation of B-BBEE, within the economic system, and to professionalise the current B-BBEE industry.

This short learning programme at NQF Level 7, equips middle level managers with informative ways of becoming team players and achieving their goals within their relevant organizations.  According to Unisa, the programme is designed to facilitate an understanding of and the ability to integrate and apply the key competencies required for each of the functional areas of business.

The requirements are that the MDP students must be managers, with at least three years’ managerial experience, who have been assigned by their companies for further development. The course will give the managers the knowledge and skills that are crucial in various key areas of business management.

The dti’s goal behind creating this programme is also to develop a national standardised knowledge base that capacitates the entire B-BBEE industry, which includes B-BBEE Consultants, B-BBEE Verifiers, Private and Public Sector Practitioners.

Applications, for the one-year course, opened 1 September 2011.  You can register at Unisa or at www.bbbee.traininggateway.co.za.  If you are interested in assigning managers from your organization for this course or require more information, please go to www.sblunisa.ac.za or www.dti.gov.za.


Employment Equity is not B-BBEE

September 9th, 2011

It is a Legislative requirement

1 October Deadline

Many people tend to confuse Employment Equity with BBBEE. Employment Equity is  Legislative requirement and compliance is not negotiable. As such the legislation requires companies with more than 50 employees or companies who’s turnover is more than the Industry Threshold to complete a submission to the department.

Although Companies are encouraged to become BBBEE compliant, this is a volantary audit process that results in a rating and certificate.

Employment Equity requires that a report be submitted to the Department of Labour by 1 October and includes the following:

·         Employee profile

·         Employee movement

·         Employee development

·         Barriers to Employment Equity

·         Goals and Targets

·         Income Differentials

In addition to the legal requirement, a submitted Employment Equity report is necessary to the the Employment Equity element of a BBBEE audit process.

Sourced from On Target Consulting.

 

 


Remembering Socio-Economic Development

September 9th, 2011

How to score points?

Points are awarded for this element when a company can demonstrate that it has initiated and implemented a contribution to a group of black beneficiaries with the objective of facilitating sustainable access to the economy for those beneficiaries. At least 75% of the value of the contribution must directly benefit black people within the group.

Socio-economic development is weighted as contributing 5 points under the Generic Scorecard and 25 points under the QSE Scorecard.

How points are lost? 

-          Lack of record keeping for contributions made

-          Unable to prove race of beneficiaries

-          Contributions made outside of the period of measurement

-          Incorrectly calculating the target expenditure where a company is not profitable

-          Not understanding the impact of cumulative recognition[1]

Additional considerations in Socio-Economic Development

SED programmes take the following forms:

a)     Development programmes for women, youth, people with disabilities or living in rural areas;

b)     Support for healthcare and HIV/Aids programmes;

c)     Support for education programmes, resources and materials at schools, bursaries and scholarships;

d)     Community training skills development for unemployed people and adult basic education and training; or

e)     Support of arts, cultural or sporting development programmes.

Contributions made to entities with 75% or more non-white beneficiaries will be given 100% recognition.  If there are less than 75% non-white beneficiaries, the contribution will be recognised as the % that accrues to non-white beneficiaries.

For more information on all the elements, please refer to our BEE Guide.

 


[1] The Codes of Good Practice stipulate that ED and SED contributions must be measured cumulatively from the inception date of the Codes i.e. 9 February 2007 to the measurement period.  During 2007, the DTI released an interpretive guide which promoted the measurement of ED and SED contributions either as being measured accumulatively or only in the period of measurement. This guide was subsequently withdrawn but the practice of not using cumulative targets continues, albeit incorrectly.  There is a movement in the industry to eradicate this practice.


PPPFA: Is Level 4 Good enough?

August 19th, 2011

The difference between a level 3 and level 4 can have a massive impact on your company’s profitability.   Wayne Oosthuizen, CEO of Engeli Enterprise Development highlights some interesting facts about the evaluation of tenders in terms of the PPPFA.

We discussed the new PPPFA in Issue 34 here.  It must be applied in the adjudication of all tenders from 7 Dec 2010.

A number of companies may say that this does not affect them as they do not supply goods or services to public entities, but cognisance must be taken of the large market opportunities that will be coming through the public sector domain against the backdrop of the uncertain international economic trends and the cut in spending by private companies. Essentially spending will be driven by the public sector and the State Owned Enterprises in the foreseeable future. Also, even if your company does not supply directly to public entities, your customers may and thus it is inevitable that your customer would place pressure on your company to comply in order for them to improve their B-BBEE scores through the Preferential Procurement element of the scorecard.

The number of preference points allocated on the basis of B-BBEE varies depending on the size of the tender.   The parameters for tenders valued between R30 000 and R1 million are adjudicated according to the 80/20 (price/B-BBEE score) rule. The previous upper limit was R500 000. For tenders above R1 million, the 90/10 (price/B-BBEE score) rule will be applied.

Essentially, there is generally a two-tier adjudication process where initially the tenders submitted will be adjudicated against objective functionality criteria, if required. Those tenders that achieve a minimum functionality score would then be adjudicated on the price/B-BBEE score mechanism and the company with the highest price/B-BBEE score will win the tender. If the price/B-BBEE scoring between the competing companies are identical, the company with the highest B-BBEE rating will win the tender.

The scoring for tender purpose as per the B-BBEE attainment level is indicated below.

 

Given the table, it is self-evident that companies should be aiming for a B-BBEE level 3, as the points differential between a 4 and a 3 is weighted heavily towards a Level 3. This is also more evident in the 90/10 table, and thus it is clear that a score of 4 “is no longer good enough.”

To better quantify the scenario, the following example is used;

Two companies A and B are tendering for a contract of around R1 Billion. Company A is a level 4 BBBEE company and thus scores 5 points whilst Company B is a level 3 BBBEE company and scores 8 points.

If Company A tenders a price of R970 Million, Company B can tender a price of 1.0023 Billion and still win the tender due to its higher BBBEE rating. This is a potential profit benefit of R 32.3 million for being a level 3 instead of a level 4 B-BBEE company.

It is clear that this is a small price to pay for investing in your B-BBEE scorecard to potentially achieve a much higher profit. Conversely, Company A would need to reduce its profitability by approximately R32 million to effectively compete against Company B.

There are therefore significant advantages to “B-BBEE’ing a 3”, and “B-BBEE’ing a 4” may no longer be good enough.

Adapted with permission from Wayne Oosthuizen CEO : Engeli Enterprise Development. Contact Wayne on 0861555544


Dti Training Initiative – Cart before the horse?

August 19th, 2011

The dti, in conjunction with Wits and Unisa, is putting the finishing touches on a training program, which will be compulsory for all BEE verification analysts.

This initiative comes in response to the growing, desperate call for clarity and consistency in the verification market place.

The proposal was unveiled to players in the verification industry at a conference in Johannesburg, on 4th July, where it was met with optimistic caution by the attendees. A key concern was that the material was perceived to have been compiled by academics, without taking into cognisance the practical situations encountered in verification.

At the conference, it was revealed that the course would be rolled out in two phases, giving already experienced and accredited verification agencies, a fast track program in which to have their analysts trained and certified.  Pitched at an NQF level 7, the cost of the training is not unsubstantial, intended to range from R15000 – R25000 per analyst, depending on the options selected.  This is a massive cost for agencies to bear and will create a substantial barrier to new entries in the market place.

Although there are some questions about the content, rollout and level of the training to be provided, there is no question that standardization is urgently needed in within this sometimes controversial industry. 

The codes of good practice and accompanying verification manual are fraught with errors, inconsistencies and grey areas. Without guidance from the dti, verification agencies have been left to apply their own interpretations to various issues. The intention of the verification manual was to provide a set standard which would allow any qualified person with the same set of information to provide a scorecard not materially different to another similar person.  Unfortunately, what we experience in reality is consultants and clients shopping around from verification agency to agency, trying to find one which will interpret things to their best benefit. Who can blame them?

In order to be really beneficial to the market place, the verifiers, verified and those making decisions based on these results need to be assured of the following; the training will be compiled in conjunction with verification experts, the trainers will be experts in the topics, with practical experience in the industry, the course will train auditing skills.

What is more important to determine, and before anyone embarks on this course, is whether the proposed draft amendments to the codes hinted to be released for comment in September 2011, will be the answer to our desperate call. Watch this space.


“Examining the effectiveness of BEE implementation: Case study of Eskom restructuring: 1995-2005”

August 19th, 2011

By Mabutho Shangase, MA (Wits), MBA (Aston, UK) Chevening Scholar, and who currently works as a Policy Manager at the Independent Development Trust, a parastatal under the Department of Public Works, in Pretoria.

Following the South African transition in the early 1990s, Black Economic Empowerment (BEE) emerged as the premier policy intervention for redress of socio-economic inequalities created by the apartheid system. BEE certainly evolved from a rudimentary concept that was casually coined outside government in the 1990s to being the policy instrument du jour of the post 1994 democratic dispensation.

In a study conducted to examine the effectiveness of BEE implementation through Eskom, findings pointed at the importance of state intervention in effecting policy change.  The BEE concept was scrutinized against a socio-economic backdrop characterized by the advent of neo-liberalism and the restructuring of state owned enterprises. The study at Eskom investigated both internal and external undertakings aimed at implementing BEE, paying attention to the interests of previously disadvantaged groupings. From within Eskom, the study looked at areas such as employment equity, skills development, and human resources development. In the parastatal’s external environment, it zeroed on interventions such as electrification, procurement and corporate social responsibility.

The case study of Eskom pointed that BEE could be successfully implemented within a neo-liberal context provided government has a lucid and structured developmental agenda that is biased towards the previously disadvantaged groups. Unbridled neo-liberalism, especially hinged on total privatisation of SOEs raises ire amongst antagonists of pro-market policies. By abandoning the outright privatisation of Eskom, government fruitfully utilized the parastatal as a vehicle for economic development and transformation through its targeted policy instruments.

The Eskom case study demonstrated what could have been viewed as impossible, namely, utilizing parastatals to empower the previously disadvantaged black majority within a neo-liberal context. By recruiting black people, particularly Africans between 1995 and 2005, government transformed the demographics of Eskom at senior management to about 60% blacks. The phenomenon was replicated across all levels within the utility. Secondly, government served the purpose of reconstruction and development within Eskom by creating programmes geared at providing skills and training, bursaries and even housing loans for employees. 

Criticism was however raised on the significance of women and people with disability within the corporation where some unions stated that women remained inconspicuous at the upper echelons of the organisation. The demographic transformation within Eskom has to an extent mirrored Afrikanerisation of parastatals as driven by the National Party during apartheid except that in this case the motive is corrective and developmental as opposed to racially oppressive and discriminatory.

In the external environment, Eskom contributed to BEE by sourcing goods and services from black suppliers. Black suppliers viewed Eskom as the foremost facilitator of BEE amongst parastatals where the black suppliers (especially small) claim to have benefited more from Eskom than from any other SOE, confirming visibility and accessibility to all potential participants. Community based individuals and groups have seen the benefits of social and economic programmes under the auspices of the Eskom Development Foundation, the Corporate Social Responsibility wing of Eskom.  Eskom BEE can be perceived as broad-based due to its accessibility to small black entrepreneurs and community based organisations. Testimonies from black suppliers and civil society beneficiaries of Eskom programmes attest that in most instances the applicants simply approached the utility and received a positive response.

In conclusion, despite commendable achievements within Eskom, this research has demonstrated that BEE as a policy instrument has sturdy structural susceptibility to the Mathew effect, the cumulative advantage, meaning that within the black community,  people with certain privileges, for example education and exposure, are better poised to capitalize on opportunities than those who are deprived of such. 


The Forestry Sector Code

July 28th, 2011

The Forestry Sector is applicable to measured entities engaged in first level processing of wood products.    Legislated as a sector code in terms of the B-BBEE Act, the code sets targets for achievement in each element of BEE for forestry sub sectors including Growers, Forestry Contractors, Fibre Processing, Sawmilling, Pole Treatment, and Charcoal.   

Its principle objective is to promote Broad-Based BEE in the Forest Sector.   In a similar vein to other sectors, it encourages promotion of investment, changing composition of ownership, control and employment and access to finance and rural development. 

Perhaps more so than any other industry, the forestry sector has the ability to make sustainable change in rural areas since the bulk of its plantations and downstream beneficiation are located outside of metropolitan areas.   Its success is therefore critical to achieving the overall objectives of BEE.

The actual scorecard calculations and targets do not differ substantially from the general codes of good practice, but specific sub-sectors focus is placed on Preferential Procurement and Enterprise Development by adapting the targets in these elements for Forestry Contractors and Growers and Sawmillers.   Forestry contracting sub sectors have limited procurement and there is therefore reduced emphasis on buying from the right people.  Instead, an additional requirement to comply with an Industry Code of conduct on contracting is given. Growers and Sawmillers on the other hand are given additional Enterprise Development targets thus ensuring that Black owned downstream beneficiators get their share of product from the people at the top of the chain.

The balance of the sector code outlines numerous commitments and undertakings to provide inter alia access to finance and build capacity.   However, most of these commitments have not found their way into measurable indicators on the scorecard and amount merely to statements of intent that reflect a meeting of minds between stakeholders, and acknowledge the challenges and shortcomings in the industry.


Did you know the facts could make a difference?

July 28th, 2011

Here is a brief review of most of the Did You Know’s in our newsletter, which serves as a reminder that often it is the small yet fundamental details that can make the difference for your B-BBEE environment.

  • If a measured entity is indicated as a ‘designated employer’ according to the turnover thresholds for their industry (as indicated in Schedule 4 of the Employment Equity Act), we may not grant any points for Employment Equity, unless they have submitted the required EEA2 and EEA4 reports to the Department of Labour.
  • When it comes to verifying your scorecard, you need to provide a certain amount of evidence to support your claim for points. When verifying SED your verification agency requires the following:
    • Proof of the contribution.
    • A letter from the head of the beneficiary confirming receipt and confirming percentage non-white beneficiaries.
    • Letter from independent person confirming race of beneficiaries; and
  • When verifying ED your verification agency requires the following: 
    • An agreement between both parties confirming the arrangement.
    • Documentation confirming the BEE status and qualifying category of the entity (e.g. BEE certificate, proof of turnover,proof of black ownership, etc)
    • Documentation proving the contributions have been made. E.g. bank statements showing payments, receipts, letter of acknowledgement from beneficiary, etc
  • Ownership is measured as of the measurement date, rather than at the end of the measured financial period.
  • In the construction sector code, the requirement to recognise disabled employees is limited to those in office-based positions only
  • You cannot exclude expenditure from Telkom and Eskom in your total measured procurement spend.
  • R47-02 is the compulsory standard by which all verification agencies are accredited by SANAS.  Download a copy here.
  • Suspected fraud or fronting can be reported to the DTI fraud hotline on 0800 701 701
  • A verification can take on average 6 weeks to 3 months to complete, depending on how well prepared you are. For a list of documents, you will need to provide, contact your closest IQuad BEE office.
  • The cost of a facilitator, to assist with assimilating a black disabled learner into the workplace, could be considered as a cost of administering training and therefore, could earn points on your scorecard.  Your SETA can reimburse you for certain training courses offered to your employees, making skills development a cost effective way to earn points on your scorecard.
  • Sector codes apply from the day they were gazetted as a final sector code. This means that you need to be aware of any new codes in the final stages of gazetting, which may affect your industry scorecard, retrospectively.
  • When measuring company contributions on a scorecard, it is important to understand which elements are time-based and which are based on the financial period.  Certain elements have financial targets, and their measurement is based on the contributions or efforts made during a 12-month financial measurement period. These elements are skills development, preferential procurement, enterprise and socio economic development.  The remaining elements, ownership, management control and employment equity, are all measured at the date of verification.

NEF delivers faster BEE solutions

July 28th, 2011

The National Empowerment Fund, as an agency of the dti, is a pivotal role-player in driving and implementing broad-based BEE through the Codes of Good Practice. By developing innovative investment and transformation solutions, the NEF has moved ahead with many sustainable achievements. More significantly, it is also a conduit for government to demonstrate its financial commitment to broadening participation in the economy. The NEF goes further in supporting the ASGISA objectives through its focus on reducing financial barriers to entry for black entrepreneurs thereby supporting job retention and creation. Equally important, the NEF’s reach into communities around the country will assist with the empowerment of and participation by black women. (www.dti.gov.za)

Recently the NEF, launched the Enterprise Development Fund, which ultimately has been created to assist the private sector in delivering faster BEE solutions.

Essentially, big businesses are being asked to contribute 3% of their annual net profit to establish a fund for loans to small, medium and micro black enterprises.  This fund will be managed by The National Empowerment Fund and although there is a lack of clarity as to what defines a ‘big business’, companies that do contribute to the Fund will earn credits towards their Black Economic Empowerment Codes.  While contributions to the fund were voluntary, companies risked losing empowerment accreditation points if they did not comply.

The objective of the fund is to make loans in the range of R250 000 and R75m and it commences now in July 2011.   

According to Mensah, who will administer the Fund, “The NEF will use the money from big businesses to help SMMEs to be well-developed and sustainable, operationally and financially independent. 

The response to this fund has been met with some hesitancy yet many organisations have welcomed the transition.  What are your thoughts?  Email us at beeintheknow@iquad.co.za


Early payments – what is the big deal?

July 14th, 2011

Under the Enterprise Development element, a measured entity can receive recognition and points for paying certain suppliers earlier than usual.

Effectively, you will get points for paying for goods or services you are already procuring.

What is the benefit to the recipient? The intention is to assist smaller black owned companies with cash flow.  The downfall of these smaller companies is often the long wait between the outlay for an order and payment for that order.

Who qualifies as a recipient? A company qualifies as an enterprise development recipient if they meet these requirements:

a) Category A – enterprise development contributions involve contributions to exempted micro-enterprises or qualifying small enterprises which are 50% black-owned or black women-owned, or

b) Category B – enterprise development contributions involve contributions to any other entity that is 50% black-owned or black women-owned; or 25% black-owned or black women owned with a BEE status of between level 1 and level 6.

How many points will you get? This depends on the contributions you have made against your target.  The maximum you can realize is 15% of the invoice, if paid on day 1.

ABVA’s best practice notes state the following:

This mechanism is only available if payment is made within less than ten days.  If early payment is at least made within the first ten days from the date of invoice by the qualifying supplier, then the amount that can be claimed is a percentage of the invoice amount, which is equal to 15 minus the amount of days from the date of invoice to the date of payment.

Example:

The invoiced amount is R100 and the measured entity makes payment thereof 5 days after the invoice date, then the measured entities contribution to ED is measured as follows:

R100 x (15 – 5) %

         = R100 x 10%

         = R10

For more information, contact beeintheknow@iquad.co.za 



B-BBEE: How far have we come?

July 14th, 2011

Broad-Based Black Economic Empowerment (B-BBEE) was a form of Economic Empowerment initiated by our government in response to criticism against Narrow Based Empowerment instituted in the country during 2003/2004. While Narrow Based Black Economic Empowerment led to the enrichment of a few black (Black African, Coloured or Indian) individuals, the goal of Broad-Based Empowerment was to distribute wealth across as broad a spectrum of our society as possible. In contrast, Narrow Based empowerment measured only equity ownership and management representation.

Critics argued that BEE’s aim was to attempt to create equality of the workforce of South Africa as a whole by enforcing the advantaging of the previously disadvantaged and disadvantaging the previously advantaged (White). This resulted in businesses having to consider the social background of any potential applicant instead of making decisions purely based on qualifications and experience.  (News Daily, 24 May 2004).  Nevertheless, the goal of the Act was to promote the achievement of the constitutional right to equality.

Over time, there were still numerous allegations that black economic empowerment had been used to enrich a small, politically connected elite, while leaving the majority of poor black South Africans unaffected.  These allegations of crony capitalism had arisen because many beneficiaries of BEE were close to the ruling party, the African National Congress. (Oavm.com)

However, one must confess that BEE has changed the landscape of South African business over the past 16 years, particularly when the Codes of Good Practice kicked in on 9th February 2007.  They introduced a number of welcome compromises and concessions, particularly for smaller companies.  These were generally well received.

Looking back, South Africa’s economic and political climate prior to this and during the initial years of democracy was characterised by inadequate investment, low level of economic growth, huge development backlogs, income inequalities, rising unemployment and poverty levels, poor black education levels to name a few.  Once BEE was installed, there were a significant number of successful establishments, for example, the mining sector where BEE was successful in creating companies such as Shanduka, Wesizwe and ARM and in the agricultural sector, which led to the empowerment of wine farm workers, fruit farm workers and so forth.  To date there has been around R200bn worth of BEE deals and an increased economic participation in the market by the blacks.

Still, one of the main concerns about B-BBEE has been the increased level of fronting by companies, including inept political appointments leading to low levels of productivity and competence.   This sums up that our country’s biggest goal should be changing the mindset of the people (black and white), and that they should all be focussed on economic participation and productivity in order to create a competent workforce.

This model has been discussed, criticised, praised and discussed again and the recent introduction of the BEE Advisory Council as well as public criticism of the policy within the government and among business leaders has raised the question whether it should be accelerated, refined, reassessed or merely abandoned. (BBQonline.co.za). 

Minister Davies stated during his recent budget vote, ““Regarding economic empowerment more generally, the BEE Codes of Good Practice were promulgated 4 years ago and we are now in a better position to assess their impact. The Presidential Advisory Council has made several policy recommendations to allow for greater participation by black people in productive activities and to tackle what is now emerging as increasingly complex practices of fronting. To this end, the dti and the Presidential Advisory Council are focusing on reviewing the BEE Codes of good practice and possibly amending the B-BBEE Act. This could entail, amongst others, refinements to ensure greater policy coherence in the application of B-BBEE across government and to strengthen access to procurement opportunities through the now approved and aligned PPPFA regulations. We are also looking at ways to strengthen our efforts to combat the fraudulent practice of fronting.”

Mistakes are lessons of wisdom. The past cannot be changed but the future is yet in your power. (Hugh White, 1773)


B-BBEE targets for the Property Industry

July 14th, 2011

Sourced from Property24.com

The recently released Sector Code of Good Practice by the Property Sector Charter unveils bold new B-BBEE targets for the industry.

The Charter includes the usual 7 B-BBEE components through which companies can earn points towards their B-BBEE compliance. These include Ownership, Management Control, Employment Equity, Preferential Procurement, Skills Development, Enterprise Development and Socio-Economic Development .

The Property Charter, however, includes some key differences to other sector charters.  This is particularly true for the Enterprise Development (ED) component of B-BBEE, whereby the Sector seeks to “invest in, support, facilitate and foster new and existing small and micro enterprises” with a Level 1 – 4 B-BBEE status.

“In simple terms, this pillar of the B-BBEE scorecard is about assisting small Black-owned businesses in the property industry to become independent and sustainable,” according to Diane Albertyn from B-BBEE consulting firm, Olive Tree Consulting Services.

Whilst most B-BBEE Charters aim for companies to commit 3% of net profit after tax (NPAT) for Enterprise Development, the Property Charter has set the target at 5% net profit before tax (NPBT).

“The ED targets are perhaps a little ambitious at this stage,” says Albertyn “particularly since it’s based on a before-tax figure. The Construction Charter is significantly lower at 3%, and works on an after-tax figure.”

The Charter applies to all enterprises “engaged in property ownership or provision of property services, including practitioners and companies involved in property development.” It has been released for commentary prior to gazetting, and will be subject to an independent third party analysis, but once gazetted, will share the same status as the B-BBEE Codes of Good Practice.  The Charter is aimed at addressing the inequalities of the past, and focuses on empowering Black people, with a particularly strong focus on Black women.

One area of the Charter that Albertyn believes should be applauded is the inclusion of triple bottom line accountability. This is not only mentioned in the Charter but evidenced by a fresh approach to Socio-Economic Development or Corporate Social Investment as it is referred to in the Property Charter.

Property companies are encouraged to consult with CSI beneficiary communities, and must include monitoring and evaluation of the impact of their projects in their B-BBEE initiatives. This points to a very positive end to proverbial “cheque writing” whereby companies merely pay across the required amount to secure their B-BBEE points without knowing if their contribution has any sustainable impact on the community.

CSI targets are set at 1% of NPAT, which is the norm across the various B-BBEE Charters, and can include initiatives ranging from education programs, property education projects, development programs, and initiatives relating to environment, arts, culture, sport, health or job creation.

The remaining B-BBEE pillars are very similar to those in the Generic B-BBEE Codes. The Ownership pillar sets targets in terms of economic interest and voting rights in the hands of Black people. Similarly Management Control sets 5 year targets to have Black people, especially women, represented at board level and in executive management. Employment Equity sets targets for Black people, again specifically Black women, in Junior, Middle and Senior Management positions.

Skills Development specifies that companies should set aside 1.5% of their payroll, over and above the skills development levy, on skills development for Black people. Further points can be earned through learnerships, mentorships and internships.

Finally, Procurement sets a 5 year target of 70% of procurement spend from B-BBEE enterprises, while there is also a strong focus on supporting small and micro enterprises.

“On the whole, we believe that the Charter is well thought-through”, says Albertyn “however there may be some changes made before it is gazetted. We do believe it provides the industry with a number of ways of becoming B-BBEE compliant, rather than the old narrow-based BEE approach.”


Latest Indicative Profit Margins released

July 1st, 2011

The latest industry norms, commonly used to calculate the Net Profit target for Enterprise Development and Socio Economic Development, have been released by Stats SA.

In instances where a measured entity has not made a profit, or has made a profit that is less than ¼ of the norm in the industry, the measured entity is obliged to use a deemed profit margin that is based on a percentage of turnover.   The deemed profit margin is the company’s actual profit margin in the last year in which its profit was greater than ¼ of the industry norm.   The industry norms utilized can therefore have a material impact on the target.

We’ve stratified the latest actual data released by Stats SA (for the period ended Sep 2010) in the table below. 

 

Weighted Average

Large

Medium

Small

Industry

NPAT:
Turnover

NPAT:
Turnover

NPAT:
Turnover

NPAT:
Turnover

Mining and quarrying

12.24%

12.83%

3.59%

8.52%

Manufacturing

5.04%

4.49%

4.48%

5.81%

Electricity, gas and water supply

21.60%

-2.28%

19.30%

2.44%

Construction

3.60%

4.35%

3.44%

2.34%

Trade

2.88%

2.85%

4.53%

2.50%

Transport, storage and communication

6.48%

5.61%

5.15%

12.15%

Real estate and other bus. services, excl. financial intermediation and insurance

12.96%

12.93%

11.83%

13.69%

Community, social and personal services, excluding government institutions

9.36%

6.87%

12.32%

13.59%

All industries

5.76%

6.14%

4.76%

5.09%

Source: Adapted from Stats SA QFS – Dec 2010

For a more in depth discussion of using industry norms, refer to our article “Calculating indicative profit margins” from Issue 13.



Schaeffler SA sets outstanding example through Rainbow Nation Club

July 1st, 2011

Len Terblanche (MD) of Schaeffler South Africa provided insight into this winning initiative.

Schaeffler South Africa, based in Port Elizabeth, is a German multinational company with a plant of 500 people in Port Elizabeth.  The company makes clutches, which are supplied to the local OEM’s and independent aftermarket and exports 60% of their production volumes.

The Rainbow Nation Club was launched by Schaeffler 18 months ago with the aim of moving towards racial integration and uplifting the lives of many underprivileged people. The initiative provides short and long-term relief as well as assisting existing projects to achieve their goals.  Len Terblanche states that this initiative began because of his strong belief “that the solution for our country lies in building a unified nation, as envisaged by Nelson Mandela with his Rainbow Nation vision.  If South Africans stop dwelling in the past and concentrates on building relationships, everything might fall in place as it did when the Madiba Magic was unfolding.” (see News24 article).

The Club has encouraged other companies to join and has since succeeded in signing up several company managers to the club’s membership, which adds to their existing members (all 500 employees and the Congress of South African Trade Unions).

They have received a lot of support and according to Len Terblanche, the headquarters of Schaeffler Gruppe in Germany has committed to pledging R3 million toward the Rainbow Nation Club and their activities.

Success has been achieved through sponsorships at non-governmental organisations across the city, including Kwazakhele High School, ACCV Khayalethu Youth Centre, SOS Children’s Village, and 120 schoolchildren from Veeplaas who received new uniforms.

Len adds, “Through the launch of the RNC at Schaeffler, we believe it has removed the them and the us and made win win decisions possible.”

“We are truly passionate about this initiative as we believe that something needs to be done about the poverty in SA and the inequalities that still exist. We should make nation building a top priority and convince our leaders to embrace once more Madiba’s legacy of a unified Rainbow Nation. This should include political, business and civic leaders.  South Africans should be encouraged in adopting a social conscience and make upliftment of the underprivileged a priority. We all have to realise that the government alone cannot solve this, and that we are all part of the solution.”

Go to www.rainbownationclub.co.za for more information.


SA firms keen on centralised buying strategy

July 1st, 2011

First sourced from Supply Management.Com

In the past five years organisations in South Africa have seen a “tremendous move towards centralising procurement”, according to an overview of recent trends by Accenture.

A breakfast meeting at the 2011 CIPS Southern Africa Pan-African Conference hosted by the management consultancy included a presentation on activity in the local market.

Senior executive Hayley Walters, who is based in Johannesburg, said: “There’s been a tremendous move towards centralising procurement, we see this more and more. The other thing to point out here is that many of these organisations are exploring, or have already made a decision about, outsourcing arrangements.”

Walters said Accenture has also observed a significant increase in the amount of investment in technology – particularly the consolidation of ERP systems and investment in SRM tools. Some of that has been led by the drive to “cleanse and maintain quality of master data across organisations,” she added. “Until you have some of the technology and master data sorted out you can’t even start to talk about moving into the next wave of procurement.”

Next among the trends was what she termed “industrialisation”. “A number of companies are looking at making their procurement processes, particularly requisition to pay, very repeatable, whether it’s for directs or indirects they really want to have standardised, repeatable processes.” That has been happening in conjunction with very definitive category segmentation, she said. “We’ve seen organisations focus on particular sourcing approaches and strategies depending on which category they’re looking at – and there are some signs of aggregation here, but it’s very much early days.”

Meanwhile, Walters said with regards to the Broad Based Black Economic Empowerment (BBBEE) agenda private and public sector organisations are procuring in a very ad hoc way when it comes to reaching their targets. “They don’t look holistically across procurement, they don’t look at it by category, there’s no segmentation of the BBBEE supply base. That’s not necessarily sustainable for the organisations to meet their targets, but obviously it’s not sustainable in building our supply markets and the industry.”

She said procurement needed to have a clear understanding what the targets are; ensure responsibility for hitting those targets is centralised (“not left to a multitude of combined officers”); segment the supply base to identify suitable providers; drive the BBBEE agenda through all purchasing processes; and ensure the suppliers of your first-tier vendors and beyond are helping to create a sustainable supply market for the future.

“We take on this BBBEE challenge because it’s there and because we have to be compliant, but there’s onus on us as procurement professionals to really bring some of these practices and push them through BBBEE. Only through that will we see sustainable development of the supply market in South Africa.”


A Big Day for B-BBEE: PPPFA Amended

June 20th, 2011

Effective 7 December 2011, government departments are forced to consider compliance to the Codes of Good Practice when evaluating tenders for government business.   The publication of the final amended Preferential Procurement Regulations, issued in terms of the Preferential Procurement Policy Framework Act (PPPFA), has been eagerly anticipated following the circulation of draft amendments for public comment in August 2009.    The new regulations are the final component in executing B-BBEE as contemplated in the Broad Based Black Economic Empowerment Act and require that all tenders be accompanied by a valid B-BBEE certificate, issued by an accredited verification agency.

Applicability
The regulations require organs of state, public entities (major and minor, national and provincial), and government business enterprises (major and minor, national and provincial) to consider the submitted B-BBEE status of tenderers in awarding contracts for government business.   Currently, and until 7 Dec 2011, government applies a set of criteria unrelated to the B-BBEE codes of good practice when evaluating tenders.

The new process of evaluation retains the principle of evaluating tenders on the basis of functionality local content, and an 80/20 or 90/10 approach to awarding points for price and ‘HDI status’.  The previous ‘HDI status’ is however replaced with a requirement to consider the tenderers B-BBEE compliance level.

For a complete list of entities bound by this regulation, refer to our article: “Which Organs of State are bound by the new Procurement Regulations”.

Evaluation
Tenders are evaluated in 2 stages, first on Functionality and Local Content, then on Price and B-BBEE Status.   Each invitation to tender is required to stipulate the criteria for which functionality and local content will be determined.  If a tender meets the requirements for functionality and local content (Stage 1), then points are allocated for achievement in price and B-BBEE (Stage 2), with price counting 80% and B-BBEE compliance 20% of the Stage 2 points allocation.   For tenders above R1 000 000, price counts 90% and B-BBEE 10%.

Price points are allocated by considering the differential between the tender price and the lowest tender price submitted.  The lower the price the more points are allocated to the tender.  

B-BBEE points are awarded on the basis of the B-BBEE Status Level of the tenderer.  

B-BBEE Status Level of the Contributor

Number of Points

(Tenders below R1m)

Number of Points

(Tenders above R1m)

1

20

10

2

18

9

3

16

8

4

12

5

5

8

4

6

6

3

7

4

2

8

2

1

Non-Compliant Contributor

0

0

 

In the event that two or more tenders have scored equal points, the successful tender must be the one scoring the highest number of preference points for
B-BBEE.

Proof
A tenderer must submit their original (or certified copy) valid B-BBEE status level verification certificate substantiating their B-BBEE rating.     Exempt Micro Enterprises (EME’s) must submit a certificate issued be a registered auditor, accounting officer, or an accredited verification agency.

The validity of B-BBEE certificates will be determined by its compliance with the requirements of instructions and guidelines issued by the National Treasury and any notices published by the Department of Trade and Industry in the Government Gazette.

Fraud / Fronting
Where the B-BBEE status level claimed has been found to be claimed or obtained on a fraudulent basis, the organ of state may disqualify the tender, claim costs and damages, cancel the contract, restrict future business, and institute criminal proceedings against the tenderer.

Joint Ventures and Consortiums (JV’s collectively)
Incorporated JV’s must submit the B-BBEE status of the entity.  Unincorporated JV’s must submit a consolidated B-BBEE scorecard as if they were a group structure for every separate tender.

Subcontracting
Limitations are placed on subcontracting of services, where the value of subcontracted services exceeds 25%.   In such instances, the organ of state may not award points for B-BBEE status if the subcontractor does not qualify for at least the same points as the principal tenderer.   The organ of state may also not award the contract if the subcontractor does not have an equal or higher B-BBEE status level than the principal tenderer.   

These limitations do not apply where the subcontractor is an EME that has the capability and ability to execute the subcontract.

It follows that the subcontractor would also have to produce a B-BBEE certificate to facilitate evaluation of this criteria. 

Subcontracting to EME’s is therefore being encouraged, consistent with the procurement objectives in the Codes of Good Practice.

Get your house in order
There can be no more excuses after 7 Dec 2011.   There’s never been a more important time to obtain your B-BBEE certificate.   

Contact IQuad Verification Services for more information.

Wade van Rooyen


Which Organs of State are bound by the new Procurement Regulations

June 20th, 2011

The 2011 Preferential Procurement Regulations require certain organs of state and public entities to consider the submitted B-BBEE status of tenderers in awarding contracts for government business.   The list is extensive, but we’ve categorized and listed some of the more common / problematic entities below to help you get an idea of who’s included.    Subsidiaries of these entities are also included in the scope.   For a complete list refer to Schedule 2 and 3 of the Public Finance Management Act no 1 of 1999.

Organs of State (Section 1 (iii) of the Preferential Procurement Policy Framework Act no 5 of 2000)

An Organ of State means:

-          A national or Provincial government department

-          A municipality

-          A constitutional institution

-          Parliament

-          A provincial legislature

-          Any other institution recognized by the minister by notice in the Government Gazette.

Major Public Entities (Schedule 2 of the Public Finance Management Ac, no 1 of 1999)

-          Air Traffic and Navigation Services Company

-          Airports Company

-          DENEL

-          Development Bank of Southern Africa

-          ESKOM

-          Industrial Development Corporation

-          Telkom SA Limited

-          Transnet SA Limited

-          Etc.

Other Public Entities (National and Provincial) ((Schedule 3 of the Public Finance Management Ac, no 1 of 1999)

-          Accounting Standards Board

-          Competition Board

-          National Film Board

-          SA Bureau of Standards

-          National Road Fund

-          SA Medical Research Council

-          SARS

-          SA Tourism Board

-          UIF

-          Provincial Boards, Museums, Development Councils, Commissions, Authorities, etc.

Government Business Enterprises (National and Provincial)

Specifically listed Business enterprises including:

-          Khula Enterprises

-          Rand Water Board

-          Mpumalanga Development Corporation

-          Algoa Bus Company

-          Etc.


VWSA award demonstrates Eberspacher’s BEE focus

June 20th, 2011

Eberspacher South Africa consists of three separate operating entities in South Africa. Recently, at the 2011 Annual Supplier Awards, hosted by Volkswagen South Africa, Eberspacher was awarded the “Supplier of the Year for Broad-Based Black Economic Empowerment Award”

Volkswagen Group South Africa presented its “2011 Annual Supplier Awards” to its top suppliers during an evening of celebrations in Johannesburg on Wednesday 25 May 2011.  These awards are presented to their top suppliers during an evening of celebration where the company gets to recognize and thank the suppliers for the important role that has been played in the success of Volkswagen.

Eberspacher, an automotive component manufacturer supplying components (mainly catalytic converters) for the export market & fully built-up exhaust systems to the local market; also employs 1000 people in three different locations, namely Port Elizabeth, East London & Rosslyn.  Nic Zerbst, Managing Director (Eberspacher Group -South Africa) and his management team are responsible for ensuring that the Eberspacher Group in South Africa embraces the challenges & opportunities that B-BBEE compliance offers by actively managing the business to ensure a maximum of points in most of the elements of the B-BBEE scorecard.

“Management & the employees have embraced the opportunities that B-BBEE offer & we are pleased that we have been able to transform our business model to meet the requirements of all our stakeholders.”

The award is evidence that Eberspacher has demonstrated a genuine ’focus on BEE’ and that it is possible to become a B-BBEE success.  Nic adds, “As a wholly owned subsidiary of a private German company, we are not able to influence the B-BBEE category of ownership. However, we have made significant inroads in the areas of preferential procurement & skills development & have maximized our points in the areas of enterprise development & socio-economic development.”

More importantly, this award is recognition for the “hard work” put in by management & employees alike.  As Nic states, “It is true that we began in 2008 as non-compliant & have achieved this feat in 2 years.  It requires top management commitment, monthly monitoring & evaluation, action plans to achieve the goals set by the Monitoring Committee and a comprehensive training programme focused on the target market.  It also requires consistent pressure on the supplier base that they embrace transformation & become B-BBEE compliant & accredited.”

And the future for Eberspacher? “Our next target is to achieve Level 5 compliance within the next 2 years. We will continue to look for opportunities that will enhance our business model & continue to work with all stakeholders in the industry to ensure that the business landscape transforms for the betterment of all in South Africa.”


Successful transformation will negate the fronting debate

June 6th, 2011

The Association of BEE Verification Agencies (ABVA) hosted a conference this week on the topic of ‘Fronting’.   A key objective of the gathering was to identify the extent to which fronting of BEE levels takes place in industry, and to debate methods to counter practice’s which undermine the foundation of economic transformation.

The opening panel discussion generated some ideas worthy of consideration.  

  1. BEE means different things to different people (Duma Gqubule, KIO Advisory services) – To the unemployed, it is about jobs; to the entrepreneur it is about access to finance; to the financier it is about deal flow.  A ‘one-size fits all’ approach to BEE may not address all the issues, and the codes may not be the ‘be-all’ and ‘end-all’ of empowerment.
  2. There is no clear definition of ‘fronting’.   To truly understand fronting we need consensus on what BEE is and what its intention is.  The intentions of the legislator can be polluted on application by the prejudices of practitioners, and by the quality of secondary legislation like the Codes of Good Practice.
  3. Some influential participants proposed that the existing framework for awarding BEE Contribution levels to companies was inadequate because they had seen ‘Level 3 Companies with no black owners or employees’.   Proponents of this argument imply that the existing framework for measurement is completely inadequate, and in so doing impose their own prejudices on the process.
  4. Ethical behavior from practitioners and strong leadership from government is needed to avoid fronting.  
  5. The space in which BEE operates naturally lends itself to fronting (Willie S. Thabe, Black Management Forum Institute) – When businesses are in white hands, black owners need to be carved into the business.   This process is contrary to the process of entrepreneurship, and will always have inherent weaknesses.
  6. BEE transactions will always be subject to commercial pressures – Black shareholders want return on their investment, and white shareholders want value add.  To accelerate true transformation we need “Alan Greenspans’ interest rates’ and South East Asian Growth Rates” (Duma)

A strong call was made for government to demonstrate vision.    “We need to [re]gain sight of the objectives of BEE” says Duma.     “There is no need for more research, we know what the issues are.”   Government needs to fill the expanding vacuum of BEE intent, and provide leadership again in the application of BEE.

When one considers the extreme variations between the perceptions of what constitutes fronting, the actual incidence of fraudulent fronting may be lower than government would have us believe.  Either way, true transformation will ultimately negate the need for intervention in empowerment, and hopefully in 10 years time there’ll be no need for this debate.

Wade van Rooyen


SA’s unrepresentative boardrooms

June 6th, 2011

Sourced from Financial Mail.

Diversity in terms of age, race, gender, experience and qualifications, is an important consideration and companies should look to develop a board that has the necessary knowledge, skills and resources to lead the company effectively”

Almost two decades into our democracy the structures of boardrooms around SA remain unrepresentative of its citizens.

Although Black Economic Empowerment remains a high priority, Gerald Seegers director of Human Resources Services at PwC says that racial transformation among non-executive directors outperforms transformation achievements at executive level.

According to PwC research the number of Broad Based Black Economic Empowerment (BBBEE) directors has increased fairly significantly over recent years. However, at 35% in 2010, the total number of BBBEE non-executive directors is still short of a demographically representative figure.

“While Blacks constitute 87% of the economically active population, their representation is clearly nowhere near this percentage,” says Kganki Matabane, Transformation Policy and Internal Operations executive director at Business Unity South Africa (BUSA). “These findings have confirmed the negative picture that has been painted year on year by the Commission on Employment Equity.”

Equally important in SA is the issue of gender and the private sector is criticised for its slow female progress at board level. A BUSA survey released in 2010 indicated that only 6% of non-executive directors are female.

Age also seems to be a factor. “A more youthful non-executive profile in SA reflects our skills shortage, as companies are looking to younger and arguably less experienced individuals to carry out board duties” says Seegers. The median age for chairpersons has decreased to 51 in 2010 (from 58) and so too for non-executive directors at 45 (48). The average age of deputy chairpersons is 47 (57), while that of lead directors is 57 (62).

“Diversity in terms of age, race, gender, experience and qualifications, is an important consideration and companies should look to develop a board that has the necessary knowledge, skills and resources to lead the company effectively,” says Seegers.

BUSA recommends that companies develop and implement measures to overcome under-representation of in leadership positions.

“One possible strategy would be for companies to identify all directors that would be retiring at least 18 months before their retirement date. Skilled and knowledgeable blacks and women who might lack the requisite board experience should be identified as “shadow directors” (not in perpetuity) to replace retiring directors,” says Mataban. “Retiring directors will then have a period of at a least a year in which to mentor on the nuts and bolts of the board and other company information before handing over the reins.”

Seegers adds that a well structured, diverse and talented board that is not thinly spread will ensure sound governance and outperformance.


IDC launches scheme for BEE companies

June 6th, 2011

With the view of encouraging employment creation in SA, the IDC has recently launched a scheme  (R10bn Gro-Σ-Scheme) for BEE compliant companies. The fund is available to both start-up and existing businesses to finance buildings, plant and equipment together with working capital.

Key qualifying criteria includes the following:

  • Job creation – applicants must create or save jobs at a cost not exceeding R500 000 relating to the total funding required i.e. a funding application for R10m must demonstrate the ability to create or save 20 jobs. A job is defined as direct permanent, contracted, seasonal (annualized), temporary (full time equivalent ‘annualized’ over 3 years) employment.
  • B-BBEE certification – from an accredited verification agency
  • Only available to businesses operating or expanding in SA

Some of the key attractions of the scheme include:

  • Funding at Prime less 3%
  • Capital and interest rate moratoriums depending on the financial needs of each applicant
  • No prescribed minimum financial contribution by the business owners
  • Funding available to all IDC mandated industry sectors
  • Minimum funding of R1m with a maximum of R1bn per project

The funding will be available for the next 5 years or until the scheme is exhausted.

Should business owners require assistance with their IDC applications, they should feel free to contact Barry Wiseman of IQUAD Finance Solutions (Pty) Ltd on 041 391 0600 or 082 556 4266.


Faking BEE Certificates

May 19th, 2011

A company that submits a fake broad-based black economic empowerment (BEE) certificate is at risk of losing clients and business, including committing a crime.

The purpose of introducing scorecards was to assess an organisation’s B-BBEE status under the government’s official codes of good practice.  A scorecard is used to measure the measured entity’s contribution to economic transformation. 

Unfortunately a few verification agencies such as IQuad BEE have experienced companies submitting scorecards that are not consistent or are irregular.  Jenni Lawrence, Director at IQuad BEE, states, “It is important to check whether the BEE certificates provided by suppliers are authentic”.  

“It has come to our attention that certain companies have altered scores and dates on their BEE certificates in order to improve their status and avoid having to renew a certificate.”

The impact of a company faking a scorecard is far reaching.  Procurement decisions made on the basis of a company’s scorecard could be open to legal challenge, which is costly and can cause massive damage to a company’s reputation.  Companies who rely on their suppliers BEE certificates to improve their score could end up with an overstated score, which in itself is a misrepresentation.

Most importantly, faking a scorecard is equivalent to fronting, which is fraud.

Ebrahiem Mohamed (NERA) states, however, that faking certificates is just one of the policy problems that one encounters with B-BBEE.  “Unfortunately I have found that many small businesses don’t take the time to follow the criteria and provisions that the law has made for these SMEs.   They take shortcuts and make foolish mistakes and after five years of building up their business, destroy their reputation overnight.”

If companies manufacture documents purporting to be BEE certificates, they risk the chance of discovery and an criminal investigation.  There is the perspective that it is the responsibility of companies relying on BEE certificates for their score,  to check all BEE certificates that are provided to them by their suppliers.  If a company uses a certificate that is invalid from a supplier, there is a risk that their own certificate can be declared invalid. 

Although many verification agencies have stated that this is not a common occurrence, they felt it was still crucial to point out the seriousness of the matter and the consequences that would follow in committing such an offence.

Pansy Morapedi (BEE Technical Director at Honeycomb BEE) adds, “We have also come across certificates that have been irregular but thankfully, it is an exception rather than the norm. Still, it is tragic that companies will seek to fake their BEE certificates in order to secure business either from private companies or government. What is even worse are the BEE practitioners that assist companies to fake their BEE status. This not only damages the industry but it sends an incorrect signal that the industry is not serious about transformation.  Similarly, it sends out the message that the company can “purchase” a good BEE level, without implementing the correct measures to address BEE.”


The EAP Target

May 19th, 2011

The Employment Equity scorecard awards bonus points for “meeting or exceeding the EAP targets” in each occupational category.  Once the subject of much confusion a common practice is now emerging in the calculation of the EAP or “Economically Active Population” targets.

The Commission for Employment Equity stated in their annual report for 2010, that “A broad objective of the [Employment Equity] Act is to have an equitable representation of the designated groups in terms of their Economically Active Population (EAP) in the workforce.   The EAP includes people from 15 to 64 years of age who are either employed or unemployed and seeking employment. …The labour market should aim for 87% of their workforce to be Black at all occupational levels”

Applied to the BEE scorecard, the effect is that in each category of Senior Management, Middle Management, and Junior Management, a bonus point is awarded if the actual percentage of black persons in the category is greater than the economically active population i.e. 87% (or a regionally based target as identified below).

The percentage of persons actively engaged in economic activity varies per region, and is published by Stats SA from time.   The latest available figures are shown in the table below:

Province

% Economically Active Black Persons

Western Cape

84.4%

Eastern Cape

90.2%

Northern Cape

88.2%

Free State

83.8%

KwaZulu Natal

92.1%

North West

89.6%

Gauteng

83.1%

Mpumulanga

92.3%

Limpopo

96.7%

Source: Statistics South Africa, 2009

Example, if the percentage of black junior managers in a company is 90%, and the economically active population is 87%, then the company is awarded a bonus point for exceeding the EAP target.  This point is in addition to the 4 points that it achieves for meeting the compliance target of 68% in the same category.   Note that the EAP achievement is calculated without any adjustment for gender recognition.   A maximum of 3 points is awarded for achieving the EAP target in all 3 occupational categories.

You can influence the outcome of your employment equity score, by ensuring that you use the correct target.  

 

 


Did you know

May 19th, 2011

Did you know the most common reasons for companies not achieving full recognition for Enterprise Development are:

- Lack of record keeping for contributions made

- Failure to document enterprise development agreements

- Recipients unable to prove their BEE status

- Contributions made outside of the period of measurement

- Incorrectly calculating the target expenditure where a company is not profitable

- Not understanding the impact of cumulative recognition1

Refer to our BEE GUIDE for more information.



Shamwari Townhouse steps up in BEE style

May 5th, 2011

Tania Plakonouris, General Manager of the exclusive Shamwari Townhouse, gave us a brief outline of how Shamwari set an excellent example in implementing BEE within this exclusive hotel. Shamwari Townhouse is situated in Port Elizabeth and sets a high standard in stylish boutique accommodation. It has strived to maintain a strong work ethic of the highest standard, not only in elegance and design but also through practice. Tania states, “B-BBEE is important as it helps us to have good codes of practice in business.”

BEE has been implemented at Shamwari Townhouse in various ways, such as training staff for future promotions to senior positions, active involvement in socio-economic development and employment equity, employing black staff as well as staying on board with preferential procurement.

One winning example is the employment of three mentees from Nasakwa as part of their socio-economic development. Nasakwa Consultants approached Shamwari Townhouse in July 2010 and asked to construct a building relationship between the two in order to support school students who were unemployed. Nasakwa Consultants is an umbrella body of three programmes (A-Z Mentorshop, Employee Assistance Programme and Monitoring) and is committed in helping young student find their potential through a mentorship programme.

Tania described their experience; “Two students, Lulama Mbori and Thobani Wani, were given a six-month contract at Shamwari Townhouse, where they were taught hospitality operational procedures like service etiquette, housekeeping and front office but most important is that I wanted the mentees to understand the importance of forming relationships with colleagues and understanding the working environment. We wanted them to become “streetwise”.

“We are also excited to have on board, our Food & Beverage Manager, Thulani Xhali, who graduated with a B.Com IHM Cum Laude at Stenden in 2009.”

Tania adds, “I would like to see more boutique hotels take a more active interest in becoming BEE compliant in order to see more support to our country and its people. It is not only about having black owners but to create businesses that are courageous enough to speak the truth, evaluate their choices, promote change for the better and equip the people who work in the business with values to enable a successful democracy. We have an art collection at the Townhouse from Duncan Stewart called “football: a dialect for hope” that portrays this exact message.”

For more information, email Mrs N.Dube at dube.ntombi@yahoo.com or call 041-4846756.   Go to www.shamwaritownhouse.com


What is the Tourism Charter?

May 5th, 2011

The Tourism Charter was gazetted in May 2009 and is applicable to a host of tourism and related industries.  As well as the expected entities such as hotels, tour operators, travel agents and guesthouses, it also applies to tourist attractions, professional caterers and restaurants. For a full list, click here to see the gazetted document and download it from our website.

One of the key differences from the general codes is the turnover threshold for exempt micro enterprises, which is R2,5 million rather than R5 million.  This also means that the QSE scorecard becomes applicable if your turnover exceeds R2,5 million. The threshold for a generic company remains at R35 million plus.

In most of the seven elements, targets are set for 2012 and 2017, with changes in weighting/points for the differing targets.  Noticeably, the ownership targets start at 21.1% with a possible score of 15 and increases to 30,1% in 2017, with a weighting of 20 points.

Contributions to enterprise development are given enhanced recognition if benefiting black SMME’s in the tourism industry or contributing towards their BEE verification costs.

The industry is encouraged to employ black people with no prior experience in the tourism industry, and this can recognise points under the socio economic development element.

Another key difference under the socio economic development section is the requirement to be a TOMSA levy collector.  This will give a generic company 3 points and a QSE, a massive 9.5 points.  This is problematic for entities such as restaurants, who do not charge a tourism levy to their patrons. It is also an issue for travel agents who sell products of levy collectors, and cannot be expected to add another levy to their services, effectively doubling the tax on tourists. This excludes them from qualifying for these points.

A few anomalies remain to be clarified by the Tourism Empowerment Council (TECSA) and DTI, such as the TOMSA levy issue and the fact that the scores under management control do not quite add up.

 

 


Cabinet to align treasury procurement regulations with BEE Act

May 5th, 2011

Reprinted from www.smartprocurement.co.za 

Cabinet announced in March that it will approve the alignment of the Preferential Procurement Policy Framework Act (PPPFA) and the Broad-Based Black Economic empowerment Act (BEE Act).

Public entities follow the regulations of PPPFA to procure goods and services.

Alignment of these two Acts will ensure that government departments and municipalities include BEE when awarding points for procurement of goods and services.

With the alignment of the two Acts it will become compulsory for all trading entities to be verified and be in possession of valid BEE certificate. This will increase the level of compliance to the BEE codes by the private sector and ensure that when the second phase of higher BEE targets begins in 2012, government can report and evaluate compliance to the first five years of the implementation of BEE.

Before this decision, public entities only considered BEE when issuing licenses and entering into partnerships, but not when procuring goods and services from the private sector. Government has been criticised for not taking the lead and leaving the private sector and state-owned entities to promote BEE.

The alignment of these two Acts will do away with the old narrow-based 90/10 and 80/20 calculation of procurement scoring system by public entities. This scoring system allocated 10/20 points depending on the size of the tender to black ownership of the company, whereas the incorporation of BEE into the scoring system will ensure that procurement points take into account all seven elements of BEE such as ownership by black people, black directors, employment of black staff, training of black employees, procurement of goods from black suppliers, the support to small black companies and the upliftment of black communities

 


Metropolitan Southern Olivers celebrate empowerment success

April 15th, 2011

A decade of empowerment progress came to a spectacular climax on Thursday 24th March with presentations to the country’s foremost champions of empowerment in the public and private sectors, among major corporate and across the ranks of small, medium and micro enterprises.

The 10th Metropolitan Oliver Empowerment Awards (the ‘Olivers’), the mark of BEE distinction for transformation leaders, were bestowed by guest of honour and keynote speaker Deputy Minister of Rural Development and Land Reform, Thembelani Nxesi at the Sandton Convention Centre before an elite audience of political and business leaders and media personalities.

Big winner on a big night for empowerment was Netcare Limited, which took the overall title as Top Empowerment Business of the Year after first scooping the Top Empowered Big Business Award and taking category honours for businesses in the healthcare and pharmaceutical sector. Netcare CEO Dr Richard Friedland pointed out: “For Netcare, black economic empowerment is far, far more than a business imperative”. “For us it is about playing our part in normalising our society and nation. We are a strong believer in service leadership, serving not just patients but the broader community.

“We are humbled by this award but recognise that we still have so much to do.  I want to salute everyone involved in this effort. Tapping the creativity and energy of every South African is critical to the success of our nation.”

The Olivers are hosted every year by Impumelelo, a pioneering publication dedicated to black business success, and organised by Topco Media in partnership with headline sponsor Metropolitan, the leading life assurer and investment solutions provider.

The 10th anniversary event celebrated business success in style, bringing glamour and sophistication to a segment of the economy normally associated with hard work and unstinting effort. The occasion also provided an ideal showcase for a lifetime achievement award to Vusi Khanyile, founder MD and chairman of Thebe Investments, South Africa’s first black empowerment company which was received by Thulani Khanyile, CEO of Afro Energy and son of Vusi Khanyile.

Another winner was Maponya Incorporated that walked away with the Top Empowered Corporate Award, which is not surprising as the firm’s focus is on efficient and energised litigation and drafting systems, with empowerment and training of previously disadvantaged individuals its core. Among those applauding the award was special guest Futhi Mtoba, president of Business Unity South Africa and chairman of the Public Investment Corporation.

The audience then celebrated the latest wave of empowerment heroes, including Ronald Abvajee of My Personal Trainer Wellness, who took the coveted individual award for Top Black Male Entrepreneur, and the Top Black Female Entrepreneur title was claimed by Pria Hassan of WOA Fuels & Oils. After another outstanding success at the Olivers, Zelphinia Mvula, BEE manager at Metropolitan, commented: “The partnership between Topco Media and Metropolitan has contributed to consistently higher standards within this groundbreaking awards programme”.

Passion for transformation drives Metropolitan and that same passion characterises these awards and the strength of commitment shown by the winners.” Topco chairman Richard Fletcher congratulated all finalists and noted: “This awards night celebrates your successes over the past year, but the real impact will be felt in future as a new wave of BEE champions draws inspiration from your example”.

Top Black Female Entrepreneur Pria Hassan emphasised the wider significance of the awards: “By putting the spotlight on Black entrepreneurs in such spectacular style, the Olivers celebrate empowerment and personal achievement in a way that uplifts and energises everyone at the event and everyone who dreams of making a breakthrough into the world of business”.

“Every step forward by today’s entrepreneurs takes huge personal commitment. This award says ‘It can be done; don’t give up.’ “That is the message I wish to share with all the entrepreneurs who start from a zero base yet still rise up.”

South Africa’s future prosperity was dependent on the creation of a cadre of inventive, energetic black entrepreneurs, according to Top Black Male Entrepreneur Ronald Abvajee. “Entrepreneurs not only create wealth, they create jobs and drive economic growth. This is especially true of start-ups and small business. Build an enterprise culture and you build a nation. These awards contribute to this vision and the organisers should be congratulated for creating such a dazzling showcase in which tomorrow’s entrepreneurs can shine.”

The event’s glitzy and ritzy positioning was supported by world-class entertainment from multi-talented master musician Jimi Gomez and the stylish ‘fab four’ from Barcode. They wowed an audience of South Africa’s good and great. MC Xolani Gwala, usually associated with drive-time on SAfm, ensured a fine time for all.

Sourced from www.impumelelo.net


Focus on New Growth Path and Fronting

April 15th, 2011

President Jacob Zuma recently addressed the Black Economic Empowerment Advisory Council on the 1st April (click here), in Pretoria, to discuss how to take forward the agenda of economic transformation and to promote inclusive growth. The meeting discussed various issues.

There was a special emphasis on the implementation of the New Growth Path and the role of B-BBEE in creating jobs. The meeting emphasised that B-BBEE is not just about big business deals for a few individuals in society.  It also has to be about the real empowerment of ordinary people.

The meeting underscored that B-BBEE is central to inclusive growth. Provisions in the New Growth Path were supported which require a much stronger focus on the broad-based elements of the BEE regulations, such as ownership by communities and workers, increased skills development and career-pathing for all working people and support for small enterprise and cooperatives, as well as a new emphasis on procurement from local producers in order to support employment creation.

According to Michael Bleby in the Business Day, the meeting, the first of the council since the publication of the New Growth Path late last year, placed less emphasis on other problems of empowerment identified in the economic policy document of Economic Development Minister Ebrahim Patel.

The New Growth Path, which aims to create 5-million jobs by 2020 and boost the economic growth rate to 7% from last year’s 2,8%, says empowerment needs to ensure more people benefit and there needs to be more support for the development of small black-owned businesses.

“There will be a serious attempt to deal with the matter (of fronting),” Zubeida Jaffer, a spokesperson for Mr Patel, a council member, said yesterday.

Another article, BUANews, adds that one of the major shortcomings in the implementation BEE was the over-emphasis on diversity of ownership and senior management.  This was another of the key issues raised at the Advisory Council meeting.   

“The unintended consequence of this over-emphasis is fronting and tender abuse. We are happy that the Council spoke out so strongly against fronting which is one of the major obstacles to the implementation of B-BBEE.  Fronting is an insult to the dignity of the poor and we have to act decisively against it. I am pleased that the Council is so determined to work with us to act against this heinous practice,” Zuma said.

The meeting also pointed out that to contribute to job creation, B-BBEE has to, amongst others, promote new enterprise development, encourage local procurement and enhance skills development and employment equity.

“It was agreed that government, with the support of the B-BBEE Advisory Council, would ensure a revision of the B-BBEE Codes to promote employment creation, investment in small business and cooperatives, broad-based ownership and employment equity,” the Presidency said

A progress report was presented by government on work done in the past year to promote job creation. Amongst these were the following:

  • The full budget of R41 million for the Cooperative Incentive Scheme was paid out to 222 cooperatives, creating around 2 159 new direct job opportunities and a further 745 temporary job opportunities.
  • A total of 100 new small scale cooperatives with approximately 500 new job opportunities were established, and 113 cooperatives were supported to enhance access to markets through local and international exhibitions.
  • A total of 224 new small, medium and micro enterprises (SMMEs) were created, 656 SMME’s were supported and 6 678 direct and indirect jobs were created and amongst these, 35% are women-owned and 96% are black-owned.
  • Government has 30 incubators countrywide, supporting SMMEs in various industrial sectors including chemical, biotechnology, floriculture, small scale mining, information and communication technology (ICT), stainless steel, furniture, construction, jewellery, bio-fuels, agriculture, automotives, base metals, mixed manufacturing and aluminium.

What are your views?  Email us at beeintheknow@iquad.co.za

 



Understanding the New Growth Path

April 15th, 2011

In his inaugural State of the Nation Address in June 2009, President Jacob Zuma highlighted the key elements of a new programme of action, titled the New Growth Path.  This programme would promote a more inclusive economy through the creation of decent work and job creation initiatives.

The Government is committed to forging such a consensus and leading the way by identifying areas where employment creation is possible on a large scale and developing a policy package to facilitate employment creation.  This would be done through enhancing social equity and competitiveness as well as a strong social dialogue to focus all stakeholders on encouraging growth in employment-creating activities.

Herewith find an extract from The New Growth Path document in relation to Broad-based Black Economic Empowerment (BBBEE):

Government has adopted the position that black economic empowerment (BEE) should seek to empower all historically disadvantaged people rather than only a small group of black investors. To this end, it adopted the Broad-Based BEE Act, which calls for expanded opportunities for workers and smaller enterprise as well as more representative ownership and management.

Current BEE provisions have, however, in many instances failed to ensure a broad-based approach, instead imposing significant costs on the economy without supporting employment creation or growth. The present BEE model remains excessively focused on transactions that involve existing assets and benefit a relatively small number of individuals. The New Growth Path requires a much stronger focus on the broad-based elements of the BEE regulations – ownership by communities and workers, increased skills development and career pathing for all working people, and support for small  enterprise and co-ops – as well as a new emphasis on procurement from local producers in order to support employment creation.

The following shortcomings have emerged in the implementation of BEE. First, ownership and senior management issues receive disproportionate emphasis. The unintended consequences of this trend include “fronting”, speculation and tender abuse. Second, the regulations do not adequately incentivise employment creation, support for small enterprises and local procurement. The preferential procurement regulations aggravate this situation by privileging ownership over local production.

Finally, the broad-based BEE regulations penalise public entities as suppliers. The democratic state owns public entities on behalf of our people yet the regulations do not count them as “black empowered”. A major re-think is needed of the BEE framework and policy to achieve South Africa’s developmental and growth goals. The dti and EDD will work with the relevant government departments and the B-BBEE Advisory Council to ensure:

  • A substantial revision of the BBBEE Codes to do more to incentivise employment creation; investment in new productive capacity by black entrepreneurs, including small businesses and co-ops (using among others stronger local procurement); skills development and employment equity; collective and other forms of broad-based ownership; and sector strategies to create jobs.
  • Consistent implementation of broad-based (instead of narrow) BEE in all sectors, with a systematic assessment of the effects on the cost of capital and investment.
  • Continuous monitoring and evaluation of the impact of broad-based BEE on overall equity, employment creation, support for new entrepreneurs, growth and innovation.

 Sourced from www.info.gov.za


B-BBEE: Has it reached grassroots level?

April 1st, 2011

A question asked on numerous occasions by elites, politicians or businessmen but has it been questioned by the public concerned? In addition, has anything been done about it?

It would not be unwarranted if I stated confidently that many corporate and big executives have an extended knowledge and good understanding of B-BBEE.  Similarly, I would ascertain that people in township and rural areas have little or no understanding of B-BBEE issues, especially in relation to how the government’s B-BBEE policies can actually assist them when engaging in business.

B-BBEE, as defined, is an economic policy of the government that encourages economic growth and is meant to restore the inequalities inherent in the economy. As a policy, its intention is to improve the lives and economic potential of black people but thus far, the question remains as to whether this has been achieved at all levels.

An example would be wanting to start a small business.  According to Africa Empowered, access to finance is the biggest pain experienced by black people at the grassroots level, according to preliminary findings by Africa Empowered.  This issue was identified 297 times out of 2,194 identified as painful issues.  This data was collected as part of the “Eyethu Sonke le BBBEE” campaign, which was conceptualized by Africa Empowered, funded by the National Empowerment Fund, Engen and Tsogo Sun Gaming and endorsed, by the Department of Trade and Industry.

Sources, such as Engdahl & Hauki (2001), verify such findings by confirming that the process of       B-BBEE has largely created emergent black business elite, but has failed to generate far-reaching economic empowerment at the grassroots level and equitable economic development in South Africa.

A good example of this was when MTN revealed its R8.1bn BEE deal in the Financial Mail. One of the comments from a blogger stated, “BEE deals are supposed to help poor black South Africans.  Can someone please explain to me how this will help someone that lives in a shack?  All these deals empower the black middle class, and that is not where this country’s problems lie.  It lies with the millions of poor people and this deal does absolutely nothing for them.  So therefore, it is addressing a problem by targeting the completely wrong spectrum of the population in order to yield results, never mind the exclusion of other groups based on race. Nice one MTN!”Please email us at beeintheknow@iquad.co.za

What are your thoughts? 

 

Sources:  Louise van Scheers (South Africa), Africa Empowered

 


Coffee with David: CEO of IQuad Group Ltd

April 1st, 2011

As CEO of IQuad Group, your role is obviously demanding.  Could you clarify what your role entails at IQuad?

In summary, I oversee the management of interactions within four main areas, shareholders, strategic alliances, staff and clients. These are the cornerstones of our business and success in these areas ensures the overall success of our business. Being in the services industry, a large part of our fortune hinges on people. Our staff is a crucial part of our success and we are fortunate in having a motivated and capable team, undoubtedly our greatest asset.  

 

If a prospective client asked you for a general summary about the IQuad Group, how would you describe this dynamic and complex company?

Our service offering is diverse and can be complicated to explain. As a result, a few years ago we came up with a “lift test” definition for the group. The idea being that if an IQuad staff member was in a lift and someone asked them what IQuad does, they would be in a position to provide a concise definition of our service offering.

IQuad is a JSE Alt-X listed company that provides high impact strategic outsource and compliance services to business. These services can be categorised into four areas:

  1. Government incentives where we assist businesses to access the various investment incentives available to businesses that are starting up or expanding
  2. Global trade solutions where we provide niche services such as forex risk management and duty recoveries to importers and exporters.
  3. Business development services including IT solutions, management system implementations and support services.
  4. Audit and verification services on numerous business areas including BEE verification, VAT evaluations and ISO certification.

Did I mention that it needs to be a slow lift or very tall building?

What are your views on B-BBEE and how vital is the implementation for businesses today?

I think BEE has become a business imperative, not only because more emphasis is being placed on BEE compliance levels in the procurement process but also because it is the right thing to do to ensure the broad-based development of South African society. It is encouraging seeing how businesses are embracing B-BBEE and making meaningful contributions in terms of skills development for staff and broader community upliftment.

Do you have a personal motto that you live by, in work and play?

Yes, I think that hard work and a positive attitude will always prevail, in both a business and social context.

Where do you see the future of SA heading – and how can IQuad use this in their favour?

There is currently a huge amount of hype around job creation and not without good reason. Government by their own admission have not been successful in creating a business climate that is conducive to establishing and operating small businesses and a huge amount of work is needed in this area. IQuad is well positioned to assist with this challenge. We are doing a very good job of promoting the various investment incentives available to both small and large businesses throughout South Africa and thus assisting in the very important task of stimulating job creation. A good example is in East London where we work closely with the investment promotion staff at the East London Industrial Development Zone to assist them in attracting new investors to the IDZ.  IQuad needs to keep a focus on assisting in stimulating economic development and job creation.

Moeletsi Mbeki recently stated that SA is heading towards a ‘Tunisia Day’ – do you agree with this statement?

One would be foolish not to take heed of the warning signs. It is alarming how the discontent in countries like Tunisia, Egypt and Libya rapidly gained momentum.

Our leaders need to take cognisance of these developments and renew the pledge to “create a better life for all”. It is only through meaningful economic growth and job creation that we will be able to improve the lives of all South Africans and avoid a growing level of discontent. Moeletsi Mbeki calls for a renewed focus on entrepreneurship to create job opportunities. This is something that can be achieved through existing B-BBEE legislation if big business turns their attention to improving the plight of the broader community rather than promoting wealth creation for a select few.

I believe that Clem Sunter sums it up best in his publication, Never mind the Millennium. What about the next 24 hours?

“In every community there should be an entrepreneurial training centre which can provide business skills.  These centres should be run by private enterprise, with financing coming from government and business….the centres should be staffed by the old foxes.”

The pillars of skills development and enterprise development within the B-BBEE codes provide the platform for the above to become a reality.


New BEE checklist launched by Jay Naidoo

April 1st, 2011

Sourced from Paul Janisch (click here)

Investment company Ditikeni has launched its Black Economic Empowerment (BEE) checklist which the company says will improve the quality and transparency of broad-based BEE ownership.  The Ditikeni group was formed in 1999 by a number of non-profit organisations seeking financial sustainability. They aimed to participate in Black Economic Empowerment in order to create a capital base to fund their community development and welfare work.  “Ditikeni” is tshiVenda for “something to lean on” signifying our aim of financial sustainability for NGOs.

Jay Naidoo, co-founder of the J&J Group, a former trade union leader and former MP states, “Graft and corruption are producing a society that is driven by consumption rather than production, yet consumption will not create jobs that are needed. Consumption just breeds greed and little else. This approach to business through politics breeds a kind of entitlement that will rip the foundations of our society apart. That is why I say the timing of the checklist is impeccable because it addresses each and everyone of those concerns” 

“Many are of the view that BEE in itself is the source of all the ills that pull at our country’s economic, social and political environment. And in many respects it is. But BEE was always meant to be broad-based and not for the select few, it was always intended as a public initiative not as a means to amass private wealth, it was meant to address the exclusion of the formerly disadvantaged from the white-owned economy,” Naidoo added.

Naidoo says he still believes BEE can work in South Africa but only if it is linked to the goals of a people-centred democracy.

“It can work because it can give dignity to those who until now were made to feel that they did not make the grade. It can work because it can instill a sense of pride within the communities hat were left behind by inefficient and often corrupt municipal leaders, it can work because it can generate meaningful employment for the people who have lost hope in knowing what it is like doing an honest day’s work and earn their way in life,” Naidoo says.

The actual checklist seems to focus on good governance of broad-based ownership schemes – to quote the checklist 

The checklist does not deal however with the extent to which the subject organisation complies with the BEE Codes of Good Practice – that remains a separate exercise. The Checklist covers what the BEE Codes do not, that is, the bona fides of those organisations which claim to be broad-based.

AND  It supplements, but does not replace, the BEE Codes of Good Practice.


Complexity of broad-based ownership schemes

March 17th, 2011

We interviewed Johnny Klopper, a specialist on Broad-Based Ownership schemes and an attorney at Pretoria-based law firm, Klopper, Myburgh, Gwangwa & Associates Inc to find out more about this complicated subject.

Broad-based ownership schemes are those ownership initiatives that allow business owners to invest with B-BBEE candidates including black designated groups as defined in the B-BBEE act on a collective basis.  This is achieved through structures, arrangements and mechanisms to allow such candidates to participate in B-BBEE ownership initiatives without compromising on the quality and standard of the relevant enterprises value proposition.

“In pursuit of meaningful and sustainable solutions for these initiatives, it is vitally important that the stakeholders follow a holistic approach on a multi-disciplinary level to ensure that all relevant issues relating to the subject matter are properly covered within the parameters set out in the B-BBEE Act, in particular the Code of Good Practice and other sector charters.  It is inevitable that enterprises who wish to embark on Broad-Based ownership initiatives will be confronted with a number of complex legal issues including but not limited to the following:

1.  Tax Implications in respect of any value shift;
2.  Specific requirements as set out in the Companies Act or Closed Corporations Act;
3.  Financial sureties in respect of the measured entity in relation to a third party (Financial Institutions);
4.  Business continuity;
5.  Exit strategies in respect of existing Shareholders/Directors/Business owners;
6.  Affordability and sustainability;
7.  Board representation of shareholders in the case of Private and Public Companies.”

Johnny adds, “As commercial attorneys, we consult with our clients on these complex issues, design structures, create mechanisms and implement procedures to address all these issues on a multi-disciplinary level including the specialist services inter alia, auditors, financial advisors and BEE specialists.”

In view of the “targets within targets” included in the formula for measuring the ownership element of a B-BBEE scorecard, it has become a challenge to obtain maximum point scoring for ownership initiatives.   Some industries, for example the construction and mining industries find it more difficult to achieve these internal targets (i.e. Black Female Participants) than other industries where such designated groups enjoy higher percentage presentation.

According to Johnny, this rather complex approach to the measurement of B-BBEE ownership renders it almost impossible for ordinary business owners to understand the issue of ownership. “It is unfortunate that the legislator has opted for such a complex approach to B-BBEE but in all fairness it would appear that a significant percentage of business enterprises in the marketplace have no moral objection in participating in fronting structures in the hope of achieving artificially high ratings for their alleged B-BBEE participation with no regard to the consequences of their actions in the long term.”

As this complicated issue comes with a series of challenges, including the lack of understanding from business owners on legal consequences in business structures, Johnny explains that it is almost impossible to suggest that any structure be used as a general principle or point of departure. Each business enterprise must be considered on its own merits. The multi-disciplinary approach as referred to above plays a very important role in the process of designing and structuring of business enterprises to accommodate B-BBEE in a meaningful and sustainable manner. An elastic approach calls for thinking “out of the box” to ensure maximum potential through the creation of “win-win” business solution.

“One of the biggest pitfalls I have identified in the restructuring of business enterprises for B-BBEE purposes is the restructuring of any business with the sole purpose of achieving points for ownership on a B-BBEE scorecard. B-BBEE and in particular the issue of ownership can never be dealt with in isolation. Any responsible business owner will consider all the relevant factors including but not limited to financial risks, management issues, exit strategies, continuity plans, tax implications, logistical challenges, financial and operational sustainability and possible growth potential. The participation in any BEE initiative must be considered in relation to the impact thereof on the other elements of the business.”

Johnny concludes, “B-BBEE has every opportunity to unlock the values of people and create a host of opportunities for any enterprise who commits itself to a comprehensive restructuring of its business affairs to accommodate B-BBEE on a meaningful and sustainable basis.  The initiative was designed to have a severe impact on the business as we know it, in order for it to be meaningful and sustainable in terms of the inclusion of black participants in the main stream of the economy.   Unless business owners truly commit to a process of transformation and use their best endeavours to ensure proper implementation of B-BBEE strategies and structures, they are bound to lose the opportunity to maximise the benefits of proper B-BBEE structuring”.


When are broad-based ownership schemes applicable

March 17th, 2011

When calculating BEE ownership for shares that are held in a trust, many companies fail to meet the requirements set out for trusts.   We have spoken about these requirements at length in previous editions (see Issue 4 and Issue 9) but essentially the codes require that shareholding held through a trust must actually vest with the beneficiary.   

Where the intended beneficiaries of the trust are not fixed, because they belong to a class of people (e.g. the black employees of company ABC (Pty) Ltd) it is not possible for the beneficiaries to meet the vesting requirements. It may be more appropriate to regard such a scheme as a Broad-Based Ownership Scheme, or Employee Ownership Scheme.  

A Broad-Based ownership scheme exists where employees or community participants receive beneficial ownership of a portion of the company.  It is not possible for beneficiaries to exercise direct control over their allocated portion of the company. Their interests do however need protection, and the codes stipulate a number of requirements in terms of which the rights of these beneficiaries would be protected.

For Broad-Based Ownership schemes:

-          The administrative structures required to manage the scheme may not take fees in excess of 15%.

-          The fiduciaries of the scheme must be independent of both the company and the scheme.

-          Restrictions apply to the termination of the scheme.

For Employee Ownership Schemes:

-          The employees must participate in appointing the fiduciaries of the scheme.

-          The employees must take part in the management of the scheme in a similar manner to shareholders.

-          The scheme constitution must define the participants and their respective proportions of entitlement to receive distributions.

-          The fiduciaries may not vary conditions of the scheme to the detriment of beneficiaries.

-          The constitution and statutory documents of the scheme must be available in all official languages.

-          Financial reports must be presented to participants at an Annual General Meeting.

-          Restrictions apply to the termination of the scheme.

Additional restrictions apply to the maximum number of points that can be claimed for ownership through these schemes, as well as proving the competency of the persons administering the schemes.

While Broad-Based Ownership Schemes and Employee Ownership Schemes are viable alternatives to meeting the vesting requirements of ownership held through a trust, careful consideration should be given to ensure that the measured entity has met the additional criteria applicable to these schemes.

For more information, contact Wade van Rooyen on 041 391 0600.

 


The JSE BEE segment

March 17th, 2011

The Johannesburg Stock Exchange has recently launched a new BEE segment on the exchange. For companies listed in this BEE sector, verification agencies will be required to provide specific information relating to BEE ownership, in a condensed ownership certificate.  This report would include EME’s with black ownership.  The certificate would not replace the more comprehensive Broad-Based Certificate but would provide a short-cut to establishing the true BEE ownership for trading purposes.   The certificate will assist the JSE brokers to obtain assurance of B-BBEE equity ownership status when trading on the JSE BEE Board.

The BEE Segment is part of the JSE’s TradElect Main Board and is used for companies who wish to list their BEE share scheme. Trading in BEE scheme shares is restricted to BEE compliant persons which will be monitored and regulated by the JSE.

The BEE Segment enables broad based share ownership and creates an opportunity for skills development within the financial markets through providing holders of listed BEE scheme shares with market education and access to the exchange not only for the trading of their BEE shares but to all products listed on the JSE. 

Sourced from www.jse.co.za


IQuad Launches BEE KNOWN – A Guide to Understanding B-BBEE Elements and Improving your Scorecard

March 10th, 2011

The new IQuad BEE Guide is now available on our website! The new guide BEE KNOWN – A Guide to Understanding B-BBEE Elements and Improving your Scorecard lists all the elements and provides a simple breakdown of how each element functions in our current B-BBEE system

If one aspect of BEE is unmistakable, it is that the level of understanding of the basic concepts is very poor. This is something indicated by managers within companies, owners of companies and the average fellow South African. This new B-BBEE EGuide will provide managers and persons within organizations with a quick reference to key issues that drive B-BBEE compliance.

The amount of information offered will only be a summary in order to give a basic understanding of how the elements apply to your business. The goal of this guide is to explain B-BBEE, in straightforward terms, thus making sure you achieve the best possible scores for your business as quickly as possible, and incessantly. A simple case study is provided with each element to assist with clarification in how they work in businesses. A glossary is also available at the end of the guide with clear definitions of various BEE terms.

This guide has been written for all those not interested in the history or finer details behind BEE – it is simply a guide to show businesses how to boost their scorecard. Businesses are being constantly being affected by B-BBEE and staying informed is crucial. The Codes and B-BBEE is extremely detailed and this guide is just the beginning of a complicated framework. Please click here to download the Guide in a PDF format.


Zuma’s job creation plan – is it unrealistic?

February 24th, 2011

It is not surprising that many supporters wanted President Jacob Zuma to pay particular attention to unemployment in his state of the nation address – and he did not disappoint them.

As he stated in his address, “We persuaded the nation to make 2011 the year of job creation, through meaningful economic transformation and inclusive growth. We are humbled by the overwhelming support and consensus from all parties. We are all agreed that this is the correct course of action given the levels of unemployment in our country.”

One of the supporting groups, the SACP Young Communist League said recently in a statement. “As the YCLSA our major expectation is around the issue of unemployment as it still remains a ticking time bomb, particularly among young people.  We hope the president will give direction in terms of the economy.”

However, since the address by the president, there has been a flood of criticism.  According to Free Market Foundation executive director Leon Louw, the direction that President Zuma wishes to take will actually cut employment.

“He said government wants to make it easier for small businesses to operate… but by implementing more laws, such as the labour laws, National Credit Act, Consumer Protection Act… they are making it impossible for them to operate,” Louw said.  “Jobs exist. The problem is how do you get the people who want the job to the people who want the job done?  The answer is you remove the barriers between them, which means he should not tinker around with laws that result in less jobs, but undertake a comprehensive review of labour policies and other measures.”

Nevertheless, it is still evident to our country that President Jacob Zuma’s intention is to call for an “inclusive” economy in which the black majority, women, persons with disabilities and the youth participate fully and meaningfully.  He told MPs that government would find it difficult to achieve its set job target if the issue of transformation was not urgently addressed.

“We will continue implementing our equity policies such as affirmative action and broad-based black economic empowerment.  No economy can grow as fast as it should, create jobs and be sustainable, if the majority of citizens are excluded.  Last year’s employment equity report indicated that 10 years after the introduction of the Employment Equity Act, white men continued to hold 63 percent of top management positions in the private sector.”

Moeletski Mbeki (Business Day) begs to differ in the effectiveness of B-BBEE and claims that, “What the ANC did instead when it came to power was to identify what its leaders and supporters wanted. It then used SA’s strengths to satisfy the short-term consumption demands of its supporters. In essence, this is what is called black economic empowerment (BEE).”

He adds, “BEE promotes a number of extremely negative socioeconomic trends in our country, for example, affirmative action, a subset of BEE, promotes incompetence and corruption in the public sector by using ruling party allegiance and connections as the criteria for entry and promotion in the public service, instead of having tough public service entry examinations.  If we want to develop SA instead of shuffling pre-existing wealth, we have to create new entrepreneurs, and we need to support existing entrepreneurs to diversify into new economic sectors.”

The arguments above, for and against, do however, all endorse the issue of unemployment in this country and the various ways of eliminating this problem.  What are your thoughts?  Email us at beeintheknow@iquad.co.za 

 


BEE Training Feedback

February 24th, 2011

IQuad BEE verification has launched an informative and helpful new BEE training course, which involves a 2-day module that introduces BEE. 

As mentioned in an article in 2010, the course is aimed at equipping owners and/or managers of companies and persons responsible for B-BBEE implementation in the business with the necessary skills to implement and manage B-BBEE .  While IQuad BEE has been involved in providing training on an ad hoc and informal basis for a number of years, it has become clear that there is a need for a formal, accredited course, based on the numerous requests received from clients and contacts alike.

The SETA accredited BEE course has already taken place in Port Elizabeth and Bloemfontein and takes place in Cape Town this week.  The feedback from the courses in PE and Bloemfontein was extremely positive.

Some of the comments were, “ I definitely now have a better understanding of B-BBEE and how to apply it at work” and  “The facilitator was helpful and explained the BEE terminology very well”.  The participants felt that the course contained new and useful information and were enthusiastic to partake in further training.  Our attendees have included HR professionals, BEE consultants and procurement and financial officers.

The course encourages group participation and has a very practical element to it. This is to ensure that delegates will leave with an understanding of the BEE requirements as well as how to implement them back at their workplace.

Further dates for BEE courses scheduled near you:

Johannesburg: 7th – 8th Mar 2011

Port Elizabeth: 14th -15th Mar 2011

Check our website for new dates to be added at a location near you.If you are interested in attending this course or would like to find out more information, please contact Jenni at IQuad – jenni@iquad.co.za  or 041-3910600 or Click here for IQuad Training.  


New DTI proposals for enterprise and socio-economic development

February 24th, 2011

B-BBEE Contributions made to Enterprise and Socio-Economic Development could soon be recognized annually instead of cumulatively, according to the latest amendment of the codes published in the government gazette on 18 Feb 2011.   Enterprise Development (ED) and Socio-Economic Development (SED) contributions are monetary or in kind payments made to qualifying beneficiaries by Measured Entities seeking points on the Broad-Based Scorecard.  

The un-amended codes of good practice make it possible for excess contributions made in a given year to carry over into the next year.  The proposed amendment is that instead of adding up all contributions made over a period and measuring them against the profits made during the same period, contributions can now only be made each year and measured against profits for the year.

The amendment will have a negative impact on companies that made large contributions a few years ago, and who were planning for those contributions to see them through for a few years of profitability.

Conversely, the move is positive for new entrants to the B-BBEE measurement, because under the current legislation a company is forced to measure its contributions cumulatively from the date of inception of the codes.  This means that a company preparing its scorecard 4 years after inception of the codes will in theory be required to contribute for each of the 4 years even though it did not measure its B-BBEE contributions until year 4.   The legislated target SED spent of 1% of NPAT then effectively becomes 4% (1% per year x 4 years).   The equivalent ED spend for a generic company becomes 12% of NPAT (3% per year x 4 years).  

An earlier publication by the dti in the “interpretive Guide” published an official example in which the cumulative nature of contributions was not considered, and as a result, most verification agencies have not enforced the cumulative contribution.   A sudden withdrawal of the interpretative guide by the dti lead to some confusion over which calculation was correct.  The amendment to the codes will eliminate all confusion, but potentially at the expense of those who made large contributions in the past.

Email us if you will be negatively affected by this amendment, and we will include it in our commentary to the dti.


Cut off dates for ED and SED contributions

February 10th, 2011

Do not miss the boat and lose valuable points!  Time is running out for your company to donate to qualifying beneficiaries under the enterprise development or socio economic development elements on your scorecard.

Contributions have to be made by the end of the financial period that you are measuring. That means that if your financial year-end is 28 February 2011, you have only a couple of weeks to make the required contributions to meet your target.

For more information, contact your consultant or verification agency or read the ED and SED article in Issue 2 on http://www.iquadbee.co.za/

Although these contributions can be a ‘quick-fix’ to achieving points on your scorecard, these points can be expensive if left to the last minute.  It would be more beneficial to have a long-term relationship, which would be of mutual benefit to both the measured entity and beneficiary and more cost effective. 

For example, under socio economic development, a building company may be able to form a relationship with a local school benefitting their black employees’ children.  Donating expertise, labor and materials to assist with upgrading or developing the school during slower periods, would have a lower financial cost than simply “giving money away”. The added advantage is that it could potentially benefit your employees and their families, resulting in a better employer/employee relationship and loyalty to the company.

For enterprise development, you could consider developing a supplier with black ownership.  Spending time in training and mentoring owners, managers and employees of a beneficiary entity, could earn points for your scorecard, while potentially improving the service and product delivery of your supplier.

These two examples may take a bit more planning and monitoring throughout the year but can have an excellent return on investment, if properly executed.


Transvelop’s dynamic ED and SED solutions

February 10th, 2011

An interview with Sean Krige, MD of Transvelop gives us an introduction into more effective ED and SED solutions.

When did Transvelop first begin?

Founded in 2008 by my brother, Neil and I, our sole purpose was in attempting to facilitate and ensure broad-based BEE funding.  Thankfully, it found its way to the right people in the correct manner. The past four years have been a roller-coaster ride to say the least.  Breaking into the market at a time when BEE had very little credibility, compounded by the 2009 / 2010 financial crisis, has meant some very lean and soul-searching months. Because of this however, Transvelop has had a steely resolve built into its ‘raison d’être’, and forced us to make even the smallest investment go a long way. To date, the company has managed and implemented relatively modest amounts of funding (just over R4m), but in the process, has also assisted over 20 businesses in successfully complying with the enterprise and socio-economic aspect of the BEE codes.  

What are your personal views about B-BBEE and is this reflected in your company?

I hold the concept of restoration close to my heart. South Africa is in need of a great deal of restoration – not purely financial either. Unfortunately, I believe that a great deal of policy in SA today has become overly politicized and very heavy handed. I think one of the worst areas where this has manifested is through the incorrect application, implementation and verification of BEE. I feel that much of the change hoped for, and consequently pinned on BEE, could quite easily be supplemented, if not substituted, through more dynamic, ‘carrot not stick’, private industry inclusive, economic policy. Transvelop’s response to this has been founded on the belief that any shift in BEE (or economic) policy is likely to increase in focus on the development of small enterprise and local supply chains – something that is already a core competency and focus area within our business.

Could you tell me more about the SED Alliance Unit?

The Social & Economic Development Alliance (SED Alliance) is a not-for-profit, public benefit organization. It is in its fourth year of operations and has been set up as an Enterprise & Socio-Economic Development unit – as provided for in the Broad-Based Black Economic Empowerment (B-BBEE) codes.   Its main objective is “to bring about meaningful and sustainable Enterprise Development (ED) and Socio-Economic Development (SED) within the broad-based black economic empowerment codes”. An extract from the SED Alliance’s governance policy states that this is achieved through various goals, such as investing in unemployed individuals, by; tackling the current critical skills shortage in SA, providing relevant job information, training and skilling,  improving high school learner/leaver ability to access tertiary education, and business advisory and consulting services,  to name a few.

Through Transvelop (the SED Alliance’s administrative agents), it offers contributing companies a variety of outsourced ED and SED investment options – tailor made toward company or industry specific needs.  The benefits of Transvelop’s working relationship with the SED Alliance, lies primarily in the transparency and accountability a section 21 company brings with it.

What are Transvelop’s upcoming plans?

We would like to grow the company by facilitating and equipping staff (or third party service providers), to effectively invest themselves in SMME / educational development.  The focus will remain on empowering and incorporating private industry as a key component of the solution and ‘the community’ as a willing and competent partner in the process.

Has B-BBEE been easily accepted in South Africa?  Elaborate as to why and how this can change.

No, it has not, but some of these reasons are quite justified. There has been (and continues to be) very poor Government communication surrounding the interpretation and verification of the Codes. ABVA (Association of BEE Verification Agencies) is currently attempting to provide more certainty in this regard, however, without DTI endorsement or further collaboration, ABVA will continue to fight an uphill battle concerning bringing appropriate uniformity and regulation to the industry. I believe there are steps currently underway by Government to resolve the process but much damage has already been done. As previously mentioned, I believe any sustainable BEE framework should be underpinned and incentivized through appropriate industrial policy action (IPAP2 for example) and a more coordinated and inclusive role throughout the private industry associations and functional chambers of commerce.

Do you have a personal motto or proverb for work and play?

A scripture from the book of Luke… ‘Heaven isn’t for saints; it’s for sinners who know the Saviour’

For more information, please go to www.transvelop.co.za

 


How points are lost in skills development

February 10th, 2011

Skills development points are awarded when a company demonstrates that it has spent money on the training of black employees, with a separate target in the generic scorecard, for training black disabled employees.

Certain types of training qualify for enhanced recognition. For example, when money is spent on adult basic education & training (ABET), the actual cost of the training is recognized as 125%.  Another example is the cost of practical training that will result in a formal qualification being issued. This cost can include the salary expenditure of the employee for the duration of the training.

Record keeping is the most essential foundation to this element.  These are some of the most common ways to lose points on your scorecard, under the skills development element:

·         Training takes place outside of the measurement period
·         Lack of training for black employees
·         Inadequate record keeping:
·         Unable to prove attendance at training
·         Unable to prove amount spent on training
·         No records of internal training
·         No learnership contracts
·         A generic company must comply with the following pre-requisites:
-          Must comply with criteria in Skills Development Act and Skills Development Levies Act.
-          Must be registered with applicable SETA.
-          Must have developed a workplace skills plan
-          Must have implemented a programmed developing priority skills for black people.


BEE Myths

January 27th, 2011

One often hears various perceptions and myths about B-BBEE.  Here are three of the most common BEE myths in the industry:

1. My business must have a black shareholder

Ownership is only one of the seven elements on a BEE scorecard.  There is no compulsory requirement to sell all or any share of your business to anyone.  In certain industries however, black ownership is a prerequisite when applying to government entities for a license, for e.g. granting of fishing rights/quotas from the Marine Coastal Management Agency.

2. White women count

We are frequently asked if points are awarded to businesses that employ white women, considering white women were also declared as historically advantaged individuals (HDI’s) under the Employment Equity Act.  The answer is no.  This is because, under B-BBEE, the aim is to measure the involvement of black people in your business, under the employment equity element.

3. BEE is coming to an end

This is something we often hear in our industry.  In fact, the government is becoming more earnest about BEE, which is evident by their commitment to increasing the number of verification agencies this year.

The Codes of Good Practice were released on 9th February 2007, with a review to be carried out after 10 years.  This substantiates another seven more years of BEE reporting and a highly unlikely chance of it being withdrawn or cancelled.


ABVA’s Best Practice Notes

January 27th, 2011

ABVA have released Best Practice Notes with the goal of eliminating the imperfections in the inconsistent application and interpretation of the Codes.

According to ABVA, the B-BBEE Verification Industry has faced various challenges since the birth of the industry.  At the top of the list, is the legislative framework within which it operates.  The B-BBEE Codes of Good Practice contains certain drafting errors, is unclear in areas and is silent on numerous pertinent issues.

This resulted in an uncertain environment within which to apply verification and calculation in accordance with the Codes. More importantly, companies are unclear as to certain targets and the measurement of contributions that inhibit the development and execution of their B-BBEE strategies. Thus, the imperfections contained in the B-BBEE legal framework leads to an inconsistent application of the Codes and an inconsistent interpretation. 

ABVA therefore saw a need for an inclusive process, based on legal principles of interpretational law, to ensure clarity with regard to the B-BBEE legal framework and the implementation of the B-BBEE Codes and the verification thereof. 

The majority of accredited ABVA Members and some non-ABVA Verification Agencies including Consulting firms and Private companies have now signed a voluntary declaration to abide by any Practice Notes issued by the ABVA committee.  The pre-condition for this commitment is that the process of developing these Best Practice Notes should be consultative. The Best Practice Notes will have no formal legal standing as they are not legislation nor do they purport to be.  It must be seen for what it is – an attempt by a concerned industry to achieve the consistent application of transformation legislation and where appropriate suggesting common application where the legislation is silent on the treatment of a particular matter.  It is not ABVA’s intention to neither pronounce nor prescribe any policy issue.  ABVA believe that to be the prerogative of Government and its structures.

ABVA’s Best Practice Note are now available on their website.  Click here to find out more and to view the Best Practice Notes on the ABVA website.

Sourced from www.abva.co.za


Zuma ‘s BEE concerns continue

January 27th, 2011

A recent article in the Financial Mail stated Zuma’s unhappiness with BEE, and the way it currently addresses inequality in society.

As quoted from the article, President Zuma says, “I believe that the definition of black economic empowerment has been narrowed and soon I will call on the country’s intellectual community to debate and define it…”

This may not come as a complete surprise as others will share the same sentiment but it has to be noted that exactly a year before, in 2009, President Zuma declared his discontent with the way B-BBEE was put into effect. (Click here to read article

Zuma goes on to add that affirmative action and the broad-based black economic empowerment (BBEE) programme had increased the black middle class substantially.  “[But] we are not convinced that it has succeeded in addressing the structural economic and social inequalities in our society,” he told the Confederation of Black Business Organisations (CBBO) in Sandton.  He believes it is currently being misapplied to serve narrow business interests.

Both articles, over the span of a year, have proven that BEE is still a progress in the making.  Agreeably so, there are flaws and some truth behind narrow based ownership.  But realistically, it is still vital that changes in empowerment should only happen across all seven elements set out in the Codes and not just one or two.

Each element has an equally important aspect that can benefit companies or communities as a whole, and not just benefit a few.  As the President said, ““BEE is not about individuals who are busy getting tenders; it is about empowering the whole community”.  If BEE does start moving towards these attainable goals, then hopefully we will be reading an article next year where the President declares his faith in the system, and not further concerns.

What are your thoughts?  Please email us at beeintheknow@iquad.co.za


IQuad’s Top 5 BEE Resolutions

January 13th, 2011

It is once again time to step back and reflect on the past year.  A time to look at past events, accept the true successes, and acknowledge the failures, and subsequently planning how to tackle issues differently going forward.

With this in mind, we have compiled a few BEE resolutions to help you focus on making the best of your BEE scoring opportunities in the next 12 months.

1.    Do not procrastinate.

The earlier you are organised, the easier and more cost effective it will be to earn your points. E.g., start collecting your suppliers BEE certificates NOW. Find out if your SETA or SEDA will offer assistance with your BEE verification costs. Ask your SETA if they can advise on and subsidise appropriate training for your staff.

2.    Educate yourself.

Find out what scorecard you are measured on, which elements of that scorecard are the best to focus on and how to effectively earn and measure your points. Appoint a BEE consultant, speak to your industry bodies and go on courses to keep yourself informed and updated.

3.     Implement effective strategies.

Once you know which elements to focus on, put strategies into place to ensure you are earning points in those areas.

4.     Record everything.

Ask your verification agency for a list of evidence they will require for verification purposes and make sure you store them safely.

5.    Do not procrastinate.

This resolution is repeated twice due to its importance.  BEE is a journey, not an event. Start it now!

 

 



SANAS accreditation a vital BEE crutch

January 13th, 2011

SANAS Field Manager (B-BBEE), Phinda Ndabula, explains why SANAS, as a national accreditation body, is a crucial ingredient for BEE.

Phinda Ndabula started her career as a researcher at the University of the Western Cape, then worked as a Manager at the Sekhukhune District Municipality before being recruited as a BEE Manager on the Bombela Consortium (responsible for the construction of the Gautrain project).

“My current role at SANAS as Field Manager is to manage and maintain technical integrity of the BEE program, and to ensure consistency and impartiality in the assessment process.  I also ensure that clients are provided with a satisfactory technical service. On a day to day basis, this means planning assessments, managing financial issues, ensuring technical integrity by carrying out benchmarking of the program.”

According to the Accreditation for Conformity Assessment, Calibration and Good laboratory Practice Act, No 19 of 2006, the South African National Accreditation System (SANAS) is recognised by the South African Government as the single National Accreditation Body that gives formal recognition that Laboratories, Certification Bodies, Inspection Bodies, Proficiency Testing Scheme Providers and Good Laboratory Practice (GLP) test facilities are competent to carry out specific tasks. SANAS certificates and their accompanying schedules are a formal recognition that an organisation is competent to perform specific tasks.

Phinda states, “The major challenge in this role is that accreditation is new to the B-BBEE field and as a result, many agencies are still not used to the idea of implementing a quality management system.  However, some agencies continue with their business usual operation parallel to the QMS .  It is only once harmony has been established between the two that the organisation will then meet SANAS requirements and also develop into a sustainable business.” Once this occurs, a verification agency is officially accredited to issue BEE certificates.

The B-BBEE environment is constantly evolving and this requires preparation and organisation in order to deal with issues that emerge on a daily basis.  Verification Agencies are faced with the most difficult challenge, as they have to produce accurate results in an environment that is constantly changing.  This can carry huge financial implications for their clients, for example, in many cases tenders are linked to these BEE certificates. “SANAS has to operate within this transformation and grant accreditation to agencies that can demonstrate ability to perform this function.”

Phinda adds, “Maintaining good customer relationship and managing the team is fundamental in my role as well as my participation and contribution in national debates on policy development.”

SANAS has been mandated as an imperative national accreditation body that develops accreditation policies to govern the terms and conditions on which accreditation may be granted, refused, revoked or suspended (as identified in the B-BBEE Codes of Good Practice of the B-BBEE Act 53 of 2003).  This is to ensure that together with the dti, SANAS can implement mechanisms that are necessary to ensure that Verification Certificates are reliable.

For more information, visit www.sanas.co.za

 


Phase I of financial sector charter gazetted for public comments

January 13th, 2011

The Minister of Trade and Industry, Dr Rob Davies, has gazetted the first phase of the Financial Sector Charter (FSC) in terms of Section 9 (5) of the BBBEE Act.

This code will apply to businesses operating in the financial sector, such as banking, long and short term insurance, financial intermediation and brokerage, and investment management providers.

The gazette of the first phase of the FSC means that members of the public are specifically invited to provide comments and inputs on the gazetted document.

This first phase specifically excludes access to financial services, empowerment financing, enterprise development and some aspects of the measurement of black ownership.

Phase II will aim to achieve consensus on these aspects, after which a final version will be released in draft for consideration by the public.

The Draft Financial Sector Code commits all participants to actively promoting a transformed, vibrant and globally competitive financial sector that reflects the demographics of South Africa, which contributes to the establishment of an equitable society by providing accessible financial services to black people and by directing investment into targeted sectors of the economy

Members of the public have until Wednesday 10 February 2011 to make comments which will serve as inputs for the finalisation of the Financial Sector Code.

All inputs and comments must be addressed to the Department of Trade and Industry:  email: bee-fsc@thedti.gov.za or tel: 012 394 1609.

 

 

 


Wade van Rooyen sums it up

December 9th, 2010

In Black Economic Empowerment terms, four of the last sixteen years stand out.  1994 – for the adoption of the Constitution of the Republic of South Africa; 2003 – for the introduction of Broad-Based Empowerment by the BEE commission; 2007 – for the final publication of the Broad-Based Codes of Good Practice to measure Black Economic Empowerment, and 2010.

2010 could appropriately be remembered as the year businesses stopped running from BEE.   A year in which business behaviors finally gave effect to previous legislation aimed at redressing the economic imbalances of the past.   A year in which leading government departments started acting in congruence with the Broad Based Black Economic Empowerment Act.   A year in which the formalized regime for the measurement and comparison of BEE contributions by verification agencies was given the teeth it required to fulfill its mandate.

Amidst intense debate over the effectiveness and direction of Black Economic Empowerment, there has been stabilization in the BEE space, which can only result in positive outcomes.    One cannot measure the effectiveness of a policy or intervention unless it is consistently implemented over a period.   During 2010 disruption to policy has given way to consistent application of a set of principles, allowing perhaps for the first time an analysis of the impact of the codes on business.

There are however, a few key issues that threaten to upset the balance, and the challenge of BEE practitioners and policy makers in 2011 is to ensure that these can be resolved without derailing the entire system.   Technical inconsistencies still threaten to dilute the impact of policy on the individual beneficiaries it aims to empower.   Capacity constraints in the verification space limit governments ability to enforce wider compulsory application of the Codes of Good Practice, and the dti’s response to this challenge which involves the entry of accountants and auditors into the BEE verification space could if not properly implemented have catastrophic consequences.    A loss of common industry regulation could result in the implementation of multiple measurement standards and cause a loss of integrity of BEE certificates.

BEE in the Know has chronicled over the last year topical issues in BEE, technical commentary to assist companies in implementing BEE policies, and feel-good articles to help us see the impact of positive policies in 2010.   Make it your BEE companion in 2011 as we watch government balance the challenges of the future and successes of the past.

 


2013 targets – Have you planned ahead?

December 9th, 2010

There are two elements on the scorecard that have phased in targets.  They are employment equity and procurement.

The targets are phased in over 2 periods, 0-5 years and 6-10 years.  Since the codes were released in February 2007, the first period will run to 2012 and the following period from 2013-2017.

What does this mean to your BEE status?

If you are not currently reaching or exceeding the targets for employment equity or procurement, or actively planning to achieve those targets, you are likely to suffer a drop in score after 2013.

EMPLOYMENT EQUITY

For generic companies (turnover exceeding R35million p/a), the majority of the score for employment equity usually comes from black employees in junior management. This can include supervisors, team leaders, etc.  The target jumps from 68% to 80% after 2012.  Employment equity targets are the only area in the scorecard where you cannot earn a pro-rata of the points, unless you have achieved a subminimum of 40% of the target. This means that from 2013 you will need at least 32% of your junior management to be black people, in order to achieve any score for this section. (80% x 40% = 32% subminimum requirement.) This subminimum calculation can be applied to each target for employment equity.

Measurement Category and Criteria

Weighting Points

Compliance Target

0-5 Yrs

6-10 Yrs

Black disabled employees as a percentage of all employees

2

2%

3%

Black employees in Senior Management as a percentage of all such employees using the adjusted recognition for gender

5

43%

60%

Black employees in Middle  Management as a percentage of all such employees using the adjusted recognition for gender

4

63%

75%

Black employees in Junior Management as a percentage of all such employees using the adjusted recognition for gender

4

68%

80%

Bonus point for meeting or exceeding the EAP targets in each category

3



 

PREFERENTIAL PROCUREMENT

The target for BEE spend with your suppliers will jump from 50% of total measured procurement spend to 70%.  This means you need to be focusing on changing to suppliers who are BEE compliant, encouraging existing suppliers to improve their BEE scores and assisting existing or possible new black owned suppliers and service providers to achieve BEE compliance.

Measurement Category and Criteria

Weighting Points

Compliance Target

0-5 Yrs

6-10 Yrs

B-BBEE Procurement Spend:




B-BBEE Spend on all Suppliers based on the B-BBEE Procurement Recognition Levels as a Percentage of Total Procurement Spend

12

50%

70%

B-BBEE Procurement Spend from Qualifying Small Enterprises or Exempted Micro-Enterprises based on the applicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured  Procurement Spend

3

10%

15%

B-BBEE Procurement Spend from any of the following Suppliers as a percentage of Total Measured  Procurement Spend:

  1. Suppliers that are 50% black owned



3



9%


  1. Suppliers that are 30% black women owned

2

6%


 


2010 Highlights

December 9th, 2010

After a successful first year with BEE in the Know, we provide an aide memoire to the BEE topics discussed this year in our informative e-newsletter.

The year began with an interview with HOSAF, an IQuad BEE client to question their frank views about the BEE transition.  An article followed this on How to claim points through disability.  This was well received due to the question often asked, “what qualifies as a disability?”  Click here to download Issue 1.

Issue 2 and Issue 3 gave us an insightful look at ED and SED contributions, how charities can benefit through clients and part 1 of a detailed article on Ownership.

Ben Nyaumwe, a successful black entrepreneur in Port Elizabeth tells us in Issue 4 why the current BEE model could be improved and this is followed by part 2 of Ownership.

Our newsletter strives to give variety and informative articles on BEE.  Please find the remaining issues, with articles, below by clicking on the links to download the issues.

All the issues below can be found by clicking here.

Issue 5
Sector code accreditation in midst of clarification
What our clients have to say on BBBEE and the construction sector codes
Differences in the construction charter

Issue 6
Learnerships (Part 1)
Oliver Foundation uplifts children’s spirits
The A- Z of preferential procurement calculations

Issue 7
Learnerships (Part 2)
Challenges and rewards for a verification analyst
What to do when things go wrong?

Issue 8
Radebe positive about FIFA world cup
The five biggest Do’s and Don’ts of B-BBEE
Learnerships (Part 3)

Issue 9
B-BBEE needs more refining, says Zuma
Views from our future entrepreneurs
The dangers of trusts in B-BBEE ownership

Issue 10
IQuad BEE Verification proudly receive award of accreditation
A continuous road of development for B-BBEE
The role of the parties involved in the BEE verification process

Issue 11
An update on BEE in the Know
“The B-BBEE model will succeed, if we embrace it”
Fronting is Fraud

Issue 12
A tender subject
Management Control
Change a life, through B-BBEE

Issue 13
The Pros and Cons of working with BEE Consultants
Calculating Indicative Profit Margins
Coffee with Jenni

Issue 14
Tourism Sector
BEE ‘system’ better than nothing
Adjusted Recognition for Gender

Issue 15
What is ABVA?
Unpacking Total Measured Procurement Spend
Coffee with Francois Swart, CEO of Paladin

Issue 16
The BEE chronicles continue
Costly implication of ignoring Employment Equity
Enterprise Investment Programme – a BEE incentive

Issue 17
ABVA objects to dti’s three-tiered approach
How to obtain a BEE certificate – the successful way
BEE challenges for small towns

Issue 18
Coffee with Barry: Business, BEE and the Recession
Year end opportunity to fill scorecard gaps
Negative media opens closed doors

Issue 19
KPMG and IQUAD BEE produce solid results
BEE Training launches soon
Skills Development – Priority and Scarce Skills

Issue 20
KPMG/IQUAD Survey: After the fact
Coffee With Paul: ‘BEE is an art, not a science’
Cost vs Complexity

Issue 21
The Chinese are ‘black’
Client Feedback keeps the ball rolling
BEE Guide to launch in 2011

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The Chinese are ‘black’

November 26th, 2010

Before 1994, Chinese South Africans were classified as ‘coloured’ or ‘non-white’ and were not allowed to vote.  They were also excluded from public facilities, banned from entering certain areas, and subjected to job and educational restrictions. Excluding the Chinese from the benefits provided for in the B-BBEE Act was contrary to the Constitution’s requirements, which maintains that “every citizen is equally protected by law” and that one should “respect those who have worked to build and develop our country.”   This clearly demonstrates that differences in relation to language, religion and cultural practices should not be an issue when it comes to the right to equality and human dignity.

The Chinese Association of South Africa (Casa) took to the courts almost ten years ago to establish why Chinese South Africans did not qualify for recognition under Black Economic Empowerment.

In June 2008,the Pretoria High Court issued a ruling to include Chinese people under the definition of ‘black’ into the B-BBEE Act and Employment Equity Act.  This ruling stated that South African citizens of Chinese descent should qualify for full benefits in terms of the country’s EE and B-BBEE legislations.

Previously the act defined ‘black’ as being black, coloured and Indian people who are SA citizens or became an SA citizen before 27th April 1994.  In terms of B-BBEE, a Chinese person will still need to be a South African citizen or need to have become a citizen before the implementation date of the constitution of the Republic of South Africa Act of 1993 or prove that they should have been granted citizenship before such a date.

How does this affect your scorecard?  Previously, Chinese people would not have accrued any BEE points but now, it is likely that your scores will increase due to one of the following reasons:

-       Chinese ownership

-       Chinese employees that have been trained in your company

-       The number of Chinese employees in your company

-       If you use any Chinese suppliers

These are just a few reasons why your scores may increase, so be sure to update your scorecard as soon as possible or contact your verification agent for any further information.


Client feedback keeps the ball rolling

November 26th, 2010

Client feedback is crucial and we need our clients to keep us informed of suggestions, criticisms and praises in order to improve constantly in all aspects of our business.  That famous saying of “Where there is movement, there is improvement” speaks for itself.

We launched BEE in the Know in the beginning of 2010 to provide value-adding information to companies preparing for and affected by BEE verification.   By the end of 2010, we will have completed 22 issues dealing with the technical, topical and feel good elements of BEE.  However, as previously mentioned, the success of the e-newsletter is dependent on your feedback.

Have you found value in any of our articles?

Do you have any further suggestions for articles or for the e-newsletter in general?

It is of great consequence to us to assure our clients that our motto is sincere and that we continue to strive each day to maintain effective systems with exceptional people who deliver expert knowledge. 

Please email us at beeintheknow@iquad.co.za with your feedback to the questions above.


BEE Guide to launch in 2011

November 26th, 2010

A guide to B-BBEE?  What for, one may ask? If one aspect of BEE is unmistakable, it is that the level of understanding of the basic concepts is very poor.  This is something indicated by managers within companies, owners of companies and also the average fellow South African.

The new IQuad B-BBEE E-Guide will be downloaded in a PDF format  from our website and will provide managers and persons within organizations with a quick reference to key issues that drive B-BBEE compliance.

The body of this guide will list all the elements and provide a simple breakdown of how each element functions in our current B-BBEE system.  The amount of information offered will only be a summary in order to give a basic understanding of how the elements apply to your business.  The goal of this guide is to explain B-BBEE, in straightforward terms, thus making sure you achieve the best possible scores for your business as quickly as possible, and incessantly.

The guide describes each of the elements in as much detail deemed necessary.  Case studies are given with each element to assist with clarification in how they work in businesses.  A glossary is also available at the end of the guide with clear definitions of various BEE terms.

This guide has been written for all those not interested in the history or finer details behind BEE – it is simply a guide to show businesses how to boost their scorecard.  Businesses are being constantly being affected by B-BBEE and staying informed is crucial.

The Codes and B-BBEE is extremely detailed and this guide is just the beginning of a complicated framework. 

For a preview of the new guide, please email us at beeintheknow@iquad.co.za with your name and email address and be one of the first to receive a copy before the launch.

 

 

 

 

 

 

 

 

 

 

 


KPMG/IQuad Survey: After the fact

November 11th, 2010

In conclusion to the previous issue, we bring you a brief summary of the KPMG/IQuad Survey 2010, in particular the shift in focus on the scorecard elements.

As previously mentioned, financial services firm KPMG and IQuad BEE Verification partnered in July to produce the fifth annual broad-based KPMG BEE Survey, which historically has acted as a good indication of corporate compliance with BEE. IQuad BEE Verification and KPMG hosted a presentation of the KPMG IQuad 2010 BEE Survey, titled “The Evolution of BEE Measurement” on the 8th November in Port Elizabeth. This presentation, made by Alan Barr, Managing Director of KPMG Port Elizabeth, and Wade van Rooyen, Managing Director at IQuad BEE, replicated the event recently held in Johannesburg, which served to analyse the survey results and also discuss and clarify the particular market trends that are rapidly emerging within the BEE space.

One of the main contributions from the survey emphasized that the top priorities from across all organisations in the survey were the elements of Employment Equity, Skills Development and Preferential Procurement. This differed considerably from 2009 which highlighted Socio-Economic Development, Ownership and Management Control. The emphasis placed on these elements, in particular Ownership appears to have been temporary as organizations are moving back to addressing the higher weighted internal elements. Scores for Preferential Procurement, for example, across industry types and sectors have increased substantially.

The shift towards these elements, including Skills Development, is positive as it shows a maturity in understanding Broad-Based BEE as a whole. A sustained focus on improving Skills Development scores will have a positive spin off on both the Management Control and Employment Equity elements over the medium to long term.

Another conclusion drawn from the survey is that companies are not really applying pressure on their suppliers to change. Although the majority of respondents set minimum B-BBEE contribution levels for their suppliers and did put suppliers on notice to achieve the stipulated procurement recognition level within an agreed period, it remains to be seen whether respondents actually change suppliers after the notice period.

The key findings and future recommendations from this survey stand as follows:

 • Employment Equity and Skills Development: The link between these two elements requires more focus

• Management Control: The link with Employment Equity and Skills Development should be emphasised.

• The display of fronting measurement indicators on BEE certificates should be compulsory.

• A company should allow for a period of at least three months for their verification process

• Companies are advised to invest in acquiring sufficient knowledge to manage their B-BBEE requirements.

There are still quite a few challenges facing organisations regarding BEE implementation and achieving their desired targets.In next year’s survey we expect to see continued evolution of BEE measurement as companies address these issues. For more information on the survey, please download it off the KPMG or off the IQuad e-newsletter.


Coffee with Paul: ‘BEE is an art, not a science’

November 11th, 2010

We caught up with Paul Janisch, a BEE blogger and a well-known commentator on controversial BEE matters, to find out about his current perceptions concerning B-BBEE.

Could you give me a brief summary of your professional background?
I graduated with a Bachelor of Arts in History and Law and worked in the IT industry for about 10 years before I started Caird.  Caird started because of my curiosity of how companies were going to survive in South Africa if they could not get the requisite ownership in place.  We started looking at alternatives to develop a BEE profile before the codes were even in draft form.   This is where we are now – helping “white people to look black” – which is really another term for compliance specialists.

What would you consider the most frustrating and most successful aspects of B-BBEE?
Without a doubt, the most frustrating aspect lies with the government and its associated enterprises choosing their own interpretation of BEE status and not considering scorecards.  This is still  extremely prevalent.  Another frustrating aspect of BEE is the advisors (to those entities) who come up with the most nonsensical interpretations of scorecards and legislation and palm this off on unsuspecting bidders.  Many public private partnership (PPP) empowerment requirements are at best unintelligible and at worst almost impossible to implement because of the transaction advisors.

The most successful aspect is the proliferation of BEE scorecards.  Three years ago, you would struggle to score anything acceptable under procurement because few companies had scorecards.  Now the majority have scorecards and their scores are constantly improving

How do you think B-BBEE has progressed, if at all, over the past three years?
Immensely!  Two things demonstrate this:

  • The proliferation of BEE scorecards
  • Industry averages are now forcing companies to comply with a certain level because all their competitors are operating at this level.  I find that petrochemical companies like SASOL are enforcing this and many of my clients are going to extraordinary lengths to achieve the industry minimums. 

It could be argued that a scorecard is not a great measurement of transformation but in the absence of any other mechanism we have to conclude that transformation is happening.  Politicians should be giving credit where it is due – not point fingers at the levels of transformation (which I think is actually an extension of their own ineptitude).

What would you consider your main philosophy in business?
Do not lie to your clients and do not promise unattainable results! I also like to follow my personal mantra that ‘BEE is an art, not a science’.

Do you have any hobbies or interests (other than B-BBEE)?
I really enjoy music and am actually an amateur musician that currently plays bass in a band that has no name or drummer.  Music is my biggest passion and in fact my son was born on the same day as my biggest musical hero, Peter Green.

I do post our MP3’s up on my blog whenever we record something and would appreciate any thoughts on our music. 

What does the future hold for Paul Janisch?
BEE compliance is the way to go for now.   I do a lot of compliance consulting on a variety of projects ranging from generic scorecards to those scorecards created for PPPs and other government initiatives.  Regarding the latter, I have a client who has signed a contract that imposes fines in the millions for every point below the required score – my job for the near future will be to ensure that they meet these targets without disrupting the natural course of their business. 

There also seems to be a move towards sustainability consulting which is a natural extension of what we do.  Maybe I will also start my own verification agency.

Read Paul’s fascinating blog – go to http://bbbee.typepad.com/paul_janisch


Cost vs Complexity

November 11th, 2010

The cost of verification is probably the smallest expense our clients will face when dealing with their BEE status.

Other costs can include consultants fees, ownership transactions, skills development spend, socio-economic and enterprise development contributions, amongst others.

BEE is a business tool and, as such, any investment should show some measurable return and benefit to the business.

The most expensive and complex element on the scorecard is ownership.  In order to achieve maximum points for ownership (20 on the generic scorecard), the black shareholder/s should have 25.1% of the voting rights, be entitled to receive dividends on their shares and be free of any debt incurred in the purchase of these shares.  In effect, this can cost 25% of the profits before tax.

A business needs to think carefully when considering any ownership transaction and, if this is done purely for points on a scorecard, it may not be the most appropriate way to achieve a score.

Compare ownership to the enterprise development element, where contributions can earn 15 points on a scorecard and the target for this is a spend of 3% of net profit after tax.  This may be a more practical and effective way to score points, while still contributing to the broad based economy, through the development of black owned businesses.


KPMG and IQUAD BEE produce solid results

October 29th, 2010

Financial services firm KPMG and IQuad BEE Verification Services partnered in July to produce the KPMG IQuad 2010 BEE Survey. This is the fifth annual broad-based empowerment survey historically run by KPMG and each survey has produced solid results, which have acted as benchmarks for corporate compliance with BEE. The purpose of the survey is to establish the extent to which progress has been made in facilitating black economic empowerment across a broad range of South African industry sectors. 

KPMG hosted a presentation of the KPMG IQuad 2010 BEE Survey, titled “The Evolution of BEE Measurement” on the 28th October, in Parktown, Johannesburg.  This presentation, hosted by Sandile Hlophe, Managing Director, Restructuring Advisory at KPMG and Wade van Rooyen, Managing Director at IQuad, served to analyse the survey results as well as discuss and clarify the particular market trends that are rapidly emerging within the BEE space.

Over the past five years, KPMG has tracked performance across the seven BEE scorecard elements to measure BEE performance, analyse the findings and provide insight on how to accelerate black economic transformation. In 2009’s survey, the question raised was whether solid BEE results had been accomplished.  This year, however, the focus has shifted from “are we there yet” to “how are we getting there”.

The survey highlighted several important findings, one of which clearly emphasises that businesses are finding new ways in which to measure contributions to BEE, such as shifting away from the traditional ownership model, to measurement and focus through internal controls.  Four significant trends were prominent:

BEE controls offer competitive edge
The research showed that 83% of companies had implemented BEE internal controls, and that these companies had experienced a low variation between verification expectations and high actual scores.  Internally prepared scorecards were maintained through various means by organisations, which included BEE toolkits (8%), consultants (35%) and in-house resources (40%). This illustrated that companies using internal controls achieved higher scores and were better prepared for verification because it resulted in the implementation of a smoother process and a determination that is reached within a shorter timeframe than average.

Quality is a key factor in choice of verification agency
The main reasons behind companies using more than one agency, according to the survey, was poor quality of service (42%), failure to receive accreditation (17%) or cost (17%). No respondents switched agencies because of lack of competence despite public complaints about the perceived incompetence of verification agencies.  Wade added, “If a company does not understand the purpose of verification, he may form the perception that a poor service has been rendered. Companies should enter the engagement with the expectation of a reliable accurate result and not an improved scorecard.”

The markets response to fronting
A significant finding in the survey revealed mixed reviews surrounding the question of whether to disclose BEE fronting practices.  The evidence indicated that more than 50% of respondents were willing to have their fronting status published on their accreditation certificates, while the rest were in favour of allow their fronting status to be measured, but not disclosed.

The market shakes out BEE investors
South African companies have displayed a mixed array of trends in terms of BEE compliance over the past 12 months, showing a more positive trend towards broader public involvement in ownership patterns than in previous years. This has resulted in a shift in focus of ownership structures, from investment only vehicles, to schemes that allow participation by black shareholders, such as Employee Ownership and Broad-Based Public Participation schemes. If properly implemented, these can enhance the company’s image as well as attract and retain key black employees. An interest in internal BEE elements such as Skills Development and Employment Equity has also become a key area of focus.

Please CLICK HERE to read the KPMG IQUAD Survey results.





BEE Training launches soon

October 29th, 2010

IQuad BEE verification will shortly be launching an informative and helpful new BEE training course, which will involve a 2 day module that gives a detailed introduction to BEE. 

The course is aimed at equipping owners and/or managers of companies and persons responsible for B-BBEE implementation in the business with the necessary skills to implement and manage B-BBEE .  While IQuad BEE has been involved in providing training on an ad hoc and informal basis for a number of years, it has become clear that there is a need for a formal, accredited course, based on the numerous requests received from clients and contacts alike.

The course encourages group participation and necessarily has a very practical element to it. This is to ensure that delegates will leave with an understanding of the BEE requirements as well as how to implement them back at their workplace.

This course will first roll out in Port Elizabeth and then IQuad will offer this course nationwide. As accredited training, it will have the added advantage of being refundable from your SETA,  and could also earn companies points under the skills development section of their scorecard.

If you are interested in attending this course or would like to find out more information, please contact Jenni at IQuad – jenni@iquad.co.za  or 041-3910600  Dates to be confirmed – watch this space.


Skills Development – Priority and Scarce Skills

October 29th, 2010

In the generic scorecard (companies with a turnover of more than R35m), there are a number of prerequisites to be fulfilled, before an entity can be awarded any points under skills development.

These prerequisites are designed to ensure that larger companies are compliant with legislation such as the skills development levy act, which aims to encourage companies to contribute toward the skills developments of South Africans overall.

A key prerequisite is that companies need to demonstrate that they “have implemented programmes specifically targeted at developing Priority skills generally and specifically, for black employees.”

In order to monitor this, companies are required to submit annual training reports (ATR’s) and workplace skills plans (WSP’S) to their Sector Educational Training Authority (SETA) for their industry. Each SETA maintains a list of skills in short supply within their industry and it is this list that companies are required to consult, in order to ensure that they are addressing the skills shortages in their particular industry.  The skills development levy paid by all companies is diverted to the SETA’s to facilitate training and in many cases, companies can apply for funding or refunds where they have trained employees in these skills.

Scarce and Critical skills are defined as “an absolute or relative demand: current or in future; for skilled; qualified and experienced people to fill particular roles / professions, occupations or specialisations in the labour market. (Skillsportal.co.za)

Contact your SETA for a list of priority skills in your industry and find out more about how to qualify for funding.

 


Coffee with Barry: Business, BEE and the Recession

October 14th, 2010

We caught up with Barry Wiseman, MD of IQuad Finance Solutions (Pty) Ltd to enlighten us about how his clients have been affected by B-BBEE and the recession. 

After 27 years of corporate banking experience, Barry became involved with business development consulting in the SME market, focusing on business disposals, finance raising for capital expenditure projects, viability studies and business planning.

Please brief me about IQuad Finance Solutions and how they assist clients?

We assist clients in preparing suitable funding proposals that can then be submitted to financial institutions for consideration. We then facilitate the process to conclusion assisting with any necessary negotiations. Our fees are largely success based but we do charge a fee to cover our costs to complete the exercise and to obtain client commitment. 

A business disposal needs to be handled methodically and professionally. We are involved in the entire process, which includes preparing the business for sale, valuing the business, preparing a disclosure document, arranging access to suitable buyers/investors and facilitating the process to conclusion.

What are the current challenges for businesses today concerning the B-BBEE model?

Before BEE, many small to medium business owners felt the need to dispose of a minority interest in their businesses as a means to achieve the correct BEE rating. Unfortunately the bulk of these transactions were concluded for the wrong reasons and very little benefit accrued to either party. With the introduction of B-BBEE, business owners can now achieve an acceptable BEE rating without having to reduce their shareholdings and can also choose where to focus their attention in terms of acquiring maximum points.   Despite this, there are business owners who are keen to secure reputable BEE partners or co-shareholders, provided the BEE company has the ability to fund the transaction independently and not on the balance sheet of the vendor. They are generally keen to engage with BEE companies that will become operationally involved, are prepared to share the risks as a business owner and can create additional value.

What is your personal view about the B-BBEE model?

To bring small to medium sized black businesses into the mainstream economy did require broad interventions by government. However, it is the spirit of the initiative that is important i.e. business owners should want to achieve a better BEE rating in order to play a part in addressing the imbalances of the past. Yet the primary motive of a business owner is to make a profit to ensure sustainability – as such, whatever actions are taken must be with this motive in mind. 

Do you see a positive future for SA in terms of business, B-BBEE and our economy?

Although today’s business environment is quite challenging, opportunities do still present themselves. We are in a fortunate position to be exposed to a broad range of businesses across a wide spectrum of industries. Some core industries have been hit extremely hard by world events and are unnerved by possible government intervention. Nevertheless, it is time to look for opportunities within new industries that will take off over the coming years, such as renewable energy/climate change or waste management /environmental impact issues. 

Personally, enterprise development as a B-BBEE initiative has a great deal of merit going forward. The transfer of skills, business support and mentoring of small to medium size black businesses can play a much needed and meaningful role in the future of SA’s economy. The government’s Industrial Policy Action Plan 2(IPAP2), with its focus on priority sectors in a range of industries, should simultaneously provide opportunities for new BEE entities and existing established businesses to engage in meaningful partnerships.

Do you think the recession in SA is over? And how has this affected business in general?

With SA having generated a positive growth rate for two consecutive quarters, we are now technically out of a recession. But our major trading partners in Europe & the US are still under pressure, which no doubt impacts on demand. There seems to be a general consensus from the financial services industry that we will probably not see any major improvements before mid 2011. The past 18-24 months has taken its toll on business owners and despite some positive signs, they are still wary about the sustainability of their businesses and uncertain about key factors impacting on their operations, such as labor demands, the strength of the rand, government intervention, consumer demand and the tight credit criteria enforced by banks. 

Go to Barry’s blog site where he shares some of his informative experiences of interactions with businesses. (http://www.bwifs.blogspot.com/)


Year end opportunity to fill scorecard gaps

October 14th, 2010

For many readers, the looming end of year shutdown coincides with the end of their financial year.

This is therefore an opportune moment to forecast net profit after tax for the year and ensure that any gaps in the scorecard are filled with donations to qualifying Enterprise Development (ED) and Socio Economic Development (SED) beneficiaries. A key requirement is that any contributions for ED and SED must have been made and implemented before the end of the measured period.

Issue 2 of BEE in the Know dealt with this topic in detail and with this article, we recap the key points and identify a few potential beneficiaries who have been profiled this year.

For a qualifying small enterprise (QSE), the targets are 2% net profit after tax for ED and 1% net profit after tax for SED.  For a Generic company, the targets are 3% net profit after tax for ED and 1% net profit after tax for SED. Please contact us if you are unsure as to which scorecard is applicable to your industry as targets do differ in certain industries.  

Qualifying ED contributions include monetary or non-monetary contributions carried out with the objective of contributing to the development, sustainability, financial and operational independence of beneficiary companies with at least 25% black ownership, in order to assist with expanding a going concern, improving liquidity and enhancing the control of directors.

SED programmes aim at development programmes for women, youth, people with disabilities or living in rural areas; support for healthcare and HIV/Aids programmes; support for education programmes, resources and materials at schools, bursaries and scholarships; community training skills development for unemployed people and adult basic education and training; or support of arts, cultural or sporting development programmes.

SED contributions made to entities which benefit at least 75% non-white beneficiaries will be given 100% recognition.  If less than 75% of the value of the contribution is allocated to non-white beneficiaries, the contributions will be recognised at the % that accrues to non-white beneficiaries.

This year we have profiled a number of beneficiaries who would benefit from donations.

Khaya Cheshire (Issue 3) is a care centre in Walmer Township, who cater for 18 severely mentally and physically disabled children.  3 fulltime staff are assisted by volunteers to provide care, love and stimulation for these children.  In some instances, they seek out sponsorship in order to place certain children in a school able to care for their specific needs and teach them basic life skills.

Last year, The Oliver Foundation’s Zama Project (Issue 6) assisted over 300 disadvantaged children to develop their fine and gross motor skills and coordination, dexterity as well as enhancing their creative and thinking abilities.  These children eagerly take part in many activities that they do not get to learn at school or home. Attending school is crucial for a child’s development and with the aid of donations, the Foundation recently sponsored 120 children with uniforms, school fees, rucksacks, and stationery ensuring that they can attend school and get a good start to their education.

Graceland Life Recovery Centre (NPO) and Grace Grows CC are two motivational projects, based in Port Elizabeth and run by extraordinary and enthusiastic people.  (Issue 12)

Grace Grows CC qualifies as an enterprise development beneficiary, with 52% black ownership, and is involved in the agricultural development of insectivorous plants, bonsai, animal management, and other agricultural programmes. Current and future projects include arts and crafts, a health shop, worm farming, worm compost, horse therapy, bonsai, insectivorous plants, vegetables grown in tunnels, potatoes grown in tyres, pottery making, to name a few. 

Graceland is the life recovery centre which serves to restore the value of life to those confronted with stress, depression, post traumatic stress and various addictions.  It has various resources and programmes, such as Teens on Track – a two week programme for teenagers who need guidance and direction and includes family interaction and counseling and the Equine Therapy programme- which utilises horses as a conduit to communicate with the traumatised people.

For more information about qualifying ED and SED initiatives and contributions, please contact beeintheknow@iquad.co.za

 

 

 

 


Negative media opens closed doors

October 14th, 2010

The never-ending war in the media of how the B-BBEE model only strives to impact us negatively is actually a reminder that the ‘real news is often the bad news’.

Recently in the press, fronting and tenderpreneuring are still at bay as the forefront of most B-BBEE discussions.  However the mining charter and the accounting charter have also recently become topics of interest, such as as have ABVA’s concerns with the dti’s proposal to incorporate auditors and accountants (who are not chartered accountants), into the B-BBEE Verification Industry (see Issue 17).

It was reported on SABCNews.com, that Trade and Industry Minister Rob Davies said that fronting is an unintended consequence of Broad Based Black Economic Empowerment (B-BBEE). Davies said the B-BBEE Act does not make any specific provision for the investigation, prosecution and enforcement of fronting. 

Nonetheless, as unintentional as fronting may seem, it is clear that this incessant dispute is damaging towards the BEE reputation, especially for the South African men and women (black or white) who are trying to move forward.  However, Davies assured the media (and the people) that his ministry is investigating appropriate measures to address these challenges.

Barely a week earlier, in the Business Day, Davies warned of ‘tenderpreneuring’ and that his concern was that BEE was not being implemented in a coherent way, while ANC secretary-general Gwede Mantashe reassured businesspeople that the ANC was “not going to take irresponsible decisions”.

The article further states that Davies said BEE needed to be moved away from “the perversions” of “tenderpreneurism” which he described as a form of fronting. This involved waste disposal or engineering service companies going to white companies and getting them to do “the actual work” and then adding 20 percent on the price to government, he said. Another perversion was entirely black-owned companies having to go to a BEE verification agency to supply another company, which was not legally necessary.

One could be concerned that a lot of the press is negative but it is far more important to be aware of what is happening behind ‘closed doors’ than to live ignorantly, which is an easier choice. As Lwazi Bam so aptlysaid at his opening address as the new president of the Association for the Advancement of Black Accountants, “We must be impatient with the slow pace of transformation and work to hasten it so as to bring to it to an end.” Transformation is a slow process and ignoring the hindrances will not speed up the process.  The Media (and the powers that be) need to keep reporting the negative aspects of BEE in order to keep us informed of how they intend to dispose of them. 

All things considered, the end goal is ensuring that all sectors of society benefit and that SA may at last achieve total economic transformation.  This, realistically, will emphasize a better representation of the demographics of South Africa, at all levels and all sectors.

Fuller disclosure of B-BBEE controversies should therefore provoke fewer fears and hopefully, a light at the end of the dark tunnel.

 


ABVA objects to dti’s three-tiered approach

October 1st, 2010

ABVA released a statement to the press last week in response to the dti’s conditional approval for IRBA and SAIPA members to issue BEE certificates. Here is a summary of this debate, as reported by ABVA.

ABVA has repeatedly expressed trepidation to the dti, about the dti’s proposal to incorporate Public Auditors and Accountants who are not Chartered Accountants, into the B-BBEE Verification Industry. The dti has not engaged ABVA on any issues of substance in advancing this process and continues to present issues as fait accompli.

The argument is that ABVA is not against incorporating Auditors and Accountants into the Verification Industry. On the contrary, it encourages such a process, as long as it best serves the BEE program.

The dti’s proposal for incorporating these constituents will result in:

-       Three different bodies approving/accrediting Verification Agencies against

-       Three different sets of criteria (accreditation standards), only one of which is designed for the B‐BBEE Verification Industry specifically;

-       SAIPA members performing verification procedures when they have no assurance/audit training, capacity, function, systems nor standing; and

-       Three mutually exclusive review processes. The review processes to which ABVA Members are subjected, which are focused on B‐BBEE verification, are fundamentally different to that of the IRBA.

SAIPA has completely different focus areas and processes altogether;

-       Three different regulators;

-       Three different interpretations of the Codes;

-       Forum shopping at a scale unseen to thus far;

-       Contravention of the Competitions Act in creating an unequel dispensation amongst the three tiers proposed to conduct verification;

-       Unfair barriers to entry into the Verification Industry by constituents other than the Public Auditors and Accountants;

-       Divesting control of the industry to constituents who, in general, never intended to be performing verification to begin with;

ABVA, as well as some IRBA representatives are mirroring similar concerns.  Initially, the dti had agreed with the merit of an overarching regulator (proposed by ABVA) as an alternative to the ‘three‐tiered approach’ as described above.  Regardless, the dti still intends to proceed with the approval of the IRBA and SAIPA to approve their members as Verification Agencies as a draft framework submitted to ABVA, irrespective of the concerns mentioned.

In a nutshell, ABVA strongly objects to the ‘proposed three‐tiered approach’.  Their motive is stemmed from believing that this can cause damage to the “integrity of the BEE Verification Industry.”  When the success of a model depends on regulation and boundaries, how can a loose arrangement not lead to possible anarchy in the future? Where is the equality in this approach?

As declared in their press release, ABVA are still proposing a single overarching regulator of the entire industry, with one accreditation standard, one accreditation authority and a single review process with powers to set interpretation standards and discipline and regulate all Verification Agencies. ABVA has proposed timelines of 6 months, including a public commentary process, to achieve this.  This is not an unreasonable delay in relation to the gazetting of the Preferential Procurement Policy Framework Act, particularly as this Act has not been aligned for 3 and a half years with the Codes. This will assist in ensuring a solid framework for incorporation of Auditors and Accountants in the Verification Industry and should not threaten the credibility of the entire BEE program.

Please note that the above is not IQuad’s opinion, however, IQuad is supportive of the dti’s attempts to increase competency and capacity in the industry.  IQuad is concerned about the confusion that the entry of SAIPA and IRBA members will create if their entry is not done in a structured regulated fashion.

The debate continues….What are your thoughts?  Email us at beeintheknow@iquadvs.co.za


How to obtain a BEE certificate – the successful way

October 1st, 2010

Follow these 10 steps to a compliant BEE certificate:

1.  UNDERSTAND AND EDUCATE YOURSELF ABOUT B-BBEE

Lack of understanding leads to lack of correct implementation. Go on courses, sign up to newsletters, and ask your local business development agencies, industry bodies or chambers of commerce. 

2.  UNDERSTAND HOW BEE AFFECTS YOUR BUSINESS

Is a compliant BEE certificate a requirement for your customers, your licence, and your industry?

3.  UNDERSTAND THE LEGISLATIVE REQUIREMENTS FOR YOUR BUSINESS.

Are you required to submit employment equity reports, workplace skills plans, pay the skills development levy?

4.  ASK A SPECIALIST

Use a consultant or ask your verification agency to give you guidance.

5.  USE THE CORRECT TOOLS

Online scorecards and regular documentation can assist with record keeping, tracking and implementation of BEE in your business. See www.beetoolkit.co.za as an example.

6.  UNDERSTAND THE INDICATORS FOR SCORING POINTS

Each element has indicators which help to score points – make sure that you understand how to obtain a maximum score for each element.

7.  KEEP A RECORD OF EVERYTHING

No points without evidence. Ask your verification agency for a list of documentation they will require for verification.

8.  DESIGN POLICIES AND STRATEGIES TO ASSIST YOUR BUSINESS TO SCORE POINTS

Is your training spend targeted correctly? Do you require suppliers to provide BEE certificates? Do you have an existing supplier/customer who you can assist with enterprise development?

9.  SELF ASSESSMENT AND MONITORING

Constantly monitor your scorecard as you do your management accounts.

10.  VERIFY

Once you have implemented BEE in your business and collected the documentation required, then have your achievement verified by an accredited verification agency.


BEE challenges for small towns

October 1st, 2010

Common misconceptions about B-BBEE surround itself with none other than a lack of understanding.  This was also true for Zizi Powerline Projects in Queenstown, at first, but as Manager, Kobus Bekker, said, “We quickly learnt that B-BBEE is all about how you run your business and what your business can do to help and assist the previously-disadvantaged, therefore giving back to the community.”

Zizi Powerline Projects CC started in 2001 with only 6 staff (5 black and 1 white). Mr J.A. Bekker, together with Dumisani Mnyikizo and the late Sybert. W. Gqola built up the company from nothing and literally brought their own skills, tools and hard work together to create this (now) successful company.  They first sub-contracted for another company whilst waiting for their Contractors for Eskom application to be approved. This was approved at the end 2002 and Zizi have since been builders of power lines and reticulation as well as minor works.

“We really feel blessed which is why we also want to give back.  We first started by educating our people and sending them on courses. We then decided to pay each and every employee who works with this company, their children’s school fees, transport to and from schools, as well as stationery and uniforms.  We also granted bursaries to young black matrics who wanted to study further and assisted a 100% black primary school.”

Kobus and Dumisani added, “It felt great to give back especially after receiving all those appreciation letters from the school children.  We see each and everyone in this company as family and that is why health and safety are also one of our main priorities.” 

However, the notion of incorporating B-BBEE into smaller towns has not always been accepted by everyone.  Zizi Powerline Projects states that this is again due to lack of understanding.  “We think if there was more knowledge and understanding of B-BBEE, businesses would definitely accept and incorporate it. However, many people are still scared of “this B-BBEE” model.”

Nevertheless, according to Kobus, there has still been an empowerment shift in the town with some uprising black owned companies making a success.  “We also have some good competition in town who are 100% black owned contractors for Eskom, and they are doing quite well.”

Zizi Powerline Projects added, “Quite frankly, it is the preferential procurement element that affects smaller towns because you have to have suppliers with a good B-BBEE rating in order to make sure that you get a good score for that element. Some businesses are now taking their business out of town to bigger suppliers with better ratings in bigger towns, thus not using the small town businesses.  We still believe that the future of this model can be a positive and successful one – because we cannot forget that it is about the people of our country.”


The BEE chronicles continue

September 9th, 2010

A never-ending saga continues as Parliament persists in redefining BEE to attempt to create the ideal model.  There is a great deal of press and much opinion but it would prove to be more beneficial if the evidence was lucid.  Even the ANC’s own youth league has blatantly voiced their disapproval about the “very small circle of people” that B-BBEE had benefited.

Recently, our National Planning Commission Minister, Trevor Manuel agreed that the broad-based black economic empowerment (BBBEE) policy needed to be revised.

Manuel was responding in the National Assembly to a statement by Congress of the People MP Willie Madisha, who had said that BBBEE was “neither broad-based, nor empowering to the disadvantaged people of our country”.  He was in favour of Cope’s new initiative GEE (grassroots economic empowerment), which is what the people of South Africa are supposedly demanding.   However, whether a referendum proves this statement or whether the government produces an audit list of beneficiaries who have benefitted from empowerment, until there’s some proof in the pudding, one can only continue to remain neutral.

Further highlights in the press surrounding contentious BEE topics were; A statement from the Minister of Labour who stated that AA will continue until racial imbalances are eliminated.  When questioned as to whether a sunset clause would be considered to terminate affirmative action (a) in general and (b) in respect of white people who have matriculated after 1994, he point blankly said no. 

“I am not considering a sunset clause. The main aim of the Employment Equity Act is to address imbalances in the workplace by eliminating unfair discrimination, introducing affirmative action measures for the equitable representation of the designated groups at all occupational levels and categories. In addition, employers are called upon to diversify their workplaces.”

He added, “There is still a massive underrepresentation of designated groups in the workplace, particularly in the private sector and government still views affirmative action as a necessary and appropriate tool in addressing these imbalances and disparities in the workplace. In light of these prevailing inequalities, any debate about a sunset clause is irrelevant and very pre-mature.”

To add to the BEE gunfire, General Secretary Blade Nzimande said last week, after the SACP’s central committee meeting, “Some of the discussion papers dealing with the challenges of factionalism, ill-discipline, corruption and tenderpreneurship within the ANC are to be commended. Missing in the discussion papers, however, is the link between these problems and some existing government policies, such as black economic empowerment (BEE).  We need to use the NGC to build a wide consensus in favour of genuine broad-based empowerment and affirmative action and against the current perverted narrow BEE practices – much of which is written into law.”

Since its conception, BEE has come under much debate and scrutiny, but it is still a process that has yet to run its course. Only in time will this model confirm its value as one of success or failure.


Costly implication of ignoring Employment Equity

September 9th, 2010

Employment Equity reporting season opened on 1 September 2010 at http://www.labour.gov.za. 

Many employees mistakenly think that they do not have to report if they have fewer than 50 employees.  They fail to apply the turnover threshold for their industry, which is as low as R2 million per annum for agriculture, R5 million for construction and tourism or R10 million for manufacturing.  Refer to Schedule 4 of the EE Act for the thresholds relevant to your business.  The Department of Labour can apply penalties of between R500,000 – R900,000, for contraventions of the Employment Equity Act.

When it comes to measuring employment equity on your BEE scorecard, the verification agency is required to confirm that those eligible to report have done so. Failure to produce a copy of your employment equity plan and proof of submission could result in an entity failing to recognize any points for this element.

Employment equity counts for 25 points on the QSE scorecard and 15 points on the generic scorecard.  For both scorecards, there is a sub minimum of 40% of each the targets required, in order to recognize any score for that target.

It is important to note that the employment equity targets in the BEE scorecard are phased in over a 0-5 then 6-10 year period, year one being 2007. E.g. the current target for senior management for a generic company is 43% and this increases to 60% in year 6.  If a company is not focused on achieving even the first year targets, they are going to experience a considerable drop during the second phase of the target.

Although employing black disabled personnel can result in points in the generic scorecard, it can also present some challenges.  For more information, read our article “Claiming key points through disability” in issue 1 of BEE in the Know.

We are frequently asked if white women can be counted under employment equity. The answer is no, we are measuring the involvement of black people in your business. The confusion probably comes from the fact that white women are included under employment equity reporting targets as historically disadvantaged individuals (HDI’s).

During the recent  Department of Labour road shows, conducted throughout the country, there were two particular points which stood out.

1)     Typically, employers complain that it is difficult to find black candidates to fill skilled and management positions.  However, EE reports show that employers are indicating equitable representation of skilled workers across the races, although this is not translating to an increase to representation at higher level. 

2)     Anecdotal evidence points to black candidates being headhunted or poached by larger companies who can afford to offer bigger packages, however, DoL reports indicate that this type of movement is more often seen in the white male demographic.

For further info on EE reporting, please see the Department of Labour website. 


Enterprise Investment Programme – a BEE incentive

September 9th, 2010

The Department of Trade and Industry (DTI) launched the Enterprise Investment Programme (EIP) in July 2008 in order to provide financial assistance, through an investment based incentive programme to encourage growth in key areas. The EIP is designed to attract foreign direct investment, create employment and ensure sustained growth.

The programme aims to encourage further investment in Manufacturing and Tourism by providing a tax free incentive  of up to 30% against identified qualifying capital investments of up to R 200 million made  in new investment projects or existing businesses who are in the process of expanding.  The Manufacturing industry is supported by the Manufacturing Investment Programme (MIP) and Tourism is supported by the Tourism Support Programme (TSP).

The grant can be used by applicants as part of their equity contribution when approaching third party partners and may also be used to access further loans from financial institutions.

Further opportunities are offered by the following incentive programmes:

INCENTIVE PROGRAMME

OPPORTUNITIES

Business Process Outsourcing and Off-shoring sector (BPO&O)

Stimulate growth within the call centre industry.

Motor Industry Development Programme (MIDP)

Make industry competitive through global integration, increasing local production and expanding exports

Foreign Investment Grant (FIG)

Assist Foreign Investors to invest in manufacturing businesses in South Africa

Critical Infrastructure Programme (CIP)

Improve critical infrastructure in South Africa

Industrial Policy Projects (IPP)

Encourage local and foreign investors to invest in South Africa

Automotive Investment Scheme (AIS)

Grow and develop the automotive sector through investment that will increase plant production volumes, sustain employment and / or strengthen the automotive value chain

 

Madelein Fourie, Operations Director, explains how BEE fits into this programme.
“Manufacturing projects that qualify for MIP benefits must achieve a minimum score (depending on the size of the investment) to contribute to industrial policy targets.  One of the economic benefit criteria relates to Broad-Based Black Economic Empowerment (B-BBEE). Tourism projects that qualify for TSP benefits must at least be a level four (4) contributor.”

She adds, “This, however, does not come without challenges. One of the main challenges is the perception from foreign investors that BEE is an investment risk.  The challenge to attract foreign direct investment, whilst transforming the racial ownership of businesses, is very unique.”

But there is always a positive side and shareholders, management and owners are making an effort to comply and understand the value that BEE can add to their businesses.

“Clients are mainly concerned about the timing of incentives and how soon, after the commencement of a project, incentives will be paid.  EIP applications, on average, are approved within approximately 6 months from submission to DTI.  The processing of claims takes approximately 5 months from submission to payment by DTI.  Note that these averages are based on the turnaround times experienced by IQuad clients to date. 

We are also often questioned on the BEE Elements that impact on the criteria to obtain a scorecard.  IQuad Verification Services is an essential part of the IQuad Group in order to assist IQuad Investment Incentives’ clients with advice and service relevant to obtaining BEE certificates.”

“Through the availability of the incentive programmes, clients are likely to become more aware of being BEE compliant.  Being non-compliant will result in the potential loss of incentives, therefore real efforts will be made to become compliant.”


What is ABVA?

August 26th, 2010

Some confusion surrounds the defining attributes of what ABVA is and where their responsibilities lie. The Association of Verification Agencies is an independent national Membership Organization that has been established to guide and assist the BEE verification industry, as set out and defined on page 12 of Codes of Good Practice.  This states that;

“10.6 The DTI encourages the establishment of an independent industry body that will provide guidance to the verification agency through the development and maintenance of high quality and reliable BEE verification services.

and

10.7 The Dti together with the relevant industry body will from time to time develop Verification Methodology and other relevant practices that will be used as standards by all verification agencies.”

ABVA does not accredit verification agencies nor do they provide BEE accreditation services.  Their objectives mainly serve to promote and regulate any BEE-related qualities as set out in the Codes and to maintain the professionalism that goes hand in hand with these qualities.  ABVA can also serve as a representative in the verification industry and act as an intermediary between verification agencies, the DTI, SANAS and measured entities.

All ABVA members subscribe to a compulsory code of conduct which governs their behavior.  In addition, ABVA publishes technical interpretations which promote consistency and best practice in application of the BEE codes of good practice.   ABVA membership is therefore offers further protection and credibility to the measured entities using the services of its members.

For more information, please go to www.sanas.co.za or www.abva.co.za


Unpacking Total Measured Procurement Spend

August 26th, 2010

In issue 6, we published an article entitled The A-Z of Preferential Procurement Calculations.  This article demonstrates how a company, with a little attention, can increase its points by excluding items from the basket of measurement known as Total Measured Procurement Spend (TMPS).

B-BBEE points are awarded on a scorecard when companies buy from suppliers who have earned B-BBEE recognition.   The amounts spent with these suppliers, as a proportion of the total amount spent with all suppliers (TMPS), will determine the points received for preferential procurement.  By excluding certain items from the TMPS, the B-BBEE procurement points increase. 

Consider the following example – A company spends a total of R1000 with suppliers A, B, and C.   Supplier A has a B-BBEE recognition of 100%, and accounts for R300 of the spend.   R300 was imported from Supplier B who is an overseas supplier, and the balance was bought from Company C who has no B-BBEE recognition level.   The Total Procurement Spend is R1000, but R300 can be excluded on the basis that it is an import.    This means that the Total Measured Procurement Spend is R1000 – R300 = R700.   The actual percentage measured against the target is therefore calculated as (R300 x 100%) /(R1000 – R300) = 42%.   If the target was 50% and the maximum number of points was 12, then this company would achieve 42% / 50% x 12 = 10.08 points.    If we did not exclude the imports then the company would have achieved only 7.2 points. (If you are interested in the maths, here it is: (R300 x 100%) / (R1000-0) = 30% / 50% x12 = 7.2 points)

So by ensuring that the TMPS is as low as possible, we can increase the points achieved without spending any extra money.

How do we reduce the TMPS?  There are a number of legitimate things that can be excluded.  They are detailed in Code 500, paragraph 6, but in essence they comprise of the following categories:

1.  Taxes and levies – Taxes paid to government.
2.  Imports – Imported goods and services that are not available locally (Even if they are available locally in a different brand or specification to the import).
3.  Expenses incurred on behalf of someone else (know as 3rd party procurement).
4.  Goods and services bought from suppliers who enjoy a monopoly.
5.  Salaries and wages are always excluded.

The consideration of exclusions can become quite technical but remember the following principles:

- If a supplier is supposed to have a B-BBEE scorecard – it cannot be excluded. 

- If you are buying from a municipality which is a reseller of a service, like electricity, you measure the spend against Eskom’s B-BBEE scorecard.

- Municipalities fall into a legislative hole – they are not included in the scope of application for the codes, so they are not forced to get a scorecard.   BUT they are also not listed as an allowable exclusion.  

- These companies are specifically mentioned in the codes to be included in TMPS: Telkom, Transnet, ESKOM, Airports company, IDC, SA Post Office, SABS, Road Accident Fund, and other companies listed in Schedule 2 and 3 of the Public Finance Management Act.

For assistance in accurately calculating your TMPS, please contact IQuad BEE Verification.


Coffee with Francois Swart, CEO of Paladin

August 26th, 2010

How long have you been at Paladin, and could you give me some details about your professional background?
I have been at PSG since 2007 and at Paladin since 2009.  I am a chartered accountant and a CFA charter holder.  My work experience after articles took me from Cape Town, to New York, and then to London, as an executive director at Goldman Sachs.  

Tell us more about Paladin?
Paladin is PSG’s preferred investment vehicle in industries excluding agriculture, food and beverages.  We listed on JSE on 1 September 2009 and currently have a market capitalization of R1.45bn. Paladin holds 44% of IQuad, which is one of 13 investments. Thembeka Capital, a broad-based BEE investment and private equity company with 500 black shareholders and 10 000 beneficiaries, is Paladin’s largest investment. Thembeka Capital is black managed and controlled (51% ownership), with Paladin holding the other 49%.

What were your initial perceptions about B-BBEE and have they changed, if at all?
I was skeptical at first about BEE, but in hindsight I realized this was because I did not really understand the driving principles behind it.  Many people are influenced by what they read in the media and this can create a negative perception of empowerment.  From a total free market perception it is a questionable practice, but if one truly understands the principles within a South African context, it makes perfect sense.

To understand BEE as a guideline for economic transformation, one must also consider SA’s political background.  People seem to take for granted that SA is unique in the world and underwent a significant political transformation without a corresponding economic revolution.  The demographics of SA’s private sector, and more specifically the private wealth in SA, remain skewed and still reflect the pre-1994 political position.

People must realise that the alternatives to BEE as a balancing program could have been much worse.  I believe that the private sector has an obligation to support BEE and to embrace all its principles.  We must transform ourselves and the environments within which we live and work in order to ensure a sustainable future for business in SA.

How do you think B-BBEE has affected the corporate world?
Not enough.  We are starting to see the benefits of employment equity and some of the other principles, but a lot still needs to happen.  You hear many argue that BEE has been in place long enough; however, we need to accept that this process of working towards an equal society will take a very long time. 

In most of our underlying investment businesses, we have seen a positive BEE contribution.   As with all things in business, in BEE it is critical that you choose your partners carefully.  Having a broad-based partner is crucial and having the right partner can add strategic value to your business over the long term and, thus, will not be a hindrance to your business. Thembeka Capital has worked well as our partner in the PSG Group.

What would you consider the stronger and weaker features of the BEE model?
The model drives itself with minimal government interference.  Government has merely said that it prefers to do business with companies that support transformation and the Codes is a means to measure that support.  As opposed to a full scale economic revolution in SA (quite possibly a disastrous alternative), I see this as the most positive feature. 

Conversely, the success of this model depends on the buy-in of the private sector. Buy-in, not just to the letter of BEE, but also the spirit.  If the private sector fails to embrace BEE, this factor will prove to be a major drawback on BEE.  If BEE fails, I am concerned of what the government’s alternative solution may be…

What traits do you think South Africans need in order to excel as individuals?
They need to be more optimistic. How can one grow a business and be successful if you are constantly negative about the country? There are opportunities to be found in the inabilities of persons/corporations or governments. Be passionate about what you do or say. It is much easier to excel at something if you enjoy doing it. 

What would you consider as your strengths and weaknesses?
I am an optimist and a realist. One has to understand and manage the potential risks of any opportunity. Keeping my team motivated, through my passion for work, does work in tough times, as well as empowering people and holding them accountable for their actions.

However, I can be impatient and sometimes have unreasonable expectations.

Would you consider yourself more family-orientated or career-orientated?
Personally, I believe that the one will always suffer at the hands of the other. My family will always come first. However, they also deserve the best and I am therefore more career-orientated at this point in my life.  

Where do you see South Africa’s future going?
I am excited about South Africa’s potential and the country’s future. However, we can either be content with the current status quo or we can take the necessary steps to propel South Africa along its next growth trajectory. SA’s biggest constraint for growth is its skills shortage. A working education system is the only solution to this shortage. Sort out education and South Africa’s future is bright.


Tourism sector

August 12th, 2010

The tourism sector scorecard was gazetted in May 2009 after consultation with the Tourism Empowerment Council, the Minister of Environmental Affairs and Tourism and the dti. In the preamble, it states that the intention of the codes is to create a globally competitive tourism sector, which actively makes involvement in the industry more accessible to, and inclusive of,black people.

It applies to a wide range of tourism related businesses, namely hotels and other accommodation establishments, hospitality related services such as restaurants, and conference venues and also travel distribution systems, such as travel agencies, coach operators and tour wholesalers.

The tourism scorecard has a lower turnover threshold for exempt micro entities, which is R2,5 million per annum, rather than R5million. The QSE scorecard therefore starts at R2,5 million +.

Major Differences (generic scorecard)

Ownership:
a target of 21%, lower than the standard 25%.

Skills development:
higher weighting of points for this element. 20 points rather than the standard 15.

Procurement:
lower points weighting. 15 instead of the standard 20.

Enterprise development:
14 points, with enhanced recognition for qualifying contributions to tourism related SMME’s and verification costs of these beneficiaries.

Socio-economic development:
8 points instead of 5.  Points also awarded for being a TOMSA levy collector and for recruiting black employees with no previous experience in the tourism sector.

The full sector code containing the scorecard and regulations can be found on our website or by emailing us with your request.  Click here for more information.


BEE ‘system’ better than nothing

August 12th, 2010

Johannesburg-based client, Maks & Blaze, give their perceptions and opinion about the B-BBEE model.

Maks & Blaze has 15 years experience in fashion retail and specializes in sourcing, design and product development for large department stores nationwide.  Fashion accessories, handbags, jewellery, umbrellas, watches, hair accessories, to name a few items, are all supplied to a number of large department stores.  All products are designed locally but manufactured in China and India.

We spoke to Reina van Rooyen, Financial manager of Maks & Blaze.  “B-BBEE is not as offensive as the name originally suggested to many.  The intention behind the model attempts to address the inequality created by the laws of our past.  Unfortunately, in my experience, I still continue to hear that there are people who have this lingering bad taste when it comes to affirmative action or the employment equity (EE) element.”

Reina adds, “However, most of our employees have embraced the process fully and have benefitted from doing so.  A prime example is that many training programs have resulted in the promotion of some of the disadvantaged employees.”

When asked about the elements of the model, Reina stated that she felt the ownership targets were the least realistic.

“Ownership cannot be rushed. It will ultimately result in unethical deals taking place which will harm empowerment. A select few elite individuals qualify for ownership and not the whole population. In the long term it does not encourage the development and empowerment of the larger sector of poor South Africans.”

“This system will only work provided it does not come across as racist in any form; otherwise those that are indeed racist will have an aversion to it.  I feel the importance lies in concentrating on those who are disadvantaged and not on color.  In saying that, whatever the targets or scores are behind this system, it is far better to have some sort of system in place, than no system.”


Adjusted Recognition for Gender

August 12th, 2010

Do you know how the Adjusted Recognition for Gender calculation works?

The Adjusted Recognition for Gender is a term that appears in most areas of the generic scorecard (R35 million + t/o per annum) and in the employment equity element of the QSE scorecard (R 5 million – R35 million t/o per annum).

Its intention is to incentivise measured entities to maintain a balance of male and female employees, by giving extra recognition for black females.

The calculation is as follows:

A= B/2 + C         

Where:

A is the adjusted recognition for gender
B is the % employees in the category that are black
C is the % employees in the category that are black women

Thus:  If you have, for example:  10 males in the measurement category and 3 are black males, the calculation would be as follows:

(B) 30% / 2 + (C) 0%

A= 15%

The result of this calculation “A” would then be divided by the target and multiplied by the weighting points for the element.

The effect of the adjustment in this example is that the company has received only half of the black recognition it would have received without the adjustment.


The Pros and Cons of working with BEE Consultants

July 29th, 2010

There are various methods of measuring your contributions and monitoring your BEE scorecard throughout the year.  These include online scorecards such as www.beetoolkit.co.za, excel spreadsheets and, of course, BEE consultants.

A BEE consultant can come in many forms. Before you consult with one, ensure that you check their references to make sure they are knowledgeable with the Codes of Good Practice as well as the verification procedures and specific scorecard requirements for your industry.

Some verification agencies do engage in consulting but are then precluded from verifying your company for a period of 2 years, to avoid the risk of impartiality.

In this article we address the pros and cons of dealing with a consultant.

Pros
Understand the score card – a good consultant will give you a clear understanding of how the scorecard works and how to achieve the level you require.

Assist with document preparation and collection – this can be a lengthy exercise and should not be left to the last minute. No points are awarded without evidence and a consultant should guide you through this to ensure your documentation matches the verification requirements.

Plan for the level you want to achieve – constant monitoring and the recommendation of corrective actions can assist with achieving a specific level that is required.

Cons
Cost - consulting is rarely cheap and can often cost more than the verification itself.

Lack of ownership/buy in – when a measured entity confers with a consultant, they need to ensure that they are actively following up on the opportunities and suggestions offered to them.

Professionalism and knowledge of consultants – as with any type of consultant, there are good and bad examples. Using a poor consultant will result in a waste of money, time and opportunity and, worst case scenario, a non-compliant scorecard resulting in a loss of customers.


Calculating Indicative Profit Margins

July 29th, 2010

Under certain circumstances the Net Profit After Tax (NPAT) target is not applicable to measured entities seeking recognition for Enterprise Development (ED) and Socio Economic Development (SED).   It is crucial to understand when the ordinary calculation of target ED and SED spend is not applicable as this may be the difference between receiving a compliant and non-compliant scorecard.

ED and SED points are awarded on the basis that a measured entity has spent a target amount on ED or SED initiatives.  The targeted amount is a percentage of the measured entities NPAT.   A Qualifying Small Enterprise (QSE) for example is required to spend 2% of its NPAT on ED to receive 25 points.   Thus, how would the target spend be calculated if the company did not make a profit, and would it be fair to give two similar companies the same recognition when one company had manipulated it’s profits to reduce the target requirements?

The B-BBEE Codes of Good Practice make provision for both of these circumstances by introducing the concept of an ‘indicative profit margin’.   Simply put, when a company fails to achieve a minimum level of profitability, it can no longer base the target on its actual NPAT, and must use a deemed NPAT based on the norm in the industry to which the company belongs.

When a measured entity makes a loss in the period of measurement (which could be 12 months or longer, depending on whether the measured entity has elected to measure itself cumulatively) or makes a profit that is less than ¼ of the norm in its industry – it must replace its own NPAT for the deemed NPAT when it calculates the targeted ED and SED spend.

The deemed NPAT is calculated by applying an indicative profit margin to the measured entities recognized sales in the year of measurement.    To determine what margin should be applied to the sales, the measured entities historical profit margins (NPAT / Sales) over the last 5 years are compared to the prevailing profit margins in its industry.  These are published periodically by stats SA, but any verifiable representation of industry profit margins should be acceptable.    The historical year in which the measured entities actual profit margin was larger than ¼ of the prevailing profit margin in the industry is the year that determines the indicative profit margin.   E.g.   A measured entity had a profit margin in 2010 of -2%; in 2009 of 2%, and in 2008 of 5%.  The normal profit margin in the industry at 2010 was 10%.   The profit margin from the year in which the measured entities profit margin was greater than 10%/4=2.5% is the profit margin that must be used in calculating the deemed NPAT. In this case, 2008 at 5%.   So the measured entities profit margin in 2008 which was 5%, must be applied to the sales of 2010 to arrive at a deemed NPAT.

In summary – if a measured entity has made a loss in the year of measurement, or a profit that is less than ¼ of the industry norm, then it cannot use its actual NPAT to calculate the target expenditure for ED and SED.  It must then use a deemed NPAT which is calculated by determining the measured entities industry norm, and comparing its actual profit margin to the industry norm to select the percentage that must be applied to the current year’s sales to calculate the deemed NPAT.

In instances where measured entities have made a loss the use of a deemed NPAT is normally apparent.  Measured entities however face greater risk of misstating the scorecard when their profitability is below 25% of the industry norm.  Most measured entities do not make a comparison to the industry norm when calculating their ED and SED targets.  Companies that fail to make this comparison risk losing ED and SED points under verification conditions.


Coffee with Jenni

July 29th, 2010

Behind the professional mask, is a family orientated, environmentally conscious woman destined for success.  We caught up with Jenni Lawrence, Director for IQuad BEE in the Port Elizabeth office, to find out what inspires such a hard working attitude.

How long have you been working for IQuad and what is your professional history?
I began working for IQuad BEE as an analyst in November 2008.   Prior to this, I had been on maternity leave after moving back from a 9 ½ year stretch in the UK with our 4 month old son.  In London, my work experience was mainly in HR and admin management in the banking and accounting industries.

What are your personal views on the B-BBEE model?
I think the current Codes of Good Practice could be improved upon, with more emphasis on skills development and enterprise development, rather than ownership.  This would create a true broad based empowerment.  Ideally, it would be good to see an environmental element introduced, to incentivise or encourage businesses to clean up their businesses and environment, as well as improving their levels of energy efficiency.

What would you consider as your strongest and weakest attributes?
I am analytical by nature and sometimes need a shove to make a decision! However, I also like to view this trait as strength because it means I tend to consider all sides of a situation before making a decision.  This way I feel my decision is well thought out considering it can impact on others.

Do you consider yourself family-orientated?
Yes, most definitely.  Peter and I moved back to South Africa after the birth of our son, in order to be closer to the grannies, granddads, cousins, aunties and all that goes along with raising a family in our home country. Charlie (4) and Mia (2) love spending time with their cousins and being spoilt by their grandparents.

Do you have any hobbies or interests?
My spare time is generally taken up by family commitments but I am interested in environmental and social issues. I think my husband would say my hobby is collecting second hand goods for charity, which are constantly cluttering up his garage!

Any future goals, personally and at work?
I have recently been assigned two mentors through the Business Woman’s Association mentorship programme.  I want to use this opportunity to help grow my business skills in all aspects. I believe this will help me to grow both personally and professionally.


A tender subject

July 15th, 2010

Tenderpreneur (or tenderpreneurship) is a South African term used to describe government officials, politicians or influential businessmen who use their powers to influence and secure government tenders and contracts. The word is a portmanteau of “tendering” and “entrepreneur.”  The ‘tenderpreneur’ makes an extraordinary sum of money from a contract (usually a national government or municipal tender) that has been awarded for some sort of service.

Predictably, there is often bad press about bribery and corruption with regards to awarding contracts, and the sad reality is that these tenderpreneurs use their position in order to win tenders for their own or their family’s personal gain.  According to Dr Rob Davies, Minister of Trade & Industry, another example is where black companies win state tenders at a premium and then simply outsource them to white companies, as well as that of empowered companies that import products at the expense of local jobs.

A recent case study involved a client who was contacted by a person claiming to be a state department representative.  This representative told the client that if they wanted to be considered for a certain job, the client needed to increase his quote for the job, and then pay a ‘fee’ equalling a hefty percentage of this fee in order to guarantee being awarded the tender.  The need to get a BEE certificate was questioned and clearly not even a consideration.  This client then contacted the fraud hotline.  Since then, the client claims to have had threats and has been told he will not get any further work from them.  This alleged incident personifies the core of corruption that occurs and sadly, many entrepreneurs fall short because they don’t have the inside information or the connections to get tenders in the private sector. 

Tenderpreneuring is ultimately a form of fronting that needs to be -eradicated. IQuad would be interested in hearing from clients or others who have experienced a similar experience or have any opinions on this subject.


Management Control

July 15th, 2010

Management control is worth 11 points on the Generic scorecard and can be one of the most difficult areas in which to score.  Typically, we do not find many back shareholders to make up the voting requirements and we do not see many black people recognized in qualifying senior roles.

This section looks at two areas.

1. Board participation – 5 points

In this section we look for voting rights in the hands of black males and females.

This is measured by looking at shares owned by black people and whether the holders of these shares have been allowed to freely exercise their vote.

It also recognizes black people in executive director positions.

2. Top management – 5 points

In this section we measure black “senior top” and “other top” management, as defined and declared in the measured entities’ Employment Equity report, EEA2.

Common examples of top management (as defined in the Codes)

Senior Top Management = the chief executive officer, the chief operating officer, the chief financial officer and other people holding similar positions.

Other Top Management = the chief information officer, the head of marketing, the head of sales, the head of public relations, the head of transformation, the head of human resources and other people holding similar positions.

In smaller companies with a flat management structure, the job titles are likely to vary.  Where a company does not distinguish between Top Management and Senior Management, they may include senior management in this section, but may not count them again under the employment equity score.

A bonus point is awarded if a black independent non-executive board member has been appointed and is active on the board.



Change a life, through B-BBEE

July 15th, 2010

In a previous issue, we highlighted how companies can score points on their BEE scorecard through economic and socio-economic development initiatives. One of those initiatives can be through supporting various charities. Below are two examples.

Graceland Life Recovery Centre (NPO) and Grace Grows CC are two motivational projects, based in Port Elizabeth and run by enthusiastic people.  “We  saw the need to support the community in the area of life recovery, and then realised there was also an opportunity to begin an enterprise to develop those who come through the centre, and also including those in nearby informal settlements”, said Paul Vice.

Grace Grows CC qualifies as an enterprise development beneficiary, with 52% black ownership, and is compliant with the Government’s B-BBEE Act, and includes the agricultural development of insectivorous plants, bonsai, animal management, and other agricultural programmes.

Current and future projects include arts, crafts, a health shop, worm farming, , horse therapy, bonsai, insectivorous plants, vegetables grown in tunnels, potatoes grown in tyres, pottery making, to name a few. 

Zwelake Soul and Vinesh Naidu are the two black members of the CC.  Soul has been with St Marks for 18 years and is employed in the furniture sales industry. Vinesh, an attorney and a member of the Legal Aid team, has brought a wealth of experience for the development of previously disadvantaged individuals.

Graceland is the life recovery centre, situated in a tranquil setting in Theescombe, and serves to restore the value of life to those confronted with stress, depression, post traumatic stress and various addictions.  It has various resources and programmes, such as:

Teens on Track – a two week programme for teenagers who need guidance and direction and includes family interaction and counselling.

Equine Therapy - this therapy utilises horses as a conduit to communicate with the person. People can relate to horses, as they respond quickly and visibly to care, kindness, trust and praise, inspiring those working with them who have been abused or hurt in life.  Staff resources include medical doctors on call, professional counsellors, a psychiatric nursing sister, an assistant microbiology student  and affiliated and supporting legal and psychiatric professionals. The main members are Dr Bruce Woolard, a sociologist and minister, Mark Roberts (resident manager at Graceland and a former Detective in the Child Protection Unit),Paul Wynne Vice, a minister and counsellor and Zwelake and Vinesh.

Paul  added, “B-BBEE helps to take this endeavour to another level for us! B-BBEE is ideal for the fulfilment and funding of these projects and its a creative and genuine way of assisting those who lack opportunity and ability. We envisage, in the near future, that we will  be able to assist the local informal settlement in the area with basic life skills, pre-school education and a feeding scheme. As a result of the B-BBEE funding we would like Zwaleke to run Grace Grows CC as a full time manager. For further information, , please contact Paul Wynne Vice on 0824730041 or Mark Roberts on 0825642364.

Email: paulv@stmarks.org.za  Website: www.graceland.stmarks.org.za


Update on BEE in the Know

June 25th, 2010

Six months ago, we launched BEE in the Know. Our specific objective for this e-newsletter was, and is, to provide value-adding information to companies preparing for and affected by BEE verification.   During this time we have completed 11 issues dealing with the technical, topical and feel good elements of BEE.  

‘Fast moving landscape ‘is not a term that can be ascribed to BEE.  We saw the first draft of the broad based codes six years ago, but while the final building blocks of government’s implementation strategy have yet to be put in place, we have certainly had to deal with several significant developments in the last six months.

These include the exclusion of non-accredited verification agencies from issuing certificates, the accreditation of verification agencies to issue certificates on the sector codes for transport, construction, forestry and tourism.   A BEE advisory council was also established to advise government on BEE progress, implementation and strategy, and a new term was added to the BEE arsenal on fronting – ‘Tenderpreneuring’.  This refers to the practice of forming black owned outsourcing businesses with the sole objective of securing tenders.

The alignment of the preferential procurement policy framework act to the codes of good practice is expected by August 2010, according to the time frame published in the dti’s industrial policy action plan.  This amendment to the act will require all government departments to use a broad-based BEE certificate as the primary consideration of BEE compliance in the procurement process.

On the technical side we’ve discussed the details of how to define ‘disability’ and claim key points, how to boost your scorecard through ED and SED contributions, clarity on the ownership element and the position and dangers of trusts, differences in the construction charter, sector code accreditation, learnerships, preferential procurement calculations, and the role of the parties in the verification process.

BEE in the Know is distributed electronically to a growing 3000 opt-in recipients.  The success of this e-newsletter is dependent on your feedback.  Therefore, if you have found value in our articles or have further article suggestions, please complete the short survey by clicking here.




“The B-BBEE model will succeed, if we embrace it”

June 25th, 2010

Profiling clients provides the opportunity for them to give their opinion about B-BBEE and how the current model has affected both their professional and personal lives.  One IQuad Client, Nigel Walker, Director of Complete Exhibitions, gave us a frank account of his B-BBEE experiences thus far.

Complete Exhibitions is a small, but rapidly growing company (Qualifying Small Enterprise) based in Pretoria, and has been operating since 1993.  Nigel explains, “Although today we are still 100% white-owned, we did previously look at selling a percentage of our business in order to comply with all BEE requirements.  Unfortunately, as it was with many other companies, we were confronted with interested parties who were financially capable of contributing yet did not want to be operationally involved, making it difficult for small enterprises to comply.  However once B-BBEE was introduced, we were able to do a180% turn-around.”

Nigel added, “B-BBEE for us has certainly been a huge improvement and step forward over BEE.  However, there is still much confusion in the market place between the two systems and I think communication and rapid implementation will be vital in turning around what is currently negatively perceived.”

“After fully understanding and evaluating the potential impact of B-BBEE on our business and our clients, we realized the potential value and opportunities available.  With this said, we have carefully ensured that a number of pertinent aspects of our business, being employment equity, preferential procurement, skills development and socio-economic development, have been managed and implemented so that we are now in good stead in terms of our B-BBEE representation.”

Nevertheless, Nigel personally disagrees with the sector codes, or more specifically, with the sub-codes that seem to have introduced a new level of confusion.  Therefore, he feels that there are flaws still evident in the system that need to be addressed.

Many clients have noted that the new B-BBEE system is easier to understand and can be managed with no trouble, yet specifics such as record keeping is crucial.  Nigel agreed.  “Another bonus is that as a supplier, we are often asked to provide a service or a product at a discounted rate for the benefit of the community because the client is a non-profit organization.  This positive return allows us to significantly improve our score and we are thus able to positively position ourselves within our market.” 

Staff training and development are often overlooked in small companies.  However, the broad definition of training applied within B-BBEE has allowed Complete Exhibitions to develop a number of individuals within their company for their personal attainment.  This in turn reflects a more efficient and effective company, whilst empowering employees, and of course increasing scorecard ratings.

Nigel concludes, “I do not think that B-BBEE has fully succeeded as yet.  However, I do think in time that it will succeed – but it needs to be embraced in order to succeed.  The old perspective of BEE needs to placed firmly and squarely where it belongs, in the past and the new model needs to be leveraged by ensuring that the tendering and procurement systems are entirely and immediately amended to embrace all the measurements – across all sectors.”


Fronting is Fraud

June 25th, 2010

Fronting can be defined, according to the dti guidelines, as a “deliberate circumvention or attempted circumvention of the B-BBEE Act and the Codes.” 

In effect, fronting happens when a company misrepresents its level of black ownership or its contributions to the BEE targets set by the DTI.

Fronting practices often appear as window dressing, where a black person, for example, has a share certificate with their name on it, but is discouraged or inhibited from meaningful participation in the entity, in terms of representation and/or economic interest.

The DTI guidelines offer a list of indicators for fronting as follows:

  • The black people identified by an enterprise as its shareholders, executives or management are unaware or uncertain of their role within an enterprise;
  • The black people identified by an enterprise as its shareholders, executives or management have roles of responsibility that differ significantly from those of their non-black peers;
  • The black people who serve in executive or management positions in an enterprise are paid significantly lower than the market norm, unless all executives or management of an enterprise are paid at a similar level;
  • There is no significant indication of active participation by black people identified as top management at strategic decision making level;
  • An enterprise only conducts peripheral functions and does not perform the core functions reasonably expected of other, similar, enterprises;
  • An enterprise relies on a third-party to conduct most core functions normally conducted by enterprises similar to it;
  • An enterprise cannot operate independently without a third-party, because of contractual obligations or the lack of technical or operational competence;
  • The enterprise displays evidence of circumvention or attempted circumvention;
  • An enterprise buys goods or services at a significantly different rate than the market from a related person or shareholder;
  • An enterprise obtains loans, not linked to the good faith share purchases or enterprise development initiatives, from a related person at an excessive rate; and
  • An enterprise shares all premises and infrastructure with a related person, or with a shareholder with no B-BBEE status or a third party operating in the same industry where the cost of such premises and infrastructure is disproportionate to market-related costs.
  • If a verification agency detects a deliberate act of fronting, they are required to report this to the fraud hotline at the DTI for further investigation.  If the entity is discovered to be engaged in fraud, the dti may disqualify their scorecard until corrective action is taken. 

    If an end user of a BEE certificate discovers that it is fraudulent, they may take legal steps against the measured entity, which could result in massive penalties.


    IQuad BEE Verification proudly receive award of accreditation

    June 10th, 2010

    SANAS has awarded IQuad BEE Verification accreditation for the Integrated Transport, Construction, Tourism and Forestry sector codes with effect from 17 May 2010. 

    IQuad BEE is one of only three accredited agencies authorised to issue scorecards on the general scorecards as well as all of the additional industry specific scorecards released to date.

    Click here to view the Certificate of Accreditation


    A continuous road of development for B-BBEE

    June 10th, 2010

    In our previous issue, we focused on President Zuma’s press release to the Black Management Forum on how B-BBEE is still in need of constant development.  It has shown promise and reaped success, however, the plan is to concentrate on the challenges and key issues of B-BBEE that need effective solutions.

    Just a couple of weeks later and a press release showed more promise as President Zuma convened with the BEE Advisory Council on 20 May in Pretoria.

    MEDIA RELEASE

    PRESIDENT ZUMA CONVENES THIRD MEETING OF BEE ADVISORY COUNCIL

    The Black Economic Empowerment Advisory Council held its third meeting at the Union Buildings in Pretoria today (20 May 2010).

    The Council, which was established in December 2009 in terms of the Broad-Based Black Economic Empowerment Act, is chaired by President Jacob Zuma.  It held its inaugural meeting on 4 February 2010.

    In his opening remarks, President Zuma said much progress had been made in advancing black economic empowerment, but not enough.  He said the Council would need to advise government on how to ensure it happens faster and benefits broader society.

    President Zuma said the Council would need to answer the question: “In the South African context, where many people were excluded for centuries, how do we level the playing field?”
    “This Council needs to look at what needs to happen in the economy,” he said.

    Minister of Trade and Industry Rob Davies said that many elements of the BBBEE Framework had been put in place, including sector charters, codes of good practice, and verification processes: “We find ourselves at a moment when we need to assess the impact of that work.”  “There is a great deal of work that needs to be done to make empowerment a contributor to development and economic growth,” he said.

    One of the challenges that the Council would need to advise on was the abuse of the empowerment process through practices like fronting.  It would also need to look at the alignment of government’s preferential procurement policy with black economic empowerment.  The Council also identified weaknesses in verification and accreditation procedures.

    Members of the Council emphasized the need to ensure that economic empowerment was indeed broad-based, and said that this consideration should be at the centre of the interventions that the Council would propose to government.

    The meeting adopted the Council’s Constitution, which outlines, among other things, the powers, functions and administration of the Council.

    The meeting established four sub-committees to address a number of key issues that are central to the work of the Council.  These are:

    1. Ownership and structuring of BBBEE deals
    2. Enterprise Development, Access to Finance and Procurement
    3. Human Resource Development
    4. Legislation, Charters, Compliance and Enforcement

    In the course of developing recommendations to the council, the sub-committees may co-opt
    experts and commission research as required.

    The sub-committees will report to the next meeting of the Council, which is due to be held in September 2010.

    Issued by:
    The Presidency
    Union Buildings
    Pretoria
    20 May 2010

    ====



    The role of the parties involved in the BEE verification process

    June 10th, 2010

    The overall aim of verification is to give and provide confidence to all parties so that they may rely upon verification, and therefore by implication the verification scorecard and verification certificate issued by the verification agency to measured entities.

    The value of verification is public trust achieved by gaining the confidence of all parties, which includes, but is not limited to:

    • the measured entities, who are the clients of the verification agencies; and
    • the customers of the B-BBEE verified measured entities; and/or
    • government authorities; and
    • non-government authorities; and
    • consumers and members of the public; and
    • public entities.

    To understand how verification agencies are expected to do this, we must first look at the description of their duties and functions as set by the authorities and the specific responsibilities of the measured entities.

    The duties of verification agencies can be divided into two parts, namely:

    To assess, verify and validate both disclosed and undisclosed B-BBEE-related information on measured entities; and

    To evaluate B-BBEE transactions/scenarios to determine the effective creation and/or enhancement of economic wealth for black people.

    It is therefore clear that they have an audit or checking function.  The terms used by the authorities are; ‘assess, verify, validate, evaluate and determine’.  This is further established in that they are prohibited from consulting to the entities which they have to verify.

    Consultancy has been defined as the provision of any service that assists a measured entity to implement a B-BBEE strategy or any element of a B-BBEE strategy.  This includes implementation in ownership, management control, employment equity, skills development, preferential procurement, enterprise development and corporate social investment.

    The service will be considered a consultancy if the company provides specific solutions and assists the measured entity in implementing the proposed solutions.  Examples of consulting includes, but is not limited to, the following:

    • coaching or facilitating the BEE process on behalf of the measured entity towards the development and implementation of activities leading to B-BBEE compliance; and/or
    • preparing or producing manuals, handbooks or procedures; and/or
    • participating in the decision-making process regarding the management system; and/or
    • giving specific advice on the development and implementation of the management system for eventual verification.

    Alternatively, the dti verification manual and SANAS R47-02 specifically state that it is the responsibility of the measured entity, not the verification agency, for conforming to the requirements for BEE verification.

    The role and duty of a verification agency is therefore to assess the B-BBEE status of its clients (the measured entities) in an objective and ordered manner so that anyone can depend on the assessment and not necessarily the provision of a good scorecard to its client.  The role of the measured entity is to conform to the requirements for BEE verification and thus submitting all relevant information required to claim the BEE scores.

    A good B-BBEE scorecard will be the result of good planning, the implementation of a good B-BBEE strategy by the measured entity and the provision of the relevant evidence to claim the points.  The verification process is simply a measurement tool to establish the B-BBEE status of the measured entity.


    B-BBEE needs more refining, says Zuma

    May 27th, 2010

    Zuma’s address to the Black Management Forum (BMF) on 29 April 2010, a few days before Workers Day, was a reminder to all South Africans that we have achieved a great deal in South Africa, especially from a human rights perspective.  Zuma stated that, “Our Constitution has a solid foundation and that we have one of the most impressive and progressive Constitutions in the world. It has laid a good foundation for our objectives of creating a non-racial, non-sexist, democratic, equal and caring society.”

    Transformation was prominent in his speech – including transforming our economy. In short, concerns about B-BBEE were mentioned in that the material conditions that necessitated the promulgation of laws such as the Broad-Based Black Economic Empowerment Act, Employment Equity Act and the Labour Relations Act had not yet been dealt with sufficiently.

    But Zuma added, “B-BBEE has made substantial progress in contributing to the growth of South Africa’s black middle class by 2.6 million in 2007”.  However, issues such as ownership of productive assets, access to capital and financial resources, access to quality education and overall levels of income and wealth are issues that Zuma felt were still lacking in terms of equal distribution.

    It was recognized that B-BBEE needed to continue its path, yet with the assistance of the B-BBEE Advisory Council and the new transformation programmes, this would then enforce:

    • Higher growth rates
    • Low levels of unemployment
    • Enhancement of economic participation
    • Addressing structural economic inequalities
    • Addressing social inequalities

    Zuma added, “B-BBEE should be genuinely broad-based and promote the ownership and control of productive assets by black people, women, youth and people with disabilities. We cannot allow an abuse of the policy to empower just a few.  We also want government procurement opportunities to be actively used to promote the economic development of our people.”

    A serious issue such as fronting was not ignored by Zuma who urged the Black Management Forum to expose this practice that often goes hand in hand with BEE transactions. 

    The B-BBEE is reminiscent of any newly implemented government model that has its setbacks and flaws.  Yet, acknowledging and identifying those flaws and dealing with any unplanned consequences, is just one step closer to improving the model. 


    Views from our future entrepreneurs

    May 27th, 2010

    B-BBEE is crucial in business today but do our future entrepreneurs understand the model or the elements behind B-BBEE?

    A small survey was given to fifty students at the Nelson Mandela Metropolitan University with a few general questions regarding B-BBEE. The results were as follows:

    Just under one-third of the selected students had not heard about B-BBEE and could not define it at all. The remaining two-thirds knew that B-BBEE was related to affirmative action, but were not all completely aware of the elements covered within B-BBEE, especially the economic and socio-economic development elements.

    There was a fairly equal ground of positive and negative comments, examples such as:

    Charlotte Lutchmiah, (22 year old) 4th year LLB student.
    “I do not agree with B-BBEE entirely. I am studying law and when I look for a job, I am going to apply to the best firm around, and that won’t necessarily be a black firm. It is about quality, not race.”

    Chengetai Chikadaya, (23 year old), Masters (Media) student.
    “As a foreigner, B-BBEE does affect me because I can’t find work in SA because this model does not include foreign nationals. But personally, I think it is really difficult for any black person who finds a job through affirmative action because often they have to work harder to prove that they were given the job on skill and not because of colour. I always say that a black person needs to fly where a white person walks.”

    Chanelle Coutts (21 year old) 3rd year B.Comm Accounts student.
    “I firmly believe that the model of B-BBEE is fair because there are many disadvantaged companies or people who cannot get their foot in the right door – and in this way, it will give them a boost.”

    Gaywin de Vos, (18 year old) 1year B.Education student.
    “I disagree. I feel that it is completely unfair and that companies or people should be chosen by skill or that business owners have the right to buy products from the best manufacturer because the products are the best price and not because it is a black-owned manufacturing company.

    Kaylan Padley, (18 year old) 1rdB.Pharmacy student.
    .
    “In my mind, the B-BBEE model is acceptable to a certain extent. The standards must be equal to all relevant parties.”

    Education is the motivating factor behind most government programmes; perhaps it would make the most sense if a level of understanding about B-BBEE was introduced at secondary or tertiary level. This may ensure better clarity and a plausible understanding about B-BBEE before our future business leaders of South Africa begin their careers.


    The dangers of trusts in B-BBEE ownership

    May 27th, 2010

    In issue 4, we covered the rules for trusts when measuring B-BBEE ownership.  There are two specific requirements which cause an issue in 99% of trusts, and they are:

    1) the requirement in section 3.1.3 for there to be “a written record of fixed percentage of entitlement or the use of a formula for calculating entitlement…”, and

    2)  the requirement that the trustees have no discretion to alter the indicated dispersion of funds to the beneficiaries.

    It is recognized that a trust is a valid vehicle for holding ownership and this structure is often encountered in the form of a family trust.

    Even where the beneficiaries have been defined and are clearly black, and there is no discretion to allow the trustee to change this, we are still unable to allocate points when we correctly apply this requirement.

    For this reason, we advise measured entities to review trusts to ensure that they comply with the Codes of Good Practice, which are:

    1.  To qualify for a maximum of 40% of the total points in the ownership element, the trust deed must:

    a) define the beneficiaries and the proportion of their entitlement to receive distributions
    b) have a written record of the names of the beneficiaries or identify a defined class of natural persons
    c) have a written record of fixed percentages of entitlement or identify a formula for calculating the entitlement, and;
    d) ensure that the trustees have no discretion regarding the above terms, and on winding-up or termination of the trust, all accumulated economic interest is transferred to the beneficiaries or an entity representing the interest of the beneficiaries or class of beneficiaries;

    2.    To qualify for a maximum of 100% of the total points in the ownership element, the trust deed must, in addition to the above criteria:

    a) have been created for legitimate commercial reasons which must be disclosed, and;
    b) ensure that the terms of the trust do not directly or indirectly seek to circumvent the provisions of the Codes and the Act.

    The dangers of an entity setting up a trust without seeking legal advice and ensuring that the above criteria are not adhered to, is that it will run the risk of not being awarded any points under the Ownership element for the trust. However, it will still be in a position where all the stipulations in the trust have to be adhered to by all parties involved.


    Radebe positive about FIFA world cup

    May 13th, 2010

    The 2010 FIFA World Cup is upon us FINALLY!  After months of speculation about the success of this well-known sporting event, there are less than 30 days to go before the truth will prevail. 

    Lucas Radebe, a client and former South African soccer star, spoke to IQuad BEE about his excitement for this event, for a number of reasons.  “Firstly, this is a great opportunity for us to prove that an African country, especially SA, can successfully host the biggest sporting event in the world!  I believe that we have the chance to show the world our beautiful country and that it is a warm and welcoming nation.  Not to mention that it is going to be fantastic to have the best footballers in the world playing for the biggest prize on our soil.”

    Marvin Draai, Operations Manager (IQuad BEE, Gauteng), agrees.  “Being South African, I am definitely going to enjoy this event, which literally, takes place in our back yard.  I think it is possibly the greatest thing to happen to us since the Rugby World Cup.  The financial spin-offs will be there, but SA, at this stage in our democracy, it is in great need of ‘something’ conciliatory, and hopefully this is it.  “

    Lucas adds, “This will definitely be positive for SA.  We will generate revenue from tourism at the tournament and I think that when people see our country it will create a long-term boost for the tourist industry.  There will also be other economic spin-offs and it has forced us to work quickly in upgrading our own infrastructure, which is a big plus for a developing economy like ours.”

    Tickets still need to be collected, many fans are still hoping to find last minute specials, and the anticipation is explosive amongst South Africans.  Thousands of supporters in Gauteng now boast a South African flag attached to their car, some alongside a second flag , be it the Italian or Brazilian flag, to name a few.  With Zakumi, our yellow-green soccer mascot prevalent in mass media to street vendors on every corner selling soccer paraphernalia such as flags, vuvuzelas, clothing, or soccer balls, the word ‘soccer’ is literally in your face.  Even if you are not a soccer fan, one cannot help but feel the vibe and excitement with the build up to the opening event. 

    Bev Woodhead, Sales and Marketing Consultant (IQuad BEE, Port Elizabeth) admits, “I am a big sports fan although soccer is not my number one favourite – but of course I will follow the 2010 FIFA World Cup quite keenly.” 

    She adds, “We can already see the great benefits of hosting this event in terms of public spending – roads being upgraded, renovated public spaces, and infrastructure in general has improved.  For example, thousands of jobs have also been created not to mention the economic gain for local businesses and communities”

    Her biggest concern is health and safety, such as emergency public healthcare facilities, and she struggles to see how it might be remedied by next month.  Marvin Draai adds, “Unfortunately, there is still a lot of negativity that has been widespread and therefore one can only hope the World Cup does bring a sense of harmony and pride in this country and ultimately the racial tolerance needed.”

    Donald Nkadimeng, a Mamelodi Sundowns supporter and Jeffrey Moloto, an Arsenal supporter both work as verification analysts in the IQuad Gauteng office.  They are hoping to attend the Ivory Coast vs. Brazil match on the 20th June and firmly believe that this event will boost the SA economy. 

    There is no denying that the electric atmosphere at a live match, along with the unified spirit of supporters is inconceivable until it has been experienced.  South Africans should not miss this influential event, one that could potentially boost our image and economy.  So, get those tickets today, learn the Diski dance and become part of the vuvuzela elite.


    The five biggest Do’s and Don’ts of B-BBEE

    May 13th, 2010

    Often companies complain that the scorecard is difficult to understand and impossible to reach a compliant level.

    EconoBEE has  prepared a short and easy to follow Do’s and Don’ts when preparing a BEE Scorecard. Follow these steps and avoid making costly mistakes.

     

    What you should do

    1.         Understand BEE – the indicators and the seven elements before making critical business  decisions because ultimately you need to know what is expected of you.

    2.         Work on the scorecard continuously – BEE is a long term process not a once off event. BEE needs to be managed constantly – simply by focusing on the BEE scorecard you will find your score increasing.

    3.         Your internal self assessment is one of your most valuable management tools for both implementing & earning points and preparing for your verification. Make certain you have tools that are accurate and reliable.

    4.         No points without Proof – during your internal self assessment you should list and collect evidence to support the points you have earned.

    5.         Take advantage of experts and knowledge already easily available and accessible. BEE consulting companies can advise you to ensure you are able to achieve the best scorecard for your company. Verification agencies can also provide related services.

    What you should not do

    1.       Your last task is verification. Only call in a verification agency once you have enough points, are prepared and of course understand BEE. Definitely don’t call in a verification agency if you are non-compliant. Please also remember a verification agency’s task is to “audit” your BEE status and not assist you to improve. To ensure you are completely ready do a detailed pre-verification audit.

    2.       You cannot do a scorecard at the last minute – “no last minute rush”. Once you have run out of time you cannot do anything to earn more points.

    3.       Do not make business decisions if you are not sure they will positively affect your scorecard.

    4.       Fronting can not only disqualify you from doing business with government and corporates but it can also severely damage your reputation. Fronting is also a form of fraud which can result in legal penalties including fines and jail time. Your customers and competition will keep a close eye on your scorecard so in the end you will get caught out.

    5.       Don’t assume your suppliers are BEE Compliant. Often they have the same issues in becoming BEE Compliant as you do. Rather help them by guiding them through the process because the extra time you spend will undoubtedly earn you additional points.

    This article has been adapted from EconoBEE, with permission.  See www.econobee.co.za


    Learnerships (Part 3)

    May 13th, 2010

    This is the final article on Learnerships, provided by Siyaya Skills Institute, which explains funding types, incentives and practical learnerships.

    There are four classifications of learnerships and different concessions applying to each.  The distinction is: 

    - Employed and unemployed
    - Able and disabled learners

    The concession is based on the gross annual remunerations of the learner while on the learnership. A learnership has a duration of 6 – 12 months.

    From a B-BBEE perspective, companies measured on both the Generic and QSE scorecards should use the various funding vehicles available in order to assist in achieving the targets applicable to skills development recognition.

    Companies can make use of the following sources of funding for their skills development activities:

    Discretionary funded learnerships

    The SETA’s have access to a discretionary funding budget for learnership interventions.  The funding is usually released as a bursary, allocated to an individual, but granted to an employer.  These grants can include learner allowances (stipe-ends), employer incentives (gainful employment grants), reasonable accommodation grants, and assistive device grants, to name a few.

    Self-funded learnerships and Section 12 H of The Income Tax Act – SARS incentive for learnership participation

    This is a vehicle for organizations to access the various benefits directed at learnership participation on their own terms.  Should a business decide to self-fund a learnership, they can access the 12H allowance and the associated tax saving will assist to fund the process.  In addition, the training expense can be claimed against the mandatory grant (refer below), and all the training spent counts towards the organization’s B-BBEE.

    Tax relief in terms of section 12H is granted when employers enroll their employees on learnerships.

    These learnerships can be funded by the entities themselves or their SETA.  The tax relief ranges from R50 000 – R100 000 or 175 – 350% of the employees gross annual wage while under learnership whichever is the lesser in the form of a tax concession per employee/learner.  The saving would therefore be at entities marginal tax rate.  This tax saving could then be used to offset against the cost of participation or to fund other areas of their scorecard.

    In order to claim the Section 12H Tax concession the following requirements must be met:

    - Companies have to participate in skills development
    - Employer needs to be a levy paying organization
    - The SETA that the employer falls under needs to register the learnership.
    - The employer needs to file an IT180 when they submit their Income Tax return

    Mandatory Grant

    Entities can have 0.5% of the 2 and 3% respective targets reimbursed through submission of a Workplace Skills Plan (WSP) and Annual Training Report (ATR).  That means your respective SETA could pay for 6.25 points for a QSE and 1 point for a Generic, just out of the Mandatory Grant at no cost to the company.

    Discretionary funding

    Entities who do participate (submit WSP & ATR) in skills development are eligible to apply for discretionary funding.  Any discretionary funding that is allocated to the entity counts towards their scorecard.  Funding takes the form of learnership bursaries, skills programmes, and internships for employed and unemployed, able or disabled learners.  The value of this funding can range from R1 600 to in excess of R50 000 per learner.

    Siyaya Skills Institute offers a range of services including accessing funding from SETA’s, assisting companies to benefit from financial incentives, aligning training objectives to optimize B-BBEE rating and addressing any skills shortages.

     Visit www.siyayaskills.co.za for any further information or contact them directly on 0861 00 99 04.

     





    Learnerships (Part 2)

    April 29th, 2010
    Continuing from Issue 6, this is Part 2 of Learnerships, which has been provided by Siyaya Skills Institute.

    In order to take on learnerships and add points to your B-BBEE scorecard, an employer firstly needs to understand the Skills Development Levies Act, instituted to develop skills through training and education.

     


    This is achieved by employers paying a 1% levy of their total wage bill, payable to SARS, for the training and development of people. Up to half of the contribution is available for the reimbursement of training expenses in the form of a mandatory grant, provided they are  compliant with the requirements as detailed by SETA.

    Who pays Skills Development Levies (SDL)?
    The Act applies to all employers except the public sector, religious or charity organizations and public entities that get more than 80% of their money from Parliament. Employers whose total pay to all workers is less than R 500 000 per annum, are also excluded.

    Where does the money go?
    SARS collects all SDL’s and retains 8% as a collection fee. 12% goes to the National Skills Fund and 80% to the SETA’s.  SETA’s retain 10% for their administration, disperse 50% back to compliant and participating employers (mandatory grant) and allocate 20% to their discretionary pool of funds.  Non-compliant or non-participating employer’s mandatory grant is swept into the discretionary pool.

    What is discretionary funding?
    Companies will forfeit their mandatory grant each year if they do not participate.  Their unclaimed money, plus the SETA’s discretionary allocation and any special funding they receive from the National Skills Fund, provides funding to participating employers in excess of what is available as their mandatory grant.  This funding is applied for, and allocated by the employer’s SETA , at their sole discretion.

    And the benefits of participating?
    Employers can benefit from financial incentives (Section 12H, a SARS incentive) and participants may access funding from respective SETA’s.  Organizations will also optimize their B-BBEE compliance by aligning training objectives and will address skills shortages through participation.

    What happens if I don’t pay my SDL?
    Qualifying employers who do not pay their SDL will be issued with a fine equal to 10% of their leviable amount and interest.

    Funding can be distributed in the following forms:
    (Funding ranges from R 1 600 to R 50 000 per person)

    - Bursaries (Full qualification)
    – Can be for employed or unemployed learners/employees.  Funding covers training cost. In the case of unemployed learners, it provides a learner allowance and an employer incentive.

    - Skills programmes (short course) – Funding covers training cost.

    - Internships (Work site experience for unemployed learners) - Funding covers training cost.  It provides a learner allowance and an employer incentive.

    Siyaya Skills Institute offers a range of services including accessing funding from SETA’s, assisting companies to benefit from financial incentives, aligning training objectives to optimize B-BBEE rating and addressing any skills shortages. 

     Visit www.siyayaskills.co.za for any further information or contact them directly on 0861 00 99 04.


    Challenges and rewards for a verification analyst

    April 29th, 2010

    Zanele Ndwalane, an IQuad Verification Analyst, tells us about the challenges and rewards she faces everyday.

    Graduating with a B.Tech: Internal Auditing in Port Elizabeth, Zanele’s path went from working in finance to being recruited by IQuad in November 2007.  

    Zanele adds, “This role has strengthened my passion for growth and development for less fortunate people.  I am moved by clients that promote B-BBEE within their companies thus making a difference for their employees, black-owned businesses and the community.”

    Zanele, like most people, admitted to initially being naïve about B-BBEE and not really understanding its purpose.  Since working for IQuad, Zanele now sees B-BBEE as the best tool created by government to make up for the injustices of the past.  “If companies can just look at it positively, it can be hugely successful.”

    So what does the role of an analyst entail?  The main role is planning and preparing for the audit of a client.  Client’s documentation is reviewed by an analyst and captured onto the BEE Status Tracker, which then calculates the scorecard. The review takes 2 weeks but this also depends on the company size.  Zanele adds, “We then notify the client giving them a few days to prepare for an onsite to be conducted. This allocates extra time to submit any outstanding information that could impact their score.  This notification includes the onsite date, cut-off date for outstanding information, the verification team and a sample of source data to be verified during the onsite for all the elements where points have been awarded”

    “During the onsite an analyst performs procedures as per the DTi verification manual. The analyst then prepares a report thus finalizing and completing the file for review by the Verification Manager.  Based on the work compiled by the analyst, the manager then makes a final decision and issues a certificate.”  Analyst work is precise and detailed to ensure quality.

    Challenges such as unprepared clients, incomplete document files, fronting cases or clients dictating what documents can be reviewed are just some of the examples Zanele faces on a daily basis.

    The best part of the job?  “The transformation over time has been the best reward.  Perceptions of B-BBEE have changed and uninterested companies are now making a concerted effort to comply and understand the value behind it.”

    “There are still resistant companies that think B-BBEE is discriminatory or do not feel it is a priority but I’m confident this will change.  Education is a crucial aspect and there are many informative seminars and workshops countrywide.  These are necessary for business owners and employees in order to understand what opportunities exist out there for them.”

    Zanele enjoys reading, running, netball and is an avid soapie fan.  She says, “I have realized
    B-BBEE is not about equity or giving away 25% of your business.  Giving comes from the heart and if you are not a giving person, you may find it hard to follow B-BBEE”.





    What to do when things go wrong?

    April 29th, 2010

    Companies that have completed a B-BBEE verification will readily admit that things can go wrong. Reliance on documentary evidence and in some cases differing interpretations of the codes can lead to differences of opinion between the Verification Agency and entity being measured.  

    Fortunately, the measured entity and users of B-BBEE certificates are protected in these cases. The compulsory R47-02 standard is applied by all accredited verification agencies, and it deals specifically with the potential for dispute by requiring that each verification agency have a procedure for managing complaints and appeals.

    A complaint as provided for in the standard is not your typical expression by an unhappy customer, but rather the right given to the users of a verification certificate to question the accuracy and validity of a certificate. This is usually based on conflicting information that the complainant knows to be true. In these cases, a person relying on the certificate issued by a verification agency may question the verification agency directly.

    An appeal is the right given to the measured entity to question the validity of the verification certificate, usually on the basis of interpretation or differences in calculation. This right is useful when the measured entity believes that the information it provided for verification has not been properly considered, or when it feels that the requirements of the codes have been incorrectly interpreted.

    In the case of both a complaint and an appeal, the verification agency is required to investigate and provide a response to the user of the certificate or the measured entity. For complaints, the verification agency is also obliged to notify the measured entity for which the certificate has been issued. If necessary, the verification agency will, after investigation, be obliged to take corrective action that may include the withdrawal of the certificate and the issuing of a new certificate with corrected results.

    When an appeal is being considered, it must be done independently by a person not involved in the original verification or decision. In addition, only information originally submitted to the verification agency at the time of verification may be considered. If new information must be taken into account, the verification agency is required to conduct a special evaluation. This amounts to a new engagement with limited scope and will result in the issuing of a new verification certificate.

    Obligations imposed on the verification agency in the administration of complaints and appeals include: A publicly available description of the process for handling complaints and appeals; documented procedures for the administration of complaints and appeals; acknowledgement of receipt; communication of the decision, and formal notice of closure.

    This association with procurement recognition levels, allows your company to recognize the spend with given supplier at a differing percentages, and these percentages have the effect of adjusting your Total BEE Procurement with each supplier to the extent that the supplier has made a contribution to B-BBEE.




     


    The A-Z of preferential procurement calculations

    April 29th, 2010

    The preferential procurement calculation is fundamentally simple, yet many measured entities find the variables confusing. For those who did not major in accounting or B-BBEE, here is an A-Z of preferential procurement.

    The principle

    The preferential procurement element of the B-BBEE scorecard measures the extent to which a company supports other B-BBEE compliant companies through purchasing. This is done by adding up the total amount spent with B-BBEE complaint companies (Total BEE procurement), and dividing it by the total amount spent by the company (Total Measured Procurement). This calculation is always done for a specific period, which must be the same for all other B-BBEE measured elements.

    The resulting calculation is:

    Total BEE procurement / Total Measured Procurement = % spend on B-BBEE compliant entities.

    This calculation presents a problem, because B-BBEE is not always about black and white! As it is known, a measured entity can be compliant to different degrees or levels. The B-BBEE level attributed to a measured entity is always associated with a procurement recognition level, as indicated on the table below.

    B-BBEE Status Level Qualification B-BBEE Recognition Level

    Level 1 contributor > 100 Points 135%
    Level 2 contributor > 85 but < 100 125%
    Level 3 contributor > 75 but <85 110%
    Level 4 contributor > 65 but <75 100%
    Level 5 contributor > 55 but <65 80%
    Level 6 contributor > 45 but < 55 60%
    Level 7 contributor >40 but <45 50%
    Level 8 contributor > 30 but < 40 10%
    Non Compliant contributor < 30 but 0%

    This association with procurement recognition levels, allows your company to recognize the spend with given supplier at a differing percentages, and these percentages have the effect of adjusting your Total BEE Procurement with each supplier to the extent that the supplier has made a contribution to B-BBEE.

    The calculation

    Our formulae now become:

    (Total BEE procurement per supplier * Procurement recognition Level of supplier) / Total Measured Procurement = % spend on BBBEE compliant entities

    Thus, Total Measured procurement is the total amount spent by the company in a specific period. The simplest method of calculating this is to list all the companies’ suppliers, and the money spent with each supplier. The total spend is the companies’ total measured procurement. In practice, inaccurate calculations often occur because many purchases are made outside the scope of the supplier ledger on company accounting systems. Another method of calculation is using the income statement to determine expenses that the company has incurred in the period, and then deduct the non-cash expenses such as depreciation, and bad debts. The result is the total purchases made during the period.

    Finally, the % spend on BEE compliant entities is exactly that – a percentage. To calculate the number of points attributable to procurement, we must apply that percentage to the target and the weighting target that the B-BBEE scorecard prescribes. Thus if the actual % spend on BEE compliant entities is 35%, the target is 50%, and the weighting is 12, then,

    Actual / Target * weighting = 35% / 50% * 12 = 8.4

    The hidden sub-targets

    Sub-targets in the procurement element give enhanced recognition to spend with certain categories of suppliers. These include companies with a turnover below R35m pa, companies owned by black people, and black women. The methods described are repeatedly applied in each category to determine a resultant score for each category. This has the effect of double counting spend with suppliers in those categories.

    The hidden multipliers

    Some measured entities are classified on their B-BBEE certificate as value adding or may be recipients of Enterprise Development from your company. The actual spend with each of these suppliers is multiplied by a factor of 1.25 for Value Adding Suppliers, and 1.20 for recipients of Enterprise Development.

    Result: If you spent R100 with a level four contributor (giving them a 100% procurement recognition level) who was value adding and received Enterprise Development contributions from your company, the recognition your company gets for the R100 spent is:

    R100 x 100% x 1.25 x 1.20 = R150

    Inclusions and Exclusions

    Not all companies are measurable in terms of the Codes of Good Practice. The inclusions and exclusions are listed in statement 500, paragraphs 5 and 6. Generally, if a company falls within the scope of the B-BBEE Codes, then it must be included and only items that are listed may be excluded. Specifically listed exclusions include public entities listed in Schedule 1 of the Public Finance Management Act of 1999, taxes and levies, and imports that are not available locally.

    Preferential Procurement can contribute a maximum of 20 points on the B-BBEE scorecard for Generic Enterprises and 25 points for Qualifying Small Enterprises.




    Learnerships (Part 1)

    April 15th, 2010

    One of the most powerful areas of opportunity on the BEE scorecard is Skills Development. Scoring in this element has the benefit of empowering your staff and in turn increasing their potential and their effectiveness in your company.

    On the generic scorecard, the target for skills development is broken down into 3 areas: 3% of your salaries and wages bill (leviable amount) to be spent on training black staff, 0.3% to be spent on training black staff with disabilities, and 5% of black employees as a % of your total employees, to be participating in learnerships.

    Learnerships (also known as apprenticeships) or category B, C or D training will result in a recognized degree, diploma or qualification. (For a copy of the BEE skills development matrix, please email us @ beeintheknow@iquad.co.za)

    Learnerships can be a cost effective and valuable way to score points under the skills development element. The measured entity is allocated points towards at least two of the targets under skills development, i.e. for the cost of training their staff, as well as for the number of black employees involved in learnerships or category B, C or D training.

    While an employee is on a learnership, the cost of their salary or wage is also attributed towards their skills spend target, which goes a long way towards contributing towards your target.

    In our previous newsletter (Issue 5), Bob Palavar, Scribante Director of Construction, commented on the fact that learnerships are offered in the business language, which is in English. This can cause problems for those learners who have been educated in a different mother tongue. However, this can be overcome by implementing Adult Basic Education and Training (ABET) courses to bring the learners up to the required standard, before implementing the learnerships. This type of training also receives enhanced recognition on the scorecard.

    It is advisable to contact your Sector Educational Training Authority (SETA) to investigate what relevant training they can offer. In our next edition, we will feature an article explaining how you can go about implementing learnerships and then claim back subsidies from your SETA.


    Oliver Foundation uplifts children’s spirits

    April 15th, 2010

    The Oliver Foundation, a small PE-based charity, focuses on the Zama Education & Development Programme, which provides a wide range of skills to children aged 3-14 years. This developmental programme enables children to develop their fine and gross motor skills and coordination, dexterity as well as enhancing their creative and thinking abilities.

    This programme runs for most of the year, afternoons only, and takes place at unused venues such as the Arthur Nyobo School and the Old Liquor Store in New Brighton. Over 300 previously disadvantaged children eagerly take part in many activities that they do not get to learn at school or home. These activities consist of painting, arts and crafts, playing chess, or just using their imagination to be creative, make up stories or design letters. English and maths are also taught.

    Gail Hawes, Project Director, states, “Their enthusiasm is a joy to behold. This programme aspires to raising well-rounded children as it teaches and challenges them on a completely new cognitive level. Through this they build confidence and learn not to be afraid of failure – that mistakes are part of the learning experience.” 

    Tony Pearce, a Learning Specialist from Lancashire University, added, “Our teachers for the programme were previously unemployed mothers who wanted to make a difference. They have a passion for the development of children, and through our twice-weekly training programme, they are learning the necessary skills to teach and encourage these children. Attending school is crucial for a child’s development. The Foundation recently sponsored 120 children with uniforms, school fees, rucksacks, and stationery ensuring that they can attend.”

    Gail adds that the children’s reports are monitored to make sure they are attending school and achieving good results. The Foundation is extremely motivated to keep going and when a B-BBEE organisation donated their second-hand desks, chairs, and computers after upgrading their office, the charity was very pleased. With nearly 300 children each day, desk space is always at a premium and the donated desks and furniture ensures that all the children have a space to work, write, and learn. In addition, another B-BBEE company donated shatterproof glass to repair the windows of the charity buildings.

    When confronted with B-BBEE, many companies think of the standard routes of contributing to boost their points. With a little thought, companies can make a huge difference, and donate what is seen as waste, to charity organizations. The Foundation needs volunteers to read to the children or handymen to assist with maintenance. A donation of books, stationery, furniture, or funding towards petrol or overheads is always helpful. Sponsoring a Maths or English teacher, or an educational outing i.e. opening your organisation or factory to allow the children to see people at work, or even assisting with a soup kitchen to provide meals. The possibilities are endless.

    “Our dream”, says Gail, “is to extend the Zama programme during school holidays from an after school programme to an all day programme which will continue to feed the children’s desire to learn, but will also keep them off the streets. Sponsors, volunteer teachers, and volunteers are invaluable for such a programme.”

    Please contact Gail Hawes, Project Director at gail@theoliverfoundation.com or see www.theoliverfoundation.com for more information.


    Sector code accreditation in midst of clarification

    March 25th, 2010

    The BEE Act 2003 allows for stakeholders of individual industry sectors to draw up targets and criteria designed to speed up transformation in those sectors.

    Since Feb 2007, final sector codes have been published in the government gazette for the construction, forestry, transport, and tourism industries. Various additional charters are available in development including chartered accountancy, property, agriculture, finance and marketing, advertising and communication.

    Once published in the government gazette, these sector codes are binding on all companies that fall within the defined scope of the sector. In many instances the introduction of new targets means that a measured entity needs time to meet the target. The sector codes make no mention of transitionary periods or retrospective application and so verification agencies have been left to their own devices in applying their interpretation.

    Areas of concern include: whether a verification agency has been separately accredited to verify the applicable sector code, whether the measured entity is obliged to measure themselves retrospectively on new targets and indicators, and whether a certificate issued under the general codes for a company (that falls within the scope of a sector code) will be accepted by other companies for preferential procurement purposes.

    In a move to accelerate the verification agencies’ extension of scope of accreditation to include all the sector codes, the dti and SANAS have announced a streamlined process that will allow accredited verification agencies to be accredited for the additional sector codes by the end of March 2010.

    One such sector code is the construction sector code, and in this issue we look at the impact that the construction sector code has had on companies within the industry, as well as some of the differences between the general codes of good practice and the construction sector code.


    What our clients have to say on BBBEE and the construction sector codes

    March 25th, 2010

    We interviewed RandCivils, Master Builders Association KZN (MBA) and Scribante Construction to ask their views on BBBEE, including the current issue on sector codes. These were some of their comments in relation to the questions.

    Views on BBBEE and the affect on the market:
    Victor Smith, (Training Manager at Master Builders): “BEE has not affected the market in the sense that it has not contributed to an increase or decrease in work.”

    Bob Palavar, (Scribante Director of Construction), feels that the BEE system is still flawed, and that in many instances the targets are not attainable. “I strongly believe that the points system needs to be revised. For example, under the construction charter, the ownership is built at 25% and although a lot is done for the economy, it is difficult to get equity partners at this level as they do not have the available capital to afford buying a share in the business.”

    The BBBEE transition:
    Nettie Herselman, Human Resources Manager at Randcivils in Port Elizabeth, feels the BBBEE transition for them was an uncomplicated and successful one.
    “My understanding of BBBEE was to integrate these practices into our company and to reach equity targets. Initially my only trepidation was in first identifying these goals correctly, then putting procedures into place to attain and maintain those goals. Our commitment, along with the assistance of Jenni Lawrence’s (IQuad) astounding wealth of information, prepared us for an effortless transition.”

    Comments on the changes introduced by construction charter – e.g. enterprise development, mentoring of black students:
    Bob Palavar (Scribante): “This is an excellent idea for students and we have found them incredibly eager. They also attain a degree at the end of the day and it is a brilliant investment as a whole. The only unfortunate part is that the disadvantaged black students are often educated in their mother tongue, and therefore struggle to comprehend the business language, which is in English.

    Victor Smith (Master Builders) states, “Although I found there is a lot of acceptance and eagerness to follow through with economic development and mentoring, the requirements of the charter make it virtually impossible for enterprises to benefit from the economicvdevelopment or mentorship that is undertaken. Mentoring requires a lot of dedication and time, and this, at present, is not an easy or available resource they can often offer.”

    The importance of having a BEE certificate when tendering for work:
    According to Bob Palavar (Scribante), having this certificate is vital for the business. Victor Smith, from Master Builders agrees. “This certificate is crucial but sadly, there is still a lack of understanding in the importance of BBBEE and why they need to become BEE compliant.”

    How is the BEE certificate received by government and private operators:
    Bob Palavar – “We found that government operators do look at BBBEE seriously, however, some private operators are a little on the slow side and do not seem as concerned yet with the need for compliance”

    According to Victor (Master Builders), “We feel that government departments are not applying BEE equally across the board, which leads to frustration and suspicion. We find that the larger private clients insist on BEE compliance. Smaller clients have a variedboutlook on certification. It is a bit of a mixed bag depending on what type of work the contractor has tendered for. All in all, a frustrating task when dealing with a variety of clients.”

    The future:
    According to Nettie, RandCivil’s workforce is pleased with the company’s effort to align and maintain its BBBEE practices. “This, however, will be an ongoing and long-term commitment that will require regular input from all spheres of our business. Specific attention should also be given to areas covering what qualifies a company as BBBEE as it is not simply based on ownership but encompasses a variety of issues within each company.”

    Victor Smith (Master Builders) feels that education is the key. “We personally take the initiative to inform contractors and to provide workshops, as there is certainly a lack of BEE knowledge out there, especially in construction. Although there is a general feeling of acceptance, positivity, and open-mindedness, many have just not had the time or the understanding to apply their minds to this concept.”


    Differences in the construction charter

    March 25th, 2010

    We’ve highlighted below some key variations between the general codes of good practice and the construction sector code. The construction sector code is applicable to any measured entity which derives the majority of its income from construction-related activities.

    -  Distinguishes between Built Environment Professionals (BEP) e.g. architects, consulting engineers, etc, and contractors.
    -  Turnover threshold for exemption is lower than the general codes of good practice for BEPs: 0 – R1.5 M for Exempt Micro Enterprise.
    -  Reduced targets in most areas.
    -  Ownership – Scored out of 25 instead of 20.

    In terms of Management control & Employment equity, take heed that:
    -  Adjusted recognition for gender is more favorable.
    -  There is no difference between executive & non-executive directors.
    -  No sub-minimums are applicable to employment equity – The target for disabled employees is based on office-based employees only.
    -  EE scored out of 10 instead of 15.

    In relation to Skills Development:
    -  Training for all employees is taken into consideration.
    -  70% of all training should be for black employees.
    -  25% of all training should be for black management.
    -  Recognition for black employees involved in approved mentorship programs.
    -  Separate recognition for black employees on bursaries or scholarships.
    -  Drastically reduced targets.
    -  Easier for construction company to score well on skills development.

    Preferential procurement:
    -  Procurement separated from suppliers that are 50% black-owned and 30% black women-owned.

    Enterprise Development:
    -  Stringent requirements for beneficiaries.
    -  A formal and properly documented enterprise development program needs to be in place.

    Socio Economic Development:
    - Additional recognition given to contributions supporting the design and modification of buildings and infrastructure designed to accommodate people with disabilities.


    ABVA / Emex / EconoBee Debate

    March 14th, 2010

    With the creation of any new political model, there is an inevitably of it going hand in hand with controversy. A simple controversial issue could relate to fears of the model failing or even fears that the model will succeed. It is for this reason that we rely on the institutions that make the rules and guidelines in order to lay the path for the rest of us.


    The recent row in last week’s press between the BEE verification
    industry, EMEX, a verification agency, and the Association of BEE Verification Agencies (ABVA), is an example of a misunderstanding of the placing of these rules.

    EMEX accused ABVA of indiscriminately setting rules and policies aimed at “protecting its own interests” and therefore, threatened to terminate its membership of ABVA because it felt that ABVA was manipulating the verification industry. In support of EMEX, EconoBEE, a BEE consultancy, stated that ABVA were interpreting the rules against the dti’s policy. This, however, is incorrect. Both ABVA and the dti are interpreters when reading the legislation and the legal system must pronounce on disputes through the courts – in the same way that any other legislative application is administered.

    EconoBee has taken exception to the fact that ABVA has tried to standardize interpretation amongst its members through a process of drafting practice notes and submitting to its members for comment, prior to voluntary ‘submission’ to a collectively agreed interpretation.

    There is no denying that there are many grey areas in the codes as well as patent errors, and the users of the codes are required to exercise judgment in these areas. Any initiative that complements the interpretation of respective users must be welcomed in the industry. In the end, however, it is still the decision of the individual agency that will have to be defended by the agency in the courts if a dispute arises.

    ABVA’s move to widen its membership is important because it can provide a consolidated voice of a more representative sample of interested BEE stakeholders.

    A vital detail in the printed article is that it confuses interpretation with policy. It is the incorrect practice of the dti to use interpretation to pronounce policy. The intended policy is embodied in the legislation and the interpreters of the legislation must apply what is said, not what was intended to be said. If this were not the case, interpreters close to the dti would come up with different interpretations to others and the playing fields would not be level.

    In any contentious issue, it is important to have clarity on the facts before adopting a narrow view, in this case, of the role played by ABVA.




    Ownership (part 2) – The Position of Trusts in the Ownership Chain

    March 14th, 2010

    Code Series 100, Statement 100, Section 7, lays the foundation on which Black Participants in a trust holding rights of ownership are recognised.

    This clause states that:
    - a maximum of 40% of the total points on the ownership scorecard of the Measured Entity may be contributed by the Trust Participants, if the trust meets the criteria for Trusts as set out in Annexe 100(B); and
    - 100% of the total points on the ownership scorecard of the Measured Entity may be contributed by the Trust Participants, if they meet the additional qualification for Trusts as set out in Annexe 100(B).

    Clauses 3 and 4 of Annexe 100(B) set out respectively, the Rules for Trusts and, the Additional Criteria Applicable to Trusts. The Rules for Trusts state the qualification criteria for Trusts as:

    -  The trust deed must define the beneficiaries and the proportion of their entitlement to receive distributions from the trust.
    -  A written record of the names of the beneficiaries or the use of a defined class of natural person satisfies the requirement for identification.
    -  A written record of fixed percentages of entitlement or the use of a formula for calculating entitlement satisfies the need for defining the proportion of benefit.
    -  The trustees must have no discretion on the above set out terms, and on winding up of the trust or termination thereof,
    -  All accumulated Economic Interest must be transferred to the beneficiaries or an entity representing them.

    The Additional Criteria referred to above are:
    For the Measured Entity to obtain the maximum points on its Ownership Scorecard from shareholding by a Trust, the Measured Entity must be in possession of a certificate issued by a competent person to the effect that:

    -  The Trust was created for a legitimate commercial reason, which reason must be fully disclosed; and that
    -  The terms of the Trust do not, directly or indirectly, seek to circumvent the provisions of the Codes of Good Practice and the BEE Act.

    The above rules are strictly applied and cannot be circumvented.


    In Each Vision, there is Room for Improvement

    March 14th, 2010

    Ben Nyaumwe, a successful black entrepreneur in Port Elizabeth tells us why the current BEE model could be improved.

    Born in Zimbabwe, Ben emigrated to SA in 1991 and spent 12 years in Durban, during which time Ben completed a BSC Construction Management Degree. A business move into the Coega Development Corporation led him to Port Elizabeth in 2002. Thereafter, Ben decided to venture into private business and is currently the MD of a few businesses in PE. His primary business is property development but he has also been involved in developing some award winning residential buildings including the new five star hotel, the Radisson Blu Hotel on the beachfront. Ben, who describes himself as someone who loves big ideas and always has a big vision, is currently working on new residential developments as well as tourism, entertainment and leisure property projects.

    “Life is about making a difference and although I do support BBBEE, I do feel that the current model could be adapted to favour employment of HDI’s and training targets for companies as opposed to equity ownership models. Personally, a training and employment driven model would have ensured proper knowledge and skills development that are sustainable and spread to more individuals. I would have wanted to see equity models being directed to employees of companies and not a few politically connected individuals.”

    As a proud and true black South African entrepreneur, Ben Nyaumwe’s belief in business is that one should strive to be recognized for what they do, and nothing else. “Our clients and partners must do business with us because we are the best at what we do and because we can add value to their businesses.”

    “The current model does not engender the right attitude in our youth to contribute to growth and economic production. It has been too easy for many of the new BEE billionaires and easy come, will easy go.”

    In light of this, Ben does not agree that BBBEE is reverse racism. “It is just a poor excuse for not applying yourself and many job applications are still given to white candidates, especially in the private sector.”

    “What BEE needs to do is focus on creating the right role models in our country. It must entrench a sense of high work ethic in our youth and install a yearning for learning and education – this can be done through primary and tertiary education!”

    Ben, the epitome of a perfect role model, is a workaholic who drives himself endlessly to find the right projects and ventures. He is married to Twiggy and has two kids, Luthando and Tongai.


    The BEE Advisory Council is a step closer in the right direction

    March 1st, 2010

    An opening address by President Zuma to the Inaugural meeting of the President’s BBBEE Council, took place on the 4th February 2010 in Pretoria. It was read out, on his behalf, by Deputy President Motlanthe and it reflected the central aim behind creating the BBBEE council, the current successes of the BBBEE Act and the future challenges that lie ahead for the council members. www.info.gov.za.

    The formation of the Council is a requirement of the BBBEE Act, and the act has requested that these members of Council attain significant goals that will lead to a more “inclusive economy.” However, it is refreshing that through Motlanthe’s admission of the restrictions of government’s empowerment policy, he does not conceal the drawbacks that have been encountered to date.

    Government and most companies will agree that the implementation of BBBEE has been a slow, sometimes painful process with mixed reviews. Still, the value of BBBEE is irrefutable and who said that Rome was built in a day! BBBEE is still undoubtedly a process in the making, even so, our expectations for the Council are high in that they will endeavour to alleviate previous BEE issues and tackle the real fundamental shortcomings of the past.

    The Council’s responsibility, according to Motlanthe, will be, amongst others, to advise government on black economic empowerment, monitor implementation, and review progress in achieving black economic empowerment. It is also required to facilitate partnerships between organs of state and the private sector as well as advising the President on how to educate and inform our public about BBBEE. Our main concern? Will the Council be able to fulfil this extensive task, and with only four meetings a year, will enough time be spent on committing to a fully-fledged transformation?

    As a verification agency that strongly endorses the BBBEE ethos, we also cannot ignore what has not been echoed behind this BBBEE pledge. Clearly, other aspects that affect BEE have not been dealt with, such as highlighting the alignment of the PPPFA and the Codes of Good Practice. This is a fundamental issue prohibiting the growth of Broad Based Empowerment. Fronting, an infamous aversion, should also not be overlooked. It was dealt with in the draft codes, and then excluded by parliament because they do not want to duplicate existing fraud legislation.

    In an interview with The Sowetan, Nicholas Maweni, director of Crossroads Distribution, SkyNet Worldwide and owner of MaweNguni Holdings, said “One of the biggest challenges is putting proper mechanisms in place to deal with fronting. Transformation has been reduced to compliance; hence white-owned companies are exploiting black people to gain points on the BBBEE scorecard.”

    Calls for public education about BBBEE are also long overdue. The act, giving rise to the council, was legislated in 2003, and the fact that government are still talking about education is a sad indictment on the Broad Based BEE process.

    In short, the deputy president, nor ourselves, are swaying from the fact that a negative perception behind BEE is still present and that many issues still need to be tackled before an end goal of equality and consistency can be achieved. However, our confidence in the system starts with the significant value behind the establishment of this Council and, regardless of their mammoth task ahead, that it is another step closer to improving the BBBEE brand.

    We would love to hear your opinion. Please email us at beeintheknow@iquad.co.za


    Ownership in terms of code 100 of the Codes of Good Practice

    March 1st, 2010

    The most significant risk that Verification Agencies face in verifying the Ownership score of a Measured Entity is the overstatement of black ownership. This beneficial Ownership includes both the economic interest and the exercisable voting rights of black people in the Measured Entity.

    Therefore, it is fundamentally important that the Measured Entity provides hard evidence of its black shareholding and the proof that its black shareholders have received the returns on ownership as required for the recognition of economic interest.

    Acceptable proof usually consists of copies of the share certificates issued to the black shareholders and other supporting proof that the submitted evidence is real and true. This could be copies of the share register and the audited accounts of the Measured Entity. It is also required that evidence be presented that dividends have been paid over to the shareholders.

    The ownership element often includes intricate or complex structures that require consideration and serious investigation before the true ownership element can be ascertained to the level required to provide confidence in the findings on ownership.

    The test is always, not what is portrayed as the factual situation, but what is, in fact, the factual situation. Substance takes precedence over legal form at all times as the ownership element is the element of the codes where fronting is most prevalent.

    Thus, it is crucial to ascertain at all times what the real ownership position is and whether the benefits of such ownership, i.e. the economic interest of the owners, have flowed to the owners, as is the intention with ownership. The risks of misstatement of the ownership element must be reduced to an acceptable low level to provide assurance of the integrity of the information on which the verification is based. Such an acceptable low level will be achieved if a reasonable person (reasonable verification agent) with sufficient knowledge of the Codes of Good Practice will be able to arrive at a similar conclusion based on the same information.


    Charity sees benefits through committed clients

    March 1st, 2010

    In Issue 2, we highlighted how companies can score points on their BEE scorecard through economic and socio-economic development initiatives. One of those initiatives can be through supporting various charities. This is one example:

    Khaya Cheshire is a project of the Summerstrand Cheshire Home, Port Elizabeth, which is a residential facility for chronically disabled adults. However, ten years ago, Hilary Bolton, Co-ordinator, explains that they looked into the wider community and contact was made with members of the Walmer Township who knew of a few disabled children. The need to provide day-care for these children was instantly evident and this is how the Khaya Cheshire Care Centre began.

    The doors opened with only five disabled children but it has now grown into a home that cares for 18 severely mentally and physically disabled children. The staff consist of three fulltime staff and the rest are local or international volunteers. The children range between 3-20 years of age and had poor stimulation through their formative years. The primary aim of the centre is to love them, make them feel special and provide meals, clothing and teach them basic life skills. Whenever possible, the home likes to place children in suitable schools (three children are in Merryvale), but this is assisted through sponsorship.

    According to Hilary, “BBBEE is synonymous with change and growth and I believe that Companies that involve themselves with charities are giving their staff an invaluable opportunity of sharing and giving in a structured way. The giver is certain that the end user is benefiting.”

    “If any companies want to help and do not know where to begin, they could “buy in” or adopt a welfare project as a group. The results are often more favourable, as they motivate one another and the positive and committed attitude of the Company to the project has a ripple effect.” Hilary states that immense spirit is generated amongst workers when they are working together for the common good of their fellow man. A good example is Tavcor whose entire team are attached to the Khaya Cheshire Programme.

    “I think that BBBEE encompasses everything that we want this beloved country of ours to be – but there is still much work to be done.”

    Please contact Hilary Bolton at hilaryb@telkomsa.net if you would like more information about the centre.


    ED and SED development contributions in 3 easy steps

    February 15th, 2010

    Making Enterprise Development (ED) and Socio Economic Development (SED) contributions can be the easiest way to boost your scorecard points in a short period. Thus, if year-end is coming up, an ideal opportunity is presenting itself to your company to fill your point’s gap with an appropriate contribution.

    Please note, a key requirement is that any contributions for ED and SED must have been made and implemented before the end of the measured period.

    Step One: First, you need to know the target relevant to your scorecard. For a Qualifying small enterprise, the targets are 2% net profit after tax for ED and 1% net profit after tax for SED. For a Generic company, the targets are 3% net profit after tax for ED and 1% net profit after tax for SED.

    Please contact us at beeintheknow@iquad.co.za if you are unsure as to which scorecard is applicable to your industry as targets do differ in certain industries.

    Step Two: You now know your targets, therefore, you need to identify any contributions you have already made during your financial year and then ‘top up’ your contributions to make up the score required. Contributions can be made by means of cash, services or time, depending on the nature of the entity being supported.

    Step Three: Make the ED or SED contribution.

    ED contributions take the form of monetary or non-monetary contributions carried out for the defined beneficiaries, with the objective of contributing to the development, sustainability, financial and operational independence of those beneficiaries. The beneficiaries are defined as either Category A or Category B beneficiaries, where :

    Category A – ED contributions to exempted micro-enterprises or qualifying small enterprises which are 50% black-owned or black women-owned.

    Category B – ED contributions to any other entity that is 50% black-owned or black women-owned; or 25% black-owned or black women owned with a BEE status of between level 1 and level 6.

    SED programmes can take the following forms:

    -Development programmes for women, youth, people with disabilities or living in rural areas;
    -Support for healthcare and HIV/Aids programmes;
    -
    Support for education programmes, resources and materials at schools, bursaries and scholarships;
    -
    Community training skills development for unemployed people and adult basic education and training; or
    -Support of arts, cultural or sporting development programmes.

    Contributions made to entities which benefit at least 75% non-white beneficiaries will be given 100% recognition. If less than 75% of the value of the contribution is allocated to non-white beneficiaries, the contributions will be recognised at the percentage that accrues to non-white beneficiaries.

    Current harsh economic times are driving companies to cut back on cash donations and rather focus on spending time assisting beneficiaries. This can be mutually beneficial for all parties and an added benefit is that it can boost the image of the company, hence gaining more respect and interest from relevant clients and investors.

    For more information about qualifying ED and SED initiatives and contributions, please contact beeintheknow@iquad.co.za

     


    Ensuring quality and credibility for all clients

    February 15th, 2010

    The deadline has passed and, at this moment, many companies are sitting with the inevitably resounding question of, “Is the BEE certificate issued to my company valid and if not, where do I go from here?”

    A government notice, effective 1st Feb 2010 brings in a period of regulation and credibility by prohibiting the issuing of BEE certificates by anyone other than a verification agency who is accredited, or is in possession of a pre-assessment letter.

    Accreditation is the key theme, for its overall aim is to ensure credibility, consistency, and competence of the verification industry, and to establish a measurement of quality against which all agencies should strive for, in terms of compliance with BBBEE criteria.

    “Regulation of the verification industry is critical to instill confidence in future BEE certificates”, says Wade van Rooyen, Managing Director at IQuad Verification Services. The position, prior to 1 Feb 2010 in which almost anyone could issue a BEE certificate, creates a situation where no-one is accountable for information certified on a BEE certificate. Users of the BEE certificates should be relieved that the regulation intended by accrediting verification agencies is finally in effect.

    Companies, in possession of certificates issued prior to 1st Feb 2010, will be pleased to know that these certificates will be valid for their full 12 month tenure. However, some accredited verification agencies have adopted a strict interpretation of the government notice, and interpreted the term ‘verification agency’ as someone who is seeking accreditation. Companies would be well advised to understand their respective verification agencies application of the notice prior to 1 Feb 2010, as this could have a material impact on the procurement scorecard.

    In summary, a company seeking a verification of their BEE scorecard, must ensure that they engage a SANAS accredited verification agency, or a verification agency with a pre-assessment letter from SANAS. Failure to do so will result in their BEE certificate not being accepted as evidence of BEE contributions.

    Is this really a crucial matter? Yes, because it guarantees quality of service to clients, confidence in the credibility of BEE certificates and assurance that the principles of impartiality, competence, responsibility for verification decisions, openness and confidentiality are applied throughout the agencies organization.

    For more information, or to see a list of all accredited verification agencies and the ones that are in possession of valid pre-assessment letters, go to one of the following websites. www.abva.co.za, www.thedti.gov.za or www.sanas.co.za.


    Claiming key points through disability

    January 28th, 2010

    The question often asked is, “what qualifies as a disability?” An extract from EEA1 states that ‘People with disabilities’ are defined in the Act (Employment Equity Act) as people who have long-term or recurring physical or mental impairment, which substantially limits their prospects of entering into, or advancement in employment.’

    Added to being uneducated in this category, there is a repute fear amongst employees who do not want to declare themselves disabled, for fear of discrimination in the work place. However, despite these concerns, there is a positive aspect. Disabled people constitute less than 1 % of the country’s workforce and it is this fact that lays emphasis on opportunities in creating jobs for them, at the same time gaining points on the BBBEE scorecard. The total points only account for 5% of the scorecard but it is possible to recognise these points easily enough and with little cost, provided one plans properly and educates themselves on the definitions and requirements for recognition of disabled employees.

    To support their BEE strategy, companies can also initiate disability awareness projects in order to attract and retain talent within this group. However, the challenge to employ and advance people with disabilities is still there and there will always be further questions in relation to this issue.

    Nevertheless, in our country where skilled shortage is a known fact, companies should shy away from misconceptions that people with disabilities do not have the right skills. In employing more disabled people, companies are adding to their skilled workforce in addition to affirming the very values that BBBEE stand for.

    In order to recognise disabled employees on the scorecard, the measured entity needs to have declared them disabled on the last EEA2 submitted to the Department of Labour, have had the employee declare their disability by completing an EEA1 form and provided an accompanying supporting document from a relevant doctor, for each case. BBBEE is a reality and its development policy strives for the country’s full economic potential. Thus, it is with bittersweet irony that we see a lack of employment and training of disabled people due to many companies being uneducated in this category.

     


    HOSAF speaks openly about BEE transition

    January 28th, 2010

    Julian Matthews, HR Manager at HOSAF in Cape Town, tells us why the road down BBBEE is a valuable one but that it will take time before the broad significance of BBBEE is completely understood by all employees.

    HOSAF is part of a listed company, KAP International, which owns a number of subsidiaries, one of which is HOSAF.

    The main trepidations surrounding BBBEE is the lack of understanding from an employer’s perspective or the assumption that it is purely legislation interfering in the running of companies, according to Julian. “We are still in the process of trying to explain the value behind BBBEE to many of our shop-floor employees, including some of our managers.” Julian explains that this is due to a common perception that it is just another Employment Equity Plan.

    There is a distinct need for verification agencies to assist in this BBBEE shift and HOSAF found IQuad to be informative and supportive in the transition. Julian states, “IQuad were really helpful especially in explaining the elements that make up the scorecard and how the points are made up.”

    When asked about the future of BBBEE, Julian put it simply down to fact. “There is not yet this understanding that BBBEE is a tool that assists with transformation in the company. If verification agencies could also provide training for departmental managers on the positives of BBBEE, then a greater team effort may evolve in companies to assist in improving the scorecard.”

     

     


    Launch of e-newsletter to tackle BEE issues

    January 28th, 2010

    With the exception of income tax and perhaps the proposed electricity tariff hikes, few developments in South African business can claim to affect all enterprises regardless of location, size, and industry. The Broad Based Black Economic Empowerment Act can make this claim comfortably, following its implementation in 2003.

    What began, as a trickle down incentive for enterprises to procure from BEE contributors, has become a vital economic necessity, with few enterprises able to escape the inevitable question from a customer: “What is your BEE contribution level”? In the wake of this BEE activity lie many companies striving to improve their response through the appropriate actions of BEE measurement, planning, and improvement.

    The motive, to be of further assistance to such companies, has led IQuad BEE Verification, a leading national provider of BEE services, to launch – BEE in the Know, an informative e-newsletter addressing relevant BEE issues. We will focus on issues, such as:

    -Relevant topical news that will inform your BEE decisions

    -Practical experience from others who have been successful in overcoming BEE challenges

    -Technical information relevant to planning your next BEE Verification

    -Concise facts and tips to improve the effectiveness and understanding of your BEE administration and legislation

    It is important for our clients to find this e-newsletter valuable and relevant and we foresee BEE in the Know as a means to strengthen and encourage communication with our clients. Your suggestions and feedback are crucial. Is there any information you want to share with us? Are there issues about BEE you do not understand? Then please email us at wadevr@iquad.co.za


    Impartiality Statement published by IQuad Verification Services

    November 2nd, 2009

    IQuad Verification Services recognizes that in order to safeguard the interests of its clients, government, and other parties that rely on information it provides, all its activities must be conducted without any risk to impartiality caused by IQuad Verification Services or its related parties.

    It is the group’s policy that all its member companies operate independently, without the existence of common activities that can generate conflicts of interest, or impartiality.  

    Additionally, we undertake that any employees disclose any relationship (direct or by immediate family members), or activity that could generate potential conflicts of interest.  

    It is further our policy not to enter into any agreement (e.g. equity and/or debt instrument) with a measured entity that will jeopardize the impartiality of IQuad Verification Services.

    Each application for evaluation will be reviewed to determine whether inter alia it poses a threat to impartiality.  

    All applications for evaluation are individually assessed prior to a decision being made to accept or reject an application for evaluation.


    Preferential Procurement Policies Finally Require Provision of B-BBEE Certificates

    August 26th, 2009

    Government departments may be requiring BEE certificates as proof of Broad Based BEE contributions, as soon as October 2009, if the draft Preferential Procurement Regulations, are approved as proposed. The move will be welcomed by companies who are serving both the Preferential Procurement Policy Framework Act and the Broad Based Black Economic Empowerment Act (BEE Act), and by government departments who have been restricted by contradicting legislation.

    The Preferential Procurement Policy Framework Act (PPPFMA), applied by municipalities in evaluating empowerment recognition criteria for its suppliers, has its own targets and criteria for empowerment. These contradict the broad based approach favored by the BEE Act, implemented in 2007, upon finalization of the Codes of Good Practice.

    The new regulation, published for public commentary on 14 Aug 2009, proposes that a maximum of 20 points be awarded to a bidder for attaining a BBBEE status level, as contemplated in the Codes of Good Practice. The number of points, achieved out of 20, is based on a sliding scale aligned to the BBBEE Contribution Status. In terms of the scale, 20 points will be awarded to a Level 1 contributor, 18 to a Level 2, 16 to a Level 3 and so on until a Level 8 accrues 2 points, and non-compliant contributors earn no points.

    White women will no longer be eligible for recognition, as was the case under the PPPFMA. Empowerment points out of 20 will be added to the total points awarded, and only the bid with the highest number of points may be selected. The remaining points out of 80 will include minimum requirements for functionality, and bids that fail to meet the minimum functionality requirements will be disqualified.

    The much-anticipated alignment of legislation has been withheld since at least 2007, ostensibly because of verification agencies not yet being accredited, but this obstacle was removed with the accreditation of the first verification agencies in February 2009.

    The draft also proposes that, from 1 August 2009, only BBBEE certificates issued by accredited verification agencies or agencies that are in possession of a valid pre-assessment letter from SANAS, are acceptable as proof of a company’s BBBEE Status level. This will no doubt be changed to 1 Feb 2009 in line with a later notice extending the cut-off period for verification agencies, but it’s effect is far reaching – “Companies must submit their original BBBEE status level verification certificate or certified copy thereof” with all bids for government procurement.

    Companies looking for reasons not to prepare their broad based scorecard will be short of options if the draft is approved. Government will finally have created the impetus necessary to “increase of broad-based and effective participation of black people in the economy” – the stated objective of the B-BBEE Act.

    Wade Van Rooyen
    IQuad BEE Verification (Pty) Ltd


    Unaccredited Agencies Granted Further Grace

    July 31st, 2009

    Unaccredited verification agencies have been granted a further 6 months to continue issuing verification certificates, without having received their own accreditation by SANAS. The extension was announced on 31 July 2009 via notice 810 in the government gazette.  This repeals the previous notices and the original deadline of 1 Aug 2009 for agencies to complete the accreditation process.

    Verification agencies that have reached a minimum stage in the SANAS accreditation process, receive a letter of ‘pre-assessment’, indicating that their documented systems meet the minimum standards imposed by the R47-02 accreditation framework. Following pre-assessment, SANAS assessors visit verification agencies on-site to assess whether the documented system has been appropriately implemented.

    Accreditation of verification agencies is necessary to ensure that stakeholders can rely on BEE Certificates with confidence, because they have been prepared under controlled conditions by competent persons within a regulatory framework.

    The effect of the extension is that companies requiring BEE verification certificates can obtain them from any verification agency that has applied for accreditation and received a pre-assessment letter.

    Wade van Rooyen
    IQuad Verification Services has completed the accreditation process and is fully accredited by SANAS


    Guilty as charged

    June 3rd, 2009

    BEE Verification agencies have been repeatedly accused of anti competitive behaviour and acting in self interest by not accepting a ‘self-assessment’ as valid proof of a company’s Broad-Based BEE status.

    The stones of accusation are being hurled by consultants whose businesses are under threat because the ‘certificates’ they generate are not deemed sufficient and appropriate to substantiate the scores their clients allege are due.

    To understand this debate, one must consider the legislation that governs BBBEE (and not BEE consulting).   This legislation, albeit questionable, is the only foundation available to verification agencies whose very existence is governed by regulation, and government’s intention to ensure widespread credibility and a common standard of measurement for contributors to BBBEE.

    Advocates of self-assessment will argue that the legislation is not in public interest, was not circulated in terms of correct administrative procedures, and that it makes provision for the acceptance of unverified BBBEE scorecards, simply by encouraging verification.

    Verification agencies will, on the opposing side, state that the verification manual define the minimum standard of evidence required to substantiate a BEE score.

    The department of trade and industry will have us believe that self assessment and verification can somehow co-exist, while the South African National Accreditation System, tasked with accrediting verification agencies within the regulatory framework, will refuse official approval on the basis that a verification agency did not satisfy itself that a self-assessment was supported by sufficient appropriate evidence.   Herein lies the paradox – sufficient appropriate evidence is defined within the verification manual, whose procedures are in fact verification procedures.

    A BEE scorecard prepared through self-assessment and accompanied by sufficient appropriate evidence can be accepted in a procurement calculation by a verification agency, but only if the verification agency is satisfied that the requirements of the verification manual have been met in its preparation.   Thus, to assure itself that these requirements have been met, a verification agency is tasked with ‘verifying’ the scorecard on behalf of the measured entity, and at the cost of the measured entity.

    Furthermore, the regulatory standard by which verification agencies are accredited calls for systems to ensure impartiality, competence, openness, competence, and appropriate mechanisms for complaints and appeals – All giving further credibility to the processes that verify BEE contributions.

    In a market crying out for credibility, openness, and impartiality which camp would you choose when betting your future on the outcome?

    IQuad Verification Services is a BEE Verification agency accredited by SANAS to perform BEE Verification.   For further information on BEE verification contact Wade van Rooyen at wadevr@iquad.co.za


    Agency Accreditation Improves BBEEE Verification Standard

    May 26th, 2009

    IQuad Verification Services, a subsidiary of JSE listed IQuad Group Limited, is one of a select group of BEE verification agencies in South Africa to have been fully accredited to supply BEE verification services, ahead of the 1 August 2009 deadline set by the dti.

    IQuad Verification Services offers a BEE verification and certification service that entails BBBEE Compliance Audits, Evaluations and Verifications; BBBEE Scorecards; Scenario Planning; BEE Consulting and Strategy Planning; Supplier Assessment and Verification; and internal training for its clients.  The company was established in 2006 and has offices located in Johannesburg, Cape Town, Durban and Port Elizabeth.

    “At this stage only a small group of 18 verification agencies have been accredited throughout the country. We are extremely proud that IQuad Verification Services is one of the first agencies to be accredited. We are also one of the only accredited verification agencies to have offices dedicated solely to verification in all 4 major business centres in the country, adding consistency and accessibility to our service offering,” says Wade Van Rooyen, Managing Director of IQuad Verification Services.

    BEE verifications are based on the dti’s Broad Based Black Economic Empowerment (BBBEE) Scorecard contained in the Codes of Good Practice. The Codes contain indicators, targets, and weightings in terms of Section 9 of the Broad Based Black Economic Empowerment Act 53 of 2003.

    The codes are applicable to public entities, and any enterprise that undertakes business with a public entity. Companies are scored out of a possible 100 points in the categories of Direct Empowerment (ownership and management control), Human Resource Development (employment equity and skills development) and Indirect Empowerment (procurement, enterprise development and socio-economic development). Application of the codes is voluntary to private businesses, but encouraged by government whose departments are given targets to purchase from companies that voluntarily submit themselves to the regulation.

    Earlier in the year the dti issued notice in the Government Gazette of changes in BEE verification processes and that, as of 1 August 2009, only accredited agencies and agencies that have passed pre-assessment would be able to issue BEE verification certificates to companies.

    Verification agencies are granted accreditation by the South African National Accreditation System (SANAS) who have the authority to grant, refuse, revoke or suspend an accreditation of a verification agency. SANAS’s accreditation is based on specific standards written exclusively for and applicable to, all verification agencies across the country.   The standard is known as R47-02, and incorporates principles of impartiality, competence, responsibility, openness, confidentiality, and resolution of complaints. These principles have to be adhered to by verification agencies as they protect measured entities and the holders of verification certificates.

    A verification agency, accredited by SANAS on behalf of the dti, is therefore able to issue credible scores repeatedly without variation that are consistent with the scores issued by other accredited verification agencies.

    Verification Certificates issued by accredited verification agencies are relied upon by government entities and private sector enterprises in the calculation of their own compliance. Accredited verification agencies, such as IQuad Verification Services, are thus enterprises that have been accredited by SANAS on behalf of the dti and who meet the minimum technical criteria for verification agencies.

    Van Rooyen concludes, “BEE verification has taken on a new standard in South Africa which requires verification agencies to be creditable and accountable.  This will result in consistent verification across all business spheres and better governance of BBBEE in our country.”


    Newspaper article

    May 7th, 2009

    iqvs_herald-business_612An article about IQuad Verification Services in the Herald newspaper


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