Department’s Response to BEE Bill public hearings: briefing

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
5 August 2003
DEPARTMENT’S RESPONSE TO BEE BILL PUBLIC HEARINGS: BRIEFING

Chairperson: Dr R H Davies (ANC)

Documents handed out:
Draft code of Good Practice issued in terms of section 9 of the BEE Bill (Appendix 1)
Draft constitution of the Advisory Council (Appendix 2)
Memorandum outlining changes effected to the BEE Bill (Appendix 3)
Broad-based Black Economic Empowerment Bill as amended
Broad-based Black Economic Empowerment Bill as tabled
Presentation on proposed amendments to the BEE Bill
 
SUMMARY
The Department of Trade and Industry presented proposed amendments to the BBE Bill:
- The preamble as amended allows for the cross referencing to the Constitution and other national legislation.
- A clear definition of broad based black economic empowerment had been added.
- A definition of “black people” in line with the Employment Equity Act has been captured
- The composition of the Advisory Council has been expanded and the Bill allows the Minister to develop a constitution for the Council
- The code of good practice has been revised to distinguish between black men and women in order to achieve constitutional equality
- A requirement is now imposed on state enterprises and government departments to submit plans on the implementation of BEE.
- the provision was sending wrong signals for government to play a less proactive role.

Issues raised by the Committee were:
- that there was still a lack of clarity with regards to the financing of the BEE initiatives;
- whether in law the President could be the chairperson of the Advisory council,
- the need for clarity as to what constitutes a BEE entity. 
- the broad discretion given to the Minister.
- the need for government to play a proactive role.

The Committee will meet again on 20 August to discuss the amended Bill and the BEE Strategy document.

MINUTES
Briefing on proposed amendments to the BEE Bill
Mr L October (Deputy Director General: Black Economic Empowerment) apprised members of the key elements of the initial Bill as well as the summary of the important comments that were made during the public hearings.  He then outlined the changes that had been effected to the BEE Bill following the public hearings. The revised redraft intends to expand the structure of the initial Bill without departing from the principle of creating an Enabling Act.  Hence the following changes had been effected:
- The preamble as amended allows for the cross referencing to the Constitution and other national legislation.
- A clear definition of broad based black economic empowerment had been added.
- A definition of “black people” in line with the Employment Equity Act has been captured
- The composition of the Advisory Council has been expanded and the Bill allows the Minister to develop a constitution for the Council
- The code of good practice has been revised to distinguish between black men and women in order to achieve constitutional equality
- A requirement is now imposed on state enterprises and government departments to submit plans on the implementation of BEE.

Discussion
Ms Moloi (ANC) asked whether in law the President could form part of the Advisory Council and what would be the legal implications of that. She also asked for the role of the Minister in the Advisory Council.

Ms September (ANC) proposed that there was a need for a comprehensive look of both the Bill and the strategic document.  She was also concerned that the President was the chair of the Advisory Council as she was of the view that one could not be a chair of council that advises one.

Mr Louw (ANC) was concerned that the issue of financing BEE initiatives and ways of insuring skills linkage were still not clear in the amended version.

Prof. Turok (ANC) wanted clarity with regards to the objects of the Council, whether it was going to be an advisory body or a consultative body. 

Mr Lockey (ANC) was concerned that it was still unclear as to what constituted a BEE entity or company.  Hence there was a need to provide a definition to that effect.

Mr October (DTI), responding to these questions, said that the Department would consult lawyers to provide a legal brief on whether there were any legal impediments to the President constituting part of the Advisory Council.  With regards to the issue of finance, Mr October pointed out that one of the objectives of the Bill was to promote access to finance as well as promote ownership and skills development.  However, the issue of finance will also be covered and outlined in detail under the Public Finance Bill and the Charters. He further advised that the definition of a BEE entity be defined in the code of practice as it would change from time to time depending on the economic context.

The Chairperson proposed that the issues that touched on the BEE Strategy document be raised at the next committee meeting.  He then asked the Department to take the Committee through the proposed amended Bill clause by clause.

Clause by clause reading of amended Bill
The Preamble
No comments were made

Clause 1 Definitions
Mr October (DTI) pointed out that a definition of a broad-based black economic empowerment has been added to the revised draft.

Prof Turok (ANC) asked if the department could add the word “community” somewhere in the definition so as to make the community part of the economic processes.

Mr Lockey (ANC) proposed that there was a need to provide a definition of President.

Clause 2 Objectives
The Chairperson highlighted that one of the propositions made during the hearings was that the Bill should encourage broad ownership and promote economic transformation.

Ms September (ANC) was concerned that all of the objectives did not capture issues that were raised in Growth and Development Summit, for example, job creation and other structural problems facing society as a whole.

Prof Turok (ANC) was of the view that the Bill should promote effective participation of the majority of South Africans in the economy.

The Chairperson endorsed the proposition that the objectives should capture the Growth and Development Summit issues.

Clause 3 Interpretation
No questions were asked in respect of this clause
 
Clause 4 Establishment of Black Economic Empowerment Advisory Council
No comments were made

Clause 5 Functions of Council   
The Chairperson pointed out that there was a need for a legal brief in respect of the composition of the Advisory Council.

Prof Turok (ANC) asked how the Advisory Council was going to promote the development of partnership between organs of state and the private sector.  He was of the view that the use of the word “promote” implied a very proactive role.  He proposed as an alternative the following phrase:  “facilitate or support”.

Ms P Buthelezi (Chief Director: Black Economic Empowerment) pointed out that the Advisory Council would be representative of different constituencies and would therefore play a pivotal role in promoting the development of partnership as well as the development of charters.  

Clause 6 Composition of Council and appointment of members
No question were asked in respect of this clause

Clause 7 Constitution and rules of Council
No comments were made

Clause 8 Remuneration and reimbursement of expenses 
No questions were asked

Clause 9 Codes of practice
Mr Lockey (ANC) was concerned that use of the word “may” in Clause 9(1) would be giving too much discretion to the Minister.

The Chairperson referred to Clause 9(2) and proposed that the whole provision be amended to the effect that a code of practice must be informed or guided by the BEE Strategy document.

Clause 10 Status of codes of practice 
Mr Lockey was concerned that the clause was granting too much discretion to organs of state and public entities. He pointed out that although the BEE process was a voluntary process, the initial aim was that government would use its powers in procurement deals and licensing in order to promote BEE.  By stating that “government had to take into account any relevant code of practice issued in terms of the Act”, the provision was sending wrong signals for government to play a less proactive role.

Mr October (DTI) advised members that in terms of the administrative law a person vested with discretion to grant licence or procurement deals, was required in terms of the law to take into account a numbers of issues and the code of practice issued in terms of the Bill could be one of those considerations. Such a person could not ignore Clause 10 unless there was a policy issue or a provision contained in another piece of legislation that was contrary to that provision and such person would have to provide rationale reasons for departing from Clause 10.  Furthermore, to avoid litigation, the department did not want to put in a compelling provision.

The Chairperson was of the view that there was a need for the department to consult legal experts in respect of Clause 10 and perhaps provide a different formulation.

Clause 11 Broad-based black economic empowerment plans
Ms Moloi (ANC) was of the view that the issue of gender had to be specifically spelt out here.

Clause 12 Strategy for broad-based black economic empowerment
Mr Lockey (ANC) was again concerned that the clause was giving broad discretion to the Minister.

Clause 13 Transformation charters
The Chairperson asked what the Department meant by the word “promote”.

Mr October pointed out that the Department’s aim was to ensure broad acceptance of the Charter and impose a positive duty on the part of the Minister not merely to publish the charter in the government gazette.

Clause 14 Support services and funding of Council
Ms September (ANC) asked whether it was permissible to have a provision such as this in a non-money bill.

Mr October (ANC) replied that based on advice from the state law advisors, since the Council was a creature of statute, it was important to assign someone who was going to take responsibility for it.

Clause 15 Regulations
No questions were asked in respect of this clause
 
The Chairperson noted that the Committee would meet on the 20 August to deliberate on the amendments to the Bill as well as the Strategy document.

The meeting was adjourned.

Appendix 1 : Draft Code of Good Practice

DRAFT

CODE OF GOOD PRACTICE ISSUED IN TERMS OF SECTION 9 OF THE BROAD-BASED BLACK ECONOMIC EMPOWERMENT ACT, 2003

Definitions of black enterprises

1.         Definitions

1~1       In this Code of Practice, unless inconsistent with the context -"organ of state" means
(a)        a national or provincial department as defined in the Public Finance Management Act, 1999 (Act 1 of 1999);
(b)        a municipality as contemplated.in the Constitution;
(c)        Parliament;
(d)        a provincial legislature;
(e)        a constitutional institution listed in schedule 1 of the Public Finance Management Act 1999, as amended from time to time;

"public entity" means a public entity listed in schedules 2 and 3 of the Public Finance Management Act, 1999, as amended from time to time;

"strategy for broad-based black economic empowerment" is the strategy issued by the Minister in terms of section 12 of the Act.

"the Act" means the Broad-Based Black Economic Empowerment Act, 2003 (Act x of 2003);

1.2        In this Code of Practice, unless inconsistent with the context, any word or expression to which a meaning has been assigned in the Act or a Code of Practice issued in terms of the Act, has the same meaning as the meaning assigned to that word or expression in the Act or Code of Practice.


2.         The purpose of code

The purpose of this Code of Practice is to define different categories of black enterprises to facilitate uniformity in the use of the defined terms.

3.         Application

3.1        This Code of Practice must be taken into account by all organs of state and public entities as provided for in section 10 of the Act.

3.2        This Code of Practice is relevant for the private sector in that the definitions of black enterprises in this Code of Practice will be applied
by government in its implementation of the Act and the strategy, as determined from time to time.

4.         Definitions of black enterprises

4.1        For the purposes of this section, ownership means equity ownership with the owner or shareholder assuming liability for profit and risk, and owners and owned have a similar meaning.

4.2        A "black-owned enterprise" is one that is 50,1% owned by black people and with a substantial number of black members of any board or similar governing body of the enterprise.

4.3        A "black woman-owned enterprise" is a black-owned enterprise with at least half the black owners being women and some members of any board or similar governing body of the enterprise being black women.

4.4        A "black empowered enterprise" is one that is at least 25,1% owned by black people and with a substantial number of black executive directors of the enterprise.

4.5        A "community or broad-based enterprise" is an enterprise -

a)         that is owned, or partly owned by a person or people who represent the interests of a specified community, group of employees, or a specified target group, such as black women, people living with disabilities, youth, or workers;

b)         whose activities or operations, or the benefits of ownership in the enterprise, are substantially directed towards uplifting the specified community, employees or target group by, for example, job creation, welfare support, skills development, or the promotion of entrepreneurship or human rights; and

c)         that is substantially managed by black people.

4.6        A "co-operative or collective enterprise"  is an autonomous
association of people who voluntarily join together to meet their economic, social and cultural needs and aspirations through the formation of a jointly-owned and democratically controlled enterprise and includes but is not limited to communal property associations registered in terms of the Communal Property Associations Act, 1996 (Act 28 of 1996).1

Consideration must he given to the legal arrangements governing co-operatives that are not recistered communal property associations.

Appendix 2 : Draft Constitution of the Advisory Council

DRAFT
Constitution of the Black Economic Empowerment Advisory Council Preamble

WHEREAS the Black Economic Empowerment Advisory Council was established by the Broad-Based Black Economic Empowerment Act, 2003 (Act - of 2003);

AND WHEREAS the Act provides that the Minister of Trade and Industry shall establish a Constitution for the Council;

Now therefore I, Alec Erwin, the Minister of Trade and Industry, adopt this
Constitution as the Constitution of the Black Economic Empowerment
Advisory Council.

1.         Definitions

"Council" means the Black Economic Empowerment Advisory Council established by section 4 of the Act;

"the Act" means the Broad-Based Black Economic Empowerment Act, 2003 (Act x of 2003);

2.         Powers

2.1        The Council has all the powers necessary in order to enable it to fulfil its functions as set out in section 5 of the Act, including the power to -

a)         conduct research or cause research to be conducted;
b)         request information from organs of state or private bodies;
c)         publish reports on black economic empowerment;
d)         establish sub-committees to deal with specific matters as and when required;
e)         co-opt experts to serve on or advise sub-committees.

3.         Membership of Council

3.1        The President and cabinet ministers on the Council are members by virtue of their respective public offices and will cease to be members if they no longer hold that office, for any reason.

3.2        Members of Council envisaged by section 6(1)(c) of the Act will be appointed by the President for a period of three years.
s          3.3        A Council member appointed in terms of paragraph 3.2 will be eligible for re-appointment when his or her term of office expires.

4.         Qualification for membership of CouncU

4.1        A person may not be appointed or continue as a member of the Council if that person -

a)         is an unrehabilitated insolvent;
b)         has at any time been removed from an office of trust on account of misconduct;
c)         is, in any other respects, not a fit and proper person for membership.

5.         Procedure for the appointment of certain members of Council

5.1        Whenever it is necessary to appoint a member of the Council envisaged in section 6(1)(c) of the Act, the secretariat of the Council shall -

a)         through advertisements in the national media, invite nominations for appointment as such a member;
b)         compile a list of the names of all persons nominated, setting out the particulars of each individual nominee; and
c)         submit the list to the President.

5.2        Any nomination made pursuant to an advertisement in terms of paragraph 5.1 must be supported by -

a)         the personal details of the nominee;
b)         particulars  of  the  nominee's  qualifications  and experience;
c)         a signed statement by the nominee that he or she is willing to be considered fQr appointment as a Council member.

5.3        The President must decide how many members to appoint in terms of section 6(1)(c) of the Act, and must make these appointments from the list submitted in terms of paragraph 5.2, but if the list is inadequate, the President may appoint any suitable person of the President's choice.

6.         Termination of membership

6.1        Council members, who are also cabinet members, are appointed for as long as they remain cabinet members or until the President decides to appoint a different cabinet minister in their place.
6.2        A member of the Council appointed in terms of section 6(1)(c) of the Act, ceases to be a member when that person -

a)         resigns;
b)         is no longer eligible to be a member in terms of paragraph
4
c)         is removed from office in terms of paragraph 7.

6.3        A member who resigns must give at least one month's written notice to the President, although the President may accept a shorter period in a specific case.

7.         Removal from office

7.1        The President may remove from the Council a member appointed in terms of section 6(1)(c) of the Act if -

a)         the member is absent from two consecutive meetings of the Council without the prior permission of the Council or the President, except on good cause shown;
b)         the President, after cdnsuiting the Council, is of the view that the person is no longer a fit and proper person to be a member of the Council.

8.         Meetings

8.1        The Council must meet at least twice a year.

8.2        The Chairperson of the Council decides when and where the Council will meet, but a majority of the Council may request the Chairperson in writing to convene a meeting at a time and place set out in the request.

9.         Quorums and decisions

9.1        A majority of the members of the Council constitutes a quorum for a meeting of the Council.

9.2        The Council will endeavour to reach consensus in its decision-making. Where this is not possible, a decision of the Council will be made by a majority of rn9mbers present and voting at a meeting. If there is an equality of votes, the Chairperson of the meeting will have a casting vote in addition to that person's vote as a member.

10.        Rules of procedure

The Council may determine its own procedures subject to the Act and to this Constitution.
11.        Conflict of interests

If a Council member has a personal or financial interest in any matter being discussed by the Council, the member must disclose that interest and withdraw from the Council when that matter is discussed.

12.        Administration and finances

12.1      The Department of Trade and Industry, after consultation with the Council, must draw up a budget for the Council.

12.2      There will be a Council secretariat made up of members of staff of the Department of Trade and Industry.

12.3      The secretariat is accountable to the Minister of Trade and Industry and must -

a)         keep full  and  proper re~ords  of all  income  and expenditure of the Council;
b)         within three months of the end of the financial year prepare and submit to the Council financial statements reflecting the income and expenditure of the Council;
c)         keep accurate minutes of all Council meetings and circulate these to Council members;
d)         make all the necessary logistical arrangements for Council meetings;
e)         carry out any other task assigned to the secretariat by the Minister of Trade and Industry, after consultation with the Council.

13.        Reporting

The Council must submit an annual report to Parliament.

Appendix 3 : Memorandum Outlining Changes to Bill

-DRAFT-

Memorandum outlining changes effected to the Broad-Based Black Economic Empowerment Bill following public comment in the Portfolio Committee on Trade and Industry

1.         INTRODUCTION
The purpose of this memorandum is to highlight changes effected to the Broad­Based Black Economic Empowerment Bill ('~the Bill") bythe Department of Trade and Industry ("dti"), following the public hearings held by the Portfolio Committee on Trade and Industry. The memorandum -sets out the general architecture of the Bill as initially tabled in Parliament; summarises the most important comments made on Ahe Bill; highlights changes effected to the Bill in response to comment made; and motivates why other changes were not effected to the Bill.

2.         OVERVIEW OF THE APPROACH ADOPTED IN THE TABLED BILL
Black economic empowerment is a dynamic process that requires the participation of a wide range of stakeholders and requires the adoption by those stakeholders of diverse strategies.  Some of these strategies require legislative backing whereas others do not. The Broad-Based Black Economic Empowerment Bill ('the Bill") is one of a number of steps being taken by government to address black economic empowerment. The Bill as initially tabled was enabling in nature creating a framework for the development of black economic empowerment policy.

The Bill -

· established a Black Economic Empowerment Advisory Council ("the Council") to allow for stakeholder participation in the formulation of policy;

·           empowered the Minister to issue codes of practice as a flexible but authoritative vehicle for articulating policy and guiding state participation in black economic empowerment


·           specified the status of codes of practice by requiring organs of state to take into account codes of practice issued by the Minister in determining criteria for the issuing of licences and in developing preferential procurement policies;

·           empowered the Minister to issue guidelines issued by the Minister for the development of transformation charters by different sectors of the economy.

3.         SUMMARY OF COMMENT RECEIVED
Extensive representations were made during the parliamentary process on the Bill. A number of these proposed that the enabling infrastructure contained in the Bill should be expanded. Proposals of this type included -

the Bill should detail the composition of the Council and should set out its functions;

·           the Council should not include the President as a member as it is an advisory body to the President;

·           there should be an express reference to the strategy on broad-based b~ack economic empowerment'

the Bill should spell out in greater detail the obligations being placed on government;

·           the term "broad-based black economic empowerment" should be defined in the Bill rather than in a code of practice issued in terms of the Bill;
 
·           the Bill should emphasise the advancement of black women in the wider process of black economic empowerment;

·           the Bill should contain provisions on the financing of black economic empowerment;

the various appendixes to the strategy should rather be incorporated into the Bill;
a number of issues were raised around the definition of "black people";
the Bill made insufficient provision for monitoring and compliance.

4.         OVERVIEW OF CHANGES EFFECTED TO THE BILL
In the light of the representations made, the revised draft proposes significant changes to the structure set out in the initial Bill. These expand the structure proposed by the Bill without departing from the initial conception of an enabling Act

Preamble
In order to deal with issues of co-operative governance, the preamble to the Bill has been amended to cross-refer to relevant factors listed in section 146 of the Constitution which set out in what circumstances national legislation will prevail over provincial legislation in the event of a conflict of laws.

Definitions
·           A definition of "broad-based black economic empowerment" has been added to the Bill.  It specifies that the concept includes the empowerment of women, people with disabilities, people living in rural areas, etc It also specifies that the concept incorporates a wide range of strategies including the ownership and control  of enterprises,  employment equity,  human  resource and  skills development, preferential procurement and investment in black enterprises. This sharpens the focus of the Bill by specifying the ambit of black economic empowerment.

·           The definition of "black people" has been brought into line with the definition in the Employment Equity Act, 1998 and no longer limits the application of the Bill to black people who are citizens or permanent residents.

·           The definition of "organs of state" has been amended to cross-refer to the institutions set out in the Public Finance Management Act, 1999, and a definition of a "public entity" has been inserted.

Objectives
The objectives of the Bill have been amended to make more explicit the reference to broad-based black economic empowerment; to include reference to the financing of black economic empowerment; and to include as an objective the empowerment of black women.

Council
·           The Bill's provisions on the Council have been expanded. The Bill now sets out the functions of the Council, the composition of the Council and the appointment of Council members who are not part of the Cabinet.

·           The tabled version provided that the Council would establish its own constitution. This was not considered to be workable and the Bill has been amended to provide that the Minister will establish a constitution for the Council but the Council may establish its own procedural rules.

·           The Bill has been amended to provide that Council members will not be remunerated but will be reimbursed their expenses. -

Codes of practice
·           The Minister's power to issue codes of practice has been revised. Firstly, the Minister may distinguish between black men and black women in any code or target, in order to achieve the constitutional equality of women.

·           Secondly, a code of practice issued in terms of the Bill must be consistent with the Preferential Procurement Policy Framework Act.

·           Thirdly, the situations in which organs of state and public entities are required to take into account any code are expanded to include a wider range of economic activities including determining qualification criteria for licences; developing preferential procurement policies; granting concessions; selling state-owned assets;  entering  into  public-private  partnerships;  and  developing  and implementing their empowerment plans.

·           Finally, the Bill now gives interested persons 60 days, rather than 30 days, to comment on a draft code of practice.

Black Economic Empowerment Plans
A new requirement is that national and provincial departments and public entities must submit a plan on black economic empowerment to the Council and update and report on this plan once every two years The plans will require organs of state and public entities to articulate their empowerment policies in a public document and allow for their implementation to be monitored. For the purposes of achieving equity, a plan may distinguish between Africans, Coloureds and Indians where this is appropriate in the light of the demographics of the area in which it applies. The plan and the requirement to report on its implementation, represents an appropriate vehicle for monitoring compliance with empowerment.

Strategy for black economic empowerment
The Minister will be required in terms of the Bill to issue a strategy for broad-based black economic empowerment. This incorporates the strategy explicitly into the framework of the Bill. The strategy must be consistent with the Act, must provide for a consistent approach to black economic empowerment, and must provide for mechanisms to finance black economic empowerment.

5.         PROPOSALS NOT AGREED TO IN THE BILL
Council
The proposal that the President should not be a member of a Council tasked with advising him, has not incorporated into the Bill.  Given the importance of black economic empowerment, it is appropriate for the President to chair the Council and this approach is consistent with other Acts which have similar provisions where Ministers are members of bodies that advise them.

Codes of practice
A proposal that the Bill should compel organs of state to comply with codes of practice has not been adopted and the Bill therefore retains the provision that organs of state must "take into account" codes of practice. The reasons, in summary, are the following -the codes are subordinate documents developed in terms of the Act and cannot override national legislation;

·           a requirement that organs of state comply with codes of practice would impose a rigidity on policy in this area and could also become a basis for unsuccessful applicants for licences, concession, etc. to litigate;

·           the obligation to take the contents of the code of practice 'into account' requires that their contents are considered before any decision is made. This appropriately balances consistency of policy with the need for organs of state to make appropriate decisions in the light of their circumstances;

·           the distinctiveness of different organs of state means that the code cannot bind other organs of state at least in any area that is either within the exclusive or concurrent jurisdiction of provinces unless such legislative action can be justified in terms of sections 44(2) or 146 of the Constitution.

Definitions
The definitions of different categories of black owned or empowered enterprises, which appear in a schedule to the draft strategy, have not been incorporated in the Bill. As these definitions reflect percentages that may require amendment from time to time, it is appropriate that they should be contained in a code of practice.

CONCLUSION
The changes that have been introduced clarify the focus of the Act and expand the instruments available to promote black economic empowerment. These changes are a response to a significant number of the representations made at the parliamentary hearing but allow the Act to retain its initial character as an enabling statute.