Codes of Good Practice for Broad-Based Black Economic Empowerment: follow-up workshop

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
14 September 2007
CODES OF GOOD PRACTICE FOR BROAD BASED BLACK ECONOMIC EMPOWERMENT: FOLLOW-UP WORKSHOP

Chairperson: Mr B Martins (ANC)

Documents Handed Out
DTI response to Concerns raised by the Portfolio Committee
Codes of Good Practice on Ownership: Department of Trade and Industry (DTI) presentation
Human Resource Development Guidelines: DTI presentation 

Audio recording of meeting

SUMMARY
The meeting was a follow-up to the August 2007 workshops and looked at the concerns that had been raised by the Committee about the implementation of the Codes, monitoring and oversight and the role of other critical stakeholders in the compliance process to the Codes. The Department of Trade and Industry also gave a briefing on the Scorecard on Ownership, the Guidelines for Equity Equivalent Programmes for Multinationals and Human Resource Development Guidelines. The Committee agreed that they would soon convene public hearing on the Codes to allow stakeholders to express their views.

MINUTES
The team from the Department of Trade and Industry (DTI) was led by Mr Siphi Zikode, the acting Deputy Director General: Enterprise and Industry Development, accompanied by Ms Nomonde Mesatywa (Acting Chief Director BEE Unit), Mr Takilani Tambani (Director: BEE Unit), Ms Janeez Hafizulla (Deputy Director: BEE Unit). On behalf the Department, Mr Zikode thanked the Committee for their commitment and interest in the issues of black Economic Empowerment and explained the process of the meeting.
 
Concerns Arising from Portfolio Committee Workshop on 15 and 16 August 2007
Ms Nomonde Mesatywa presented the Department’s response to the concerns that were raised at the August workshops on matters such as compliance, monitoring and whether the Codes were linked to procurement processes. She noted that it was too early to assess the impact of the Codes, as the Department perceived this as a transitional phase towards full implementation of the Codes (see document).

Discussion
Mr L Labuschagne (DA) enquired about the verification process, whether the Department would allow self-verification or would employ verification officers in the Department. He expressed concern about the verification process for businesses - that it might be exorbitant for certain businesses. He asked the nature of the Department’s involvement in the process.

In response Mr Taki Tambani indicated that the Department had been involved in an intense consultation process with various stakeholders in the development of the standards. The Department had appointed the South African National Accreditation System (SANAS) to manage the accreditation of verification agencies. The process had been finalised last year and companies had been allowed to apply to SANAS to be accredited since last October. Even auditors would be accredited by SANAS so that they could deal with BEE verification for companies they audit, without incurring extra cost.

The companies with a less than R5 million turnover would be exempted from verification but would still have to do four of the seven verification elements at no cost. But companies that had a R5 million or more turn- over would be expected to comply with no exemption. The attitude in the market had been positive since the introduction of the verification procedure. The Department had conducted research recently and the key findings were that 87% of businesses active in the South African economy are small to medium business. Therefore, if the Department was using the size of the business as the criterion without looking at turnover, almost all businesses would be exempt.

Scorecard on Ownership for B-BBEE presentation
Mr Tambani said that the objective of the DTI was to increase the number of black people that manage, own and control businesses. The DTI has created a generic ownership scorecard. Companies need to score 100 points within seven categories in order to meet compliance targets. The categories are: Ownership, Management control, Employment Equity, Skills development, Preferential procurement, Enterprise development and Socio-economic development. Ownership is the entitlement to both voting rights (the rights of black people that hold shares in companies) and economic interest (the economic value that is held by black people holding shares in a company). In the scorecard, Ownership would hold a weighting of 20 points and the compliance target would stand at 25%.

Tambani stated that tests would be done yearly to see if black people had advanced in companies and the DTI wanted to encourage companies to decrease ‘debt’ from year to year. The result would be that black people would decrease their ‘debt’.

Guidelines for Equity Equivalent Programmes for Multinationals (Statement 103)
The Codes state that all entities operating in South African must make a contribution towards B-BBEE. The DTI acknowledged that many multinationals might not be able to comply with the ownership requirements part of B-BBEE and presented the Equity Equivalent targets (see document).

Discussion
Mr Labuschagne expressed his confusion about multinational operations as they were owned by people abroad. He asked what the multinational would have to comply with to achieve 100 points on the scorecard. He was concerned that multinationals would never be able to comply with the ownership criteria.

Prof E Chang (IFP) asked the DTI to clarify what the difference was between Schedules 1 and 2. She wanted to know how the DTI had decided on what the points would be in the ownership scorecard. It seemed that if BEE compliance was to be met, then there would be no foreign investment and local partnerships may be needed. She did not understand the 25% option and she asked that the DTI clarify this.

Ms Mesatywa admitted that multinationals were experiencing a challenge. She said that multinationals would have to comply with the other six elements if they experienced a problem with one element. In terms of ownership, companies must perform an equity equivalent that amounts to 25% Companies could either opt to do a 25% contribution of the value of their SA operations or a 4% contribution of total SA revenue every year over the period of continued measurement.

Mr Labuschagne wanted the DTI to explain if the equivalent was the same as employment equity on the scorecard and if employment equity was the same as skills development.

Ms Mesatywa replied that choosing one element did not impact on other elements. Companies would still have to do Management Control. Companies would still have to comply with each element individually.

Prof Chang clarified that if companies did not choose the 25% then they could do the 4% option. But she expressed confusion at what the 4% was. The turnover revenue was not equal to the capital and so she could not understand what the 4% was based on.

Mr Tambani replied that the 4% was based on the turnover made on a year to year basis and it was actual money. Ms Mesatywa stated that the 4% option was more expensive for a company than the option of 25% and that was why companies were given that option.

Prof Chang stated that implementing the 4% strategy would be very difficult.

Mr Zikode explained that companies were given the option after which they would look at their actual revenues and make a decision based on that. Ms Hafizulla added that 25% was based on the total market value of that corporation.

Mr Labuschagne asked the DTI to further explain using the Hewlett Packard example. He wanted to know what the company did to comply with BEE.

Ms Mesatywa replied that the process had been started the previous year. Hewlett Packard went through the process of deciding whether to use the 4% or 25% option. Research was done, looking at company sales and projected income. After the analysis was completed, a report was prepared and the company decided that the 25% option was best. DTI was happy with the figures and the project was put in to operation.

Mr Tambani added that multinational companies were expected to comply with seven elements of the scorecard excluding the ownership element due to the fact that multinational companies by nature are owned by other shareholders globally. The multinational companies would comply with the six elements and either take 25% of the equity equivalent or contribute 4% of their annual turnover. The multinational could identify a particular sector. For example, Hewlett Packard had invested several million rand for enterprise development and skills training in the IT sector because that was their area of operation. The multinational companies preferred the 25% equity equivalent with a focus on either skills development or enterprise development.

Ms M Ntuli (ANC) expressed concern at how people, particularly black women and the disabled, would become familiar with the Codes if they for example wanted to enter in to a joint venture.

Mr Tambani replied that the provision of information to various groups happened through the marketing department of DTI in various languages. The DTI was engaging with GCIS to assist with information distribution in rural areas through their publications, multipurpose centres and interacting with municipalities located in the rural areas.

Mr S Maja (ANC) asked the DTI what percentage they would give the rural areas as those were the areas of neglect. He wanted to know if the DTI would consider being biased towards rural areas.

Mr Tambani replied that the scorecard had a rural bias and more emphasis was placed on the development of rural communities. Companies were encouraged to identify broad based schemes in rural communities otherwise they would not qualify for rewards from the scorecard. 

Human Resource Development Guidelines (Code 200, 300, 400) presentation
Ms Janeez Hafizulla indicated that the guidelines consist of three elements in the B-BBEE code of practice: Management Control, Employment Equity and Skills Development. The Management Control code measures effective control by black people and afforded companies an opportunity to set targets for board presentation and executive involvement of black people. Employment Equity code measured the participation of black people employed in companies at junior, middle and senior management. In order for companies to score points on the Employment Equity scorecard they must have a minimum of 40% of the target in that category. The Skills Development scorecard ensured that all targeted beneficiaries are skilled.

Discussion
Prof Chang sought clarification on other benefits accrued by BEE companies from the public sector except the tendering process. She also wanted to know whether BEE companies are exempted from tax and whether DTI had engaged the National Treasury on the matter.

Ms Mesatywa replied that government procures goods and services from the private sector. Ms Hafizulla indicated that DTI had approached the National Treasury on the issue of tax exemption and there were ongoing discussions on the matter.

Mr Oliphant asked whether companies were expected to wait until they found a black suitable candidate and if they did not, whether this would have any ramifications for the scorecard. He also warned DTI to develop a monitoring mechanism to oversee Code compliance by the private sector.

Ms Ntuli asked if B-BBEE was meant for the skilled labour force only or whether DTI had a skills enhancement mechanism for the semi-skilled and unskilled labour force - which was currently in surplus due to lack of access to education and financial resources. BEE was supposed to make life better for all people, but the unskilled were being left out of the discussion. She wanted to know what the DTI was doing to solve this problem.

The Chairperson commented that this was a legitimate question and pondered how to tackle the problem of skills enhancements.

Ms Hafizulla replied that skills development focused only on employees that were already working in companies and companies were encouraged to invest in the skills pool already available in that company. They were also expected to develop a promotion strategy with a special focus on black people. In addition companies were expected to start centres of excellence and recruit university graduates. In terms of intervention for semi-skilled and unskilled labour, there was a separate approach which was integrated with other government departments and other critical partners such as the e-skills Council which was championed by the Department of Communications. The industrial policy framework that had been released in early September had also identified the issue of skills shortage as crucial for the growth of the South African economy and industrialisation.
 
Mr Labuschagne enquired whether the DTI booklet on B-BBEE Codes was available on their website and if the Department had revised it as some of the information was out of date.

Ms Hafizulla replied that the Department was revising the booklet and the new format would be more user-friendly and accessible in both electronic and hard copy.

In closing, the Chairperson expressed his gratitude to the Department of Trade and Industry and their resilience in ensuring that the economy was completely transformed. He indicated that the Department and the Committee would continue to interact and schedule public hearings at an appropriate time.

The meeting adjourned.