Broad-Based Black Economic Empowerment Codes of Good Practice: briefing by DTI

Meeting report

Broad-Based Black Economic Empowerment Codes of Good Practice
Mr Sipho Zikode, Acting Deputy Director-General: Empowerment and Enterprise Development Division in the Department of Trade and Industry (DTI), presented, reminding the Committee that the Broad-Based Black Economic Empowerment (B-BBEE) strategy had been published in 2003, the B-BBEE Act was promulgated in 2004 and the Codes of Good Practice were released in 2007.

Ms Nomonde Mesatywa, DTI Chief Director: Black Economic Empowerment Unit, informed the Committee that before the B-BBEE Act, there was Black Economic Empowerment Commission Report of 2001. It was done to develop a transformation process with political, social and economic dimensions, and to create a more equitable economy to support the drive for economic growth. All of this resulted in the B-BBEE strategy. B-BBEE is an integrated and coherent socio-economic process that directly contributes to the economic transformation of South Africa and brings about significant increases in the numbers of black people who manage, own and control the country’s economy. It includes elements of human resource development, enterprise development, preferential procurement, investment, and ownership of enterprises.

B-BBEEs policy objectives included substantially increasing the number of black people who have ownership and control of new enterprises in key sectors of the economy, increasing the number of new black enterprises and black women-owned enterprises, increasing the number of new black enterprises, and increasing the number of black people in executive and senior management positions. B-BBEE aimed to boost and generate higher economic growth, job creation, skills and decrease poverty alleviation. It also focused on bridging the divide between first and second economy, linking with the lead sectors identified for industrial policy to facilitate growth and employment, contributing towards the growth of Small and Medium Enterprises (SMEs), and accelerating the participation of black people in the mainstream of the economy at all levels.

The B-BBEE Advisory Council was established on 3 December 2009 in terms of Section 4 of the B-BBEE Act. Four sub-committees were constituted within the B-BBEE Advisory Council focusing on:
• Ownership, management Control, and B-BBEE deals structuring
• Enterprise Development, Procurement, Access to Finance and Socio-Economic Development
• Skill Development and Employment Equity
• Instruments to Promote B-BBEE

The DTI, together with the B-BBEE Advisory Council, is considering reviewing the B-BBEE Act with the possibility of amending it, updating the Codes of Good Practice, investigating and recommending legal instruments for the regulation of the B-BBEE verification system, criminalising fronting as a punishable offence, establishing a cooperation agreement with the Special Investigating Unit to investigate fronting, and aligning industrial policy to B-BBEE.

Research was conducted to follow up on the 2007 Baseline Study on B-BBEE. In 2007, the South African National Accreditation System (SANAS) started accrediting Verification Agencies. Of the 129 agencies that applied for accreditation, so far 42 are currently accredited. Some of the challenges that were experienced included the slow pace of accreditation by SANAS, the unethical conduct of the agencies, insufficient capacity and inadequate technical capacity. The DTI interventions included the initiative to establish a statutory body to regulate the verification industry, recognising the Independent Regulatory Board of Auditors (IRBA) and the South African Institute of Professional Accountants (SAIPA) for B-BBEE verification, and developing a National Training Programme on B-BBEE verification in collaboration with Institutions of Higher Education.

The Cabinet had mandated the DTI and National Treasury to amend the PPPFA to address the objectives of B-BBEE. Due to the protracted process of amending legislation, both departments agreed to amend the Preferential Procurement Regulations as an interim measure. The draft regulations were issued for public comment in August 2009. The DTI, Department of Economic Development and the National Treasury technical committee had convened and incorporated all comments from the public and NEDLAC. The three departments still needed to work on the overhauling of the PPPFA.

Mr Takalani Tambani, DTI Director: Black Economic Empowerment Unit, stated that there was an operational BEE IT portal on the DTI website. Currently, there were 31 302 entities registered on the website. It served as a publicly central database for promoting business opportunities, reporting fronting, and managing the flow of information to the DTI. The portal would be useful for reporting and monitoring of the overall B-BBEE performance in the economy. Effective engagement, marketing and communication of B-BBEE would entrench an awareness of B-BBEE. The DTI wanted to target at least 3 200 black people from under-developed and rural areas with the Eyethu Sonke le B-BBEE National Campaign.

Ms Mesatywa discussed the B-BBEE baseline report. In 2007/08 the DTI conducted a baseline study on B-BBEE. It was found that the focus on narrow-based BEE contributed largely to ownership and management elements. The average level of 15.13% black ownership was achieved against a target of 25.1%. The second best progress was made in the skills development element with 43.8% of the targeted points achieved by South African companies.

The DTI concluded that the broader economic developmental agenda had to address:
• how broad-based growth could be achieved,
• the enhancement and implementation of the B-BBEE framework through the Presidential Advisory Council,
• creating a conducive environment for access to economic opportunities,
• promoting entrepreneurial initiatives, and
• alignment and consistency in policies, legislation and programmes of government.

Discussion
Mr S Njikelana (ANC) proposed that a joint meeting be held with relevant parliamentary committees to discuss the alignment of the Codes of Good Practice for B-BBEE and the Preferential Procurement Policy Framework Act (PPPFA). His proposal was on the basis that the departments and the National Treasury had come together to discuss these issues, but Parliament has not yet come together to discuss the matter. He wanted to review the notion that “once a B-BBEE company, always a B-BBEE company”. He would always fight this notion, even if he had to do it alone. He hoped to be able to lobby more people into joining him. He did not know why Parliament took such a position. Initially, the old Black Economic Empowerment (BEE) Codes of Good Practice stated that if a white company attained a BEE status, once the BEE partner withdrew or resigned from the company, the BEE status of the company would fall away. This rule was changed “in the last term”. He made a formal proposal to re-instate this rule. The matter had to be addressed and reversed. If a company did not have a B-BBEE partner, then it should not be allowed to retain its B-BBEE status. He thought the Committee should have a look at the B-BBEE Advisory Council, but it was still a young baby. However, it would have to engage with the Committee at some stage. He knew the Advisory Council was a presidential structure, but there was nothing wrong with sharing ideas with them. He wanted the Committee to look into the monitoring and evaluation mechanisms for B-BBEE. He noted that the DTI had held a workshop on the Codes of Good Practice. It was very helpful and he appealed to the DTI to organise another one.

Mr Zikode addressed the issue of “once empowered, always empowered”. He replied that it was a very subjective issue. Those that supported the notion would say that one had to look at whether people were being empowered or not. If someone had the opportunity to use B-BBEE and then sold his shares and got out of a company because he was now empowered and could stand on his own feet, they had to be allowed to do so. The person had to be allowed to leave once they were empowered. If the B-BBEE partner elected to leave because of better opportunities, which came about as a result of the empowerment initiative given by the company, then the company had to be taken into consideration too. One would have to look at the impact it would have on the company. It was about finding a balance between the reasons a B-BBEE partner left and the effect on the company.

Mr A van der Westhuizen (DA) asked why, if the DTI was responsible for implementing the B-BBEE Act, the B-BBEE Advisory Council was only being set up six years later than it should have been?

Mr Zikode replied that the DTI was responsible for implementation. There had been delays from the DTI’s side in setting up the Council. The DTI did not have full control over this, as it always relied on the Presidency's processes in giving nominations and appointing people to the Council. In the last government term, the DTI was at an advanced stage of setting up the Council. However, with the change of administration, the DTI had to start all from over.

Ms Mesatywa added that there was no provision for the notion of “once empowered, always empowered”. It was included in the draft of the Codes of Good Practice, but after a lot of comments and debates from the public, it was removed. However, it could be found in the Financial Services Charter. The provision was done away with in the Codes of Good Practice because it was decided that it did not enhance the cause of B-BBEE. It was important to align the principles of the charters to those of the Codes of Good Practice.

Mr S Marais (DA) stated that he had a problem with the alignment of the B-BBEE Act and the PPPFA. He wondered how they would be aligned. The PPPFA and the Narrow-Based Black Economic Empowerment focused quite heavily on ownership, while the B-BBEE Act stated that ownership was only a small percentage of the scorecard. Somewhere, the DTI and the Committee had to look at knowledge and skills as well. He remembered that when he first came to Parliament, “fronting” was a big issue. For example, white companies that used gardeners as a front to gain B-BBEE status. Recently, the Committee has seen narrow-based black ownership where these people were taking companies and selling their shares for a lot of money. This was not B-BBEE; it was not sustainable and it was not allowing the country to grow economically. The whole issue of “once black-empowered, always black-empowered” was not true. He felt that this issue had been addressed. The DTI did not speak about how they were creating an environment for entrepreneurs and B-BBEE operations. There had to be a transfer of sustainable knowledge and skills.

Mr Zikode addressed the alignment of the B-BBEE Act with the PPPFA. He said that Cabinet and the DTI were responsible for aligning the two Acts. It was decided that the PPPFA would be aligned to the B-BBEE Act. The DTI wanted to amend the PPPFA regulations so that there was at least a little bit of compliance with the B-BBEE Act in the interim. The end goal was to repeal the PPPFA and to create a new Act that would be fully aligned with the B-BBEE Act.

Ms Mesatywa added that the DTI would try to make a special dispensation for small enterprises within the B-BBEE framework. But, people would find that if they wanted to participate in the procurement environment, the issue of ownership would become critical. The issue of ownership and over-hauling the procurement framework then became more important.

Mr Zikode stated that there were programmes that were initiated to support the establishment of B-BBEE companies and emerging B-BBEE companies. The DTI wanted to ensure that the benefits accruing from the  Industrial Policy Action Plan (IPAP2) would also benefit B-BBEE.

Ms Mesatywa added that there were companies that would tell you that enterprise development was not their first priority; the profit margin was. Developing entrepreneurs and enterprises was a long standing initiative that included hand-holding and taking them through certain processes. It was very time-consuming.

Mr Zikode answered that the Member was correct; there were many forms of fronting in companies. Unfortunately, the DTI did not have the teeth to deal with these kinds of issues. The DTI could always blacklist them, but at the end of the day they always found a way to promote or engage in fronting. The DTI hoped that the Advisory Council and the Committee could advise the DTI on the way forward. Or, the B-BBEE Act had to be amended to deal with these kinds of issues.

Ms C September (ANC) asked what the main stumbling block was in the B-BBEE Act that prevented the DTI from implementing B-BBEE. Was there sufficient capacity within the DTI to allow them to deal with B-BBEE? The DTI had to tell the Committee what the problems were so the Committee could help them move forward. The DTI had to remember that South Africa was the most unequal society in the world. B-BBEE was supposed to be addressing this challenge. To what extent had the DTI been able to achieve de-racialisation? Were they able to promote economic transformation? There were a few enterprises that still had to be de-racialised. How had the DTI been able to empower rural communities?

Mr Zikode answered that, in any government department, there was never enough capacity. The DTI always complained that it needed more resources. The DTI was responsible for the B-BBEE Act; however, it was not fully responsible for its implementation. Implementation of the Act could never be the responsibility of just one department. Even the monitoring of B-BBEE had to be done by various government institutions. 

Mr Zikode replied that there had been de-racialisation initiatives from the private sector. It seemed that it was only shown to be happening at the higher levels, but it was happening at the lower levels too. He assured the Committee that there had been genuine de-racialisation of the economy.  

Mr B Radebe (ANC) supported Mr Njikelana's proposal that another workshop should be held on B-BBEE Codes of Good Practice. He wondered how the implementation of B-BBEE could be time-bound when the imperative of the Constitution demanded that there had to be a non-racial economy.

The Chairperson noted that the DTI had spoken about a centralised agency that was being organised. It worried her when it was decided to centralise certain agencies. She was concerned as to how long it would take. What deadlines did the DTI have in mind? It seemed that women and youth had been left out of B-BBEE. She did not think that BEE had been broadened effectively to B-BBEE. These things could not be delayed beyond a certain point in time. There were Acts such as the PPPFA that would allow the DTI to make a lot of headway.

Mr Marais noted that BEE had been given many definitions in the past. He asked the DTI to emphasise the objectives of B-BBEE in support of IPAP2. Who was to be empowered? Was it any non-white? Was it only South African citizens? B-BBEE was often linked to the beneficiation of individuals. He wondered how the DTI could empower people in a broader way and suggested that they look into Community Economic Empowerment (CEE). The majority of communities in South Africa were black. This way, the DTI could empower communities without leaving individuals behind.

Mr Zikode answered that the IPAP was supposed to be benefitting all sectors of the society. For the DTI, the IPAP was not a separate programme. It had to include issues of empowerment and B-BBEE was supposed to be a central part of the IPAP. The B-BBEE legislation, as well as many other pieces of legislation, was targeted at empowering women and youth. B-BBEE had to play a role in the IPAP, especially for the development of small enterprises, or else the DTI would have missed out on an opportunity to de-racialise the economy.

Mr Zikode replied that the B-BBEE Act was clear on the issue of community empowerment. The community was supposed to benefit from all the B-BBEE initiatives.

Ms September said that many issues had been raised with the DTI concerning B-BBEE, and the Committee was aware that quite a bit of work still had to be done, specifically in terms of establishing the B-BBEE Advisory Council. She asked when the Council would be ready to “pronounce” so that the Committee could deal with the Council holistically and receive a fuller picture of what was happening.

Mr van der Westhuizen stated that the B-BBEE defined the term “Black” as having the meaning of generic Africans, Coloureds and Indians. Did this include non-South African citizens? Were foreign investors also included in the provisions of the Act?

Mr Zikode replied that the term “Black” was used for Africans, Coloureds and Indians, as well as for approximately 10 000 Chinese people that have been in South Africa for a long time. However, the term “black” did not include non-South Africans. He did not think that people outside of South Africa could benefit from B-BBEE.

Ms Mesatywa added that most of the key principles that were incorporated into the B-BBEE legislation were taken from other pieces of legislation. So, the definition for a “black” person was adopted from the Employment Equity Act. It was very clearly defined in the Act.

Mr Njikelana asked if his proposal had been taken into consideration. He wanted to formally propose that the Committee hold public hearings on B-BBEE in 2011. These public hearings should take into account inconsistencies that were arising from the B-BBEE Sector Charters. Some of the Charters still upheld the notion of “once a B-BBEE company, always a B-BBEE company”. He wanted to discuss the compatibility of the PPPFA and the B-BBEE in these public hearings as well as the monitoring and evaluation mechanisms for B-BBEE.

The Chairperson stated that the DTI had made reference to the B-BBEE Act not being aligned with the PPPFA. The Act was not aligned to some charters either. The time has come to avoid leaving loopholes in legislation un-addressed. The Committee needed to address the problems while they could do so constructively. She was glad that Mr Njikelana suggested that public hearings should be held next year, as she could not see them being held in 2010. Even though BEE had become B-BBEE over the years, the same challenges still remained. These issues had not been addressed at all. Why was it that even though BEE shifted to B-BBEE, the challenges hardly shifted at all? There had been limited auditing on why these challenges persisted. It was linked to monitoring and evaluation mechanisms. An audit checklist was needed to show how much progress had actually been made. She noted that there was general agreement that public hearings on B-BBEE should be held next year. The DTI had to recognise that time was ticking. If the problems were not addressed effectively and constructively, the Committee and the DTI would be overtaken by events they would not be able to control.

The Chairperson noted that the DTI had been called in to present on the B-BBEE Codes of Good Practice at very short notice. She stated that Members had many other questions to ask the DTI. One of the issues that had not been raised was the matter of people with disabilities. There had been greater focus over the years as to whether disability had been focused on in B-BBEE sufficiently. Members’ questions also showed that there was a need for the DTI to focus on South Africans, while remembering that they needed to look at regional integration and equity. The question that was being raised more and more in constituencies and communities was who was benefiting from all of this. The DTI had to be more honest with the Committee. There was no use in bringing out legislation that was full of loopholes. The DTI had to be able to tell the Committee which areas needed more attention and what they proposed in order to fix the problems. She understood that the Committee had given the DTI very short notice to prepare the presentation, and therefore they were not in a position to answer many of the questions posed by Members. She hoped that the Committee would receive the answers in writing. The Committee was aware of the B-BBEE Advisory Council; however, they were not very familiar with it and what it did. Members wanted to know exactly what they were doing and what challenges they faced that prevented them from doing what they had to do. The Committee would give the DTI time to put all this information together.

Mr Zikode thanked the Committee. He said the DTI appreciated the Members’ comments. The DTI would forward a written response to the Committee as soon as possible.

Deliberations on Third Term Committee Programme
The Chairperson announced that changes had been made to the Committee Report on the visit to the World Trade Organisation (WTO) in Geneva. Many changes had been factored in, including the country’s need for more expertise with the IPAP. 

The Chairperson informed the Committee that she had declined to speak on radio on the matter of the Consumer Protection Act, until the Committee could engage on the subject. This matter had to be attended; she could not speak as the Chairperson on radio unless the Committee deliberated on the Act.

The Companies Amendment Bill also had to be discussed. Some Members had asked to bring this matter forward; however, it was not likely to happen. The Chairperson had been assured that the Bill was now being prioritised and would be brought to Parliament urgently. It was one piece of legislation that had to be dealt with this year. This was most likely to happen by October.  
 
The Chairperson stated that budget processes had changed as a result of the Appropriations Act. There was no Budget Office, but this did not mean that the Act was not being implemented. This meant that the Committee should have been able to do a Budget Review Recommendation Report. This had to be addressed.

Ms Fubbs noted the matter of outstanding minutes and reports. The Committee Secretary had assured the Committee they would receive some minutes and reports by Friday, 20 August 2010. The Committee needed a date for when the first draft of the Report on the visit to the WTO would be available.
 
Mr van der Westhuizen thanked the Chairperson for being aware that the Committee had not adopted any minutes for the past few weeks. He had not received a hard copy of the Draft Third Term Programme. He asked if committee members could get the latest draft as soon as possible.

The Chairperson replied that she did not understand why some Members did not receive the draft programme. She had an IT problem and did not receive the electronic copy. She suggested that because the IT situation was not always reliable, it would be better for Members to receive electronic copies as well as hard copies of documents. The copies could be put in Members’ post boxes. This was becoming an issue for a few committees in Parliament.

The meeting was adjourned.