Government’s strategy for Broad-based

Black Economic Empowerment

OverviewOverview

• B-BBEE StrategyB-BBEE Strategy• B-BBEE ActB-BBEE Act• Review of StrategyReview of Strategy• Old scorecar vs New scorecardOld scorecar vs New scorecard• Concerns & Risk around BEEConcerns & Risk around BEE• COGP as a BEE implementation frameworkCOGP as a BEE implementation framework• COGP StructureCOGP Structure• Debates around BEEDebates around BEE• BEE SupportBEE Support• NEFNEF• Other SupportOther Support• ConclusionConclusion

B-BBEE StrategyB-BBEE Strategy

•B-BBEE Strategy document released in B-BBEE Strategy document released in March ’03;March ’03;

•B-BBEE Act no. 53 of 2003;B-BBEE Act no. 53 of 2003;

•Codes of Good Practice;Codes of Good Practice;

B-BBEE Strategy (Cont.)B-BBEE Strategy (Cont.)

A process that:A process that:

•directly contributes to the economic directly contributes to the economic transformation of South Africa;transformation of South Africa;

•brings about significant increases in the brings about significant increases in the numbers of black people who manage, numbers of black people who manage, own and control the country’s economy; own and control the country’s economy; andand

•Results in significant decreases in Results in significant decreases in income inequalitiesincome inequalities

B-BBEE Strategy (Cont.)B-BBEE Strategy (Cont.)The broad objectives of this initiative are The broad objectives of this initiative are

•Contribute towards economic transformation and Contribute towards economic transformation and growthgrowth

•Ensuring an increased participation of Blacks in Ensuring an increased participation of Blacks in the economy.the economy.

•Ensure optimum intermediation of finance and Ensure optimum intermediation of finance and capital from Black households and redirecting capital from Black households and redirecting these towards productive investments that benefit these towards productive investments that benefit the same communities.the same communities.

•Ensuring state assets are allocated first to Black Ensuring state assets are allocated first to Black Entrepreneurs and as such remain in the hands Entrepreneurs and as such remain in the hands of SA citizens.of SA citizens.

B-BBEE Strategy (Cont.)B-BBEE Strategy (Cont.)Core elementsCore elements WeightingsWeightings

OwnershipOwnership 20 %20 %

ManagementManagement 10 %10 %

Skills DevelopmentSkills Development 20 %20 %

Employment EquityEmployment Equity 10 %10 %

Preferential ProcurementPreferential Procurement 20 %20 %

Enterprise DevelopmentEnterprise Development10 %10 %

ResidualResidual 10 %10 %

THE B-BBEE ACTTHE B-BBEE ACT

KEY ELEMENTSKEY ELEMENTS

• Setting clear objectives for broad based Setting clear objectives for broad based empowermentempowerment

• Enabling framework for Codes of Good PractiseEnabling framework for Codes of Good Practise

• Creation of a BEE Advisory CouncilCreation of a BEE Advisory Council

• Legislative endorsement for sector ChartersLegislative endorsement for sector Charters

Review of StrategyReview of Strategy

• Public hearings held in 2003 where inputs into draft strategy were made

• Such changes have been incorporated into new revised strategy

• Revised strategy to be issued together with the codes of good practice

• Revised strategy to include new scorecard

Old scorecard vs New Old scorecard vs New scorecardscorecard

OldOld NewNew

No targets includedNo targets included Targets includedTargets included

No points allocated for No points allocated for womenwomen

Points allocated for womenPoints allocated for women

Preferential procurement Preferential procurement based on black ownershipbased on black ownership

Preferential procurement Preferential procurement based on BEE contributionbased on BEE contribution

No bonus points for over-No bonus points for over-performanceperformance

Bonus points given for over-Bonus points given for over-performanceperformance

Indicators limitedIndicators limited More options for indicatorsMore options for indicators

No sub-minimum score No sub-minimum score required for considerationrequired for consideration

Sub-minimum score Sub-minimum score required for considerationrequired for consideration

Current Concerns and Risks Current Concerns and Risks around Broad-based BEE Processaround Broad-based BEE Process

1.1. Inconsistent application of BEE – by private sector and Inconsistent application of BEE – by private sector and different state organs resulting in confusion in the marketdifferent state organs resulting in confusion in the market

2.2. Lack of full understanding and appreciation of the Lack of full understanding and appreciation of the principles of broad-based BEE – People interpret and principles of broad-based BEE – People interpret and apply BEE principle to meet their own requirementapply BEE principle to meet their own requirement

3.3. Extensive debates and delays due to differences in Extensive debates and delays due to differences in interpretation - Market participants debate specific BEE interpretation - Market participants debate specific BEE issuesissues

4. Disparity in Charter Definitions and Targets – Results in 4. Disparity in Charter Definitions and Targets – Results in dilution/negation of potential B-BBEEE impactdilution/negation of potential B-BBEEE impact

5. Lack of Implementation Guidelines can result in ‘Fronting’ 5. Lack of Implementation Guidelines can result in ‘Fronting’ or ‘Sham’ transactions promotedor ‘Sham’ transactions promoted

Code of Good Practice as the BEE Code of Good Practice as the BEE Implementation FrameworkImplementation Framework

Broad-based BEE ActNo. 53 of 2003Broad-based BEE Strategy

Codes of Good Practice

Legislative Enabling FrameworkStrategic

Framework

Implementation Frameworkand Guidelines

InterpretBEE

Definitions

Set BEEIndicators,Weightings

andTargets

Guidelinesto drawup BEEcharters

Guidelinesto maintainInstitutionalFramework(BEE Council /Accreditation

Agencies)

Generic or Sector-specific

BEE Scorecards

Code of Good Practice (Structure)Code of Good Practice (Structure)

Code 000: Framework

Statement 000: Conceptual Framework

Code 100: Ownership

Code 200: Management

Code 300: Employment Equity

Code 400: Skills Development

Code 500: Affirmative Procurement

Code 600: Enterprise Development

Code 700: CSI and Industry Specific

Code 800: BEE Practice Notes

Codeof

GoodPractice

Phase 1

Phase2

Statement 020: Charter Guidelines

Statement 030: BEE Council

Statement 070: Broad-based BEE

ImplementationStatement 090:

Glossary

Statement 100: Ownership

Statement 140: Government Ownership

Statement 200: Management

Each Code explains all issues pertaining to a key BEE element and can consist of

one or more statements

A Statement include a related set of principles that guides the

implementation of one BEE issue

Preferential Procurement Policy Preferential Procurement Policy Framework ActFramework Act

•Changes made to the PPPFA Changes made to the PPPFA regulations in order to align them with the regulations in order to align them with the B-BBEE strategyB-BBEE strategy

•Use of balanced scorecard in Use of balanced scorecard in determining preference pointsdetermining preference points

•Minimum BEE points required for Minimum BEE points required for preference points to be givenpreference points to be given

•Move from narrow-based to broad-Move from narrow-based to broad-based BEE in determining preference based BEE in determining preference pointspoints

•Next to review the PPPF Act to align it Next to review the PPPF Act to align it with the B-BBEE Actwith the B-BBEE Act

BEE SupportBEE Support

• Relaunch of the NEF on 31 May 2004Relaunch of the NEF on 31 May 2004

• Products with focus on addressing market failuresProducts with focus on addressing market failures

• R2bn capitalisation from National TreasuryR2bn capitalisation from National Treasury

• Leadership problems experiencedLeadership problems experienced

• Fraud allegations quickly and decisively dealt withFraud allegations quickly and decisively dealt with

• Reconstitution and strengthening of management Reconstitution and strengthening of management structures structures

NationalNational Empowerment FundEmpowerment Fund

Group and entrepreneurial schemesGroup and entrepreneurial schemes

-Black SMME sectorBlack SMME sector

-Community and rural development Community and rural development projectsprojects

Start-ups, expansion and buy-ins/outsStart-ups, expansion and buy-ins/outs

Debt and/or equity fundingDebt and/or equity funding

Funding of R250k –R10mFunding of R250k –R10m

NationalNational Empowerment FundEmpowerment Fund

Contact details - (011) 772 8000Contact details - (011) 772 8000

-Group and entrepreneurial schemes-Group and entrepreneurial schemes

-SMME sectorSMME sector

-Community and rural development Community and rural development projectsprojects

-Start-ups, expansion and buy-ins/outs-Start-ups, expansion and buy-ins/outs

-Development projects-Development projects

Debt and/or equity fundingDebt and/or equity funding

Funding of R250k –R10mFunding of R250k –R10m

• Khula Enterprise FinanceKhula Enterprise Finance

• Industrial Development CorporationIndustrial Development Corporation

• Small and Medium Enterprise Development Small and Medium Enterprise Development ProgrammeProgramme

• Black Business Supplier Development Black Business Supplier Development ProgrammeProgramme

Other SupportOther Support

Transformation charter processTransformation charter process

•the dti coordinates and provides strategic input and leadership in the drafting process of the transformation charters for seven priority sectors for BEE:

•Financial service charter;

•Transport and maritime charter;

•Agriculture charter;

•Auto and Aerospace Industry Charter;

•ICT charter;

•Construction Services;

•Engineering Services;

Transformation Charter Process, cont.Transformation Charter Process, cont.Phase 3: almost

complete stage of negotiation and

drafting

7 Sub-SectorsPublic -proclamation

of charter

Phase 1: consultation and early negotiation and draftting

Phase 2: advanced stage of negotiation and drafting

Agriculture sector charter

ICT charter

Automobile charter

Transport Services charter

Engineering service charter

Financial Service charter

Construction sector charter

Transport service charter:All 8 sub-sectors have

completed negotiation on balanced score card. 80% of work is done and with

20% remaining. Automobile sector charter:•Task team established

•Negotiations are at the early stage

•Seven OEMs are drafting their enterprise charters with

scorecards•Components & Retail drafting

sub-sector charters

Last Phase:Submission of draft to Advisory

Council for comments and ratification – dti to publish

charter after ratificationFSC-Negotiations and drafting of the charter almost completed. Still

working on targets. Charter council

appointed

ICT- Negotiations and drafting almost

completed. Still to appoint charter council.

Ready to submit the draft to the line dept.

Agriculture- Negotiations and drafting still

continuing. Consultation process being undertaken

with stakeholders to ensure inclusivity.

Engineering Services Charter-???

•June 2005 is a deadline date for the formulation

of all charters.•Submission of drafts to the Advisory Council for

comments and ratification.

•dti to publish charters after ratification.

•Dti to gazzette all charters

•Implementation, Monitoring & Evaluation

process

Construction sector charter-negotiations and

drafting almost completed. Still to

appoint charter council.

Transformation charter process, cont.Transformation charter process, cont.•Additional Sectors developing charters - dti providing technical advice and leadership as well:

–Property sector charter;•(consultation process completed, negotiation and drafting started)

–Cosmetics and toiletry sector charter;•(consulting with all stakeholders and starting negotiation and drafting)

–Clothing and Textile Footwear Manufacturing charter;•(consulting with all stakeholders and starting negotiation and drafting)

–Pharmaceutical Manufacturing;•(consultation process completed, negotiation and drafting is at advanced stage)

–Advertising, Marketing and Communication charter; •(drafting of the charter is completed-to be presented to parliament, dti and charter council for ratification)

–The South African Institute of Chartered Accountants charter•(consultation process completed, negotiation and drafting is at advanced stage)

– Health sector charter process; •(consultation process still to take place, task team appointed, develop framework-early phase of negotiation and drafting of charter)

05

1015202530354045

R Bn

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Bee deals in R billion - source E & Y

0

50

100

150

200

No

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

Number of BEE deals - source E & Y

The benefits of empowerment should be shared The benefits of empowerment should be shared across society and impact as widely as possibleacross society and impact as widely as possible

The Strategy aims to mobilize all South Africans to The Strategy aims to mobilize all South Africans to support BEE as an integral component of economic support BEE as an integral component of economic stability and of efforts to increase South Africa and stability and of efforts to increase South Africa and the regions productive capacity. the regions productive capacity.

Partnership initiatives are thus critical. Partnership initiatives are thus critical.

• Since the adoption of the broad-based BEE strategy Since the adoption of the broad-based BEE strategy much has been achieved:much has been achieved:

• Sixty two BEE deals in 2003 , valued @ R 21.2 bSixty two BEE deals in 2003 , valued @ R 21.2 b

ConclusionConclusion