SOUTH AFRICAN INSURANCE ASSOCIATION
FINANCIAL SECTOR CODE ALIGNMENT
Leila Moonda
Agenda
AGENDA
7:00 Registration
7:30 Breakfast is served
8:00 Introduction – Adam Samie
8:15 Changes to the FSC and its impact – Leila Moonda
9:30 Break
9:45 Discussion and Questions
10:30 Decisions and Mandate
Introduction
President Jacob Zuma says black economic
empowerment should not last forever but, to move
beyond the need for empowerment, South Africa needs
to level the economic playing field and draw the black
majority into all levels of the economy, including as
owners and managers."We can’t talk about BEE forever. We will become
prisoners of our past. We need to get over this
(stage) and talk about small businesses"
Gazetting and Implementation
• Revised DTI BEE Codes Gazetted on the 11th October 2013
• 12 Month Transition Period, which has been extended to 30th April 2015
• Sector Codes have to be aligned by the 30th April 2015
• FSC processes need to be finalised by the 30th October 2014
DTI Rationale for changes
• DTI study shows that 33% of surveyed large enterprises had zero Black Ownership and only 9% of enterprises had more than 90% Black Ownership; – This reflects poorly on the level of penetration
of Black Ownership within large enterprises. • Ownership, Employment Equity and Skills
Development elements showed slow progress on transformation
• Averages per sector range between Level 4 and level 5 (largely due to EMEs & QSEs) - more effort needs to be done across all sectors of the economy, to achieve meaningful transformation.
• The overall economy improved from Level 8 ( 2007) to Level 4 ( 2013). – The biggest contributors to this
improvement are the EMEs and QSEs • QSE’s showed more transformation
than Large Enterprises
DTI Rationale for changes
FSC vs DTI Scorecards
Element FSC Points DTI Points
Ownership 14 25
Management Control 819
Employment Equity 15
Skills Development 10 20
Preferential Procurement 1640Empowerment Financing and
Enterprise Development 15 + 5
Access to Financial Services 14 0
Socio-Economic Development 3 5
Total 100 109
8 56
DTI General Principles
• 5 Scorecard elements = 109 points. • All companies except Exempted Micro
Enterprises to comply with all elements• Scorecard points & Qualification criteria for
awarding of B-BBEE status levels adjusted• Enhanced the recognition status of black
owned EMEs and QSEs
• Employment Equity and Management Control merged into one element: Management Control ( MC)
• Preferential Procurement and Enterprise Development merged into one element : Enterprise and Supplier Development (ESD)
DTI General Principles
• Introduced minimum requirements for priority elements: Ownership, Skills Development, and Enterprise and Supplier Development (ESD)
• Entities who do not meet the thresholds in priority elements, the overall Score will be discounted by 1 level
Priority Elements
• An EME / QSE that is 100% owned by black people qualifies as a level 1 contributor;
• An EME / QSE that is more than 51% owned by black people qualifies as a level 2 contributor;
DTI General Principles
• The thresholds for EME’s and QSE’s have been adjusted:– EME increased from R5 million to R10
million– QSE: increased to R10 million - R50
million– Large entities: R50 million and above
DTI General Principles
Revised B-BBEE Recognition Levels
Level Current Points
New Points Recognition Level
1 100 + 100 + 135%
2 85 - 99 95 – 99 125%
3 75 - 84 90 – 94 110%
4 65 – 74 80 – 89 100%
5 55 - 64 75 – 79 80%
6 45 - 54 70 – 74 60%
7 40 - 44 55 – 69 50%
8 30 - 39 40 – 54 10%
Non-compliant <30 <40 0%
4 65 - 74
55 - 69
Impact
Companies can go from Level 4 to non-compliant over night
What can we agree to
• Employment Equity and Management Control merged into one element: Management Control ( MC)
• Skills Development and Enterprise & Supplier Development as priority elements
• An EME / QSE that is 100% owned by black people qualifies as a level 1 contributor;
• An EME / QSE that is more than 51% owned by black people qualifies as a level 2 contributor;
No Choice
What can we agree to
• The thresholds for EMEs and QSEs:
– EME increased from R5 million to R10 million
– QSE: increased to R10 million - R50 million
– Large entities: R50 million and above
• Scorecard points & Qualification criteria for awarding of B-BBEE status levels adjusted -No Choice
What can we agree to
• For companies exempt from Empowerment Financing merging Procurement and Enterprise Development = Enterprise and Supplier Development
• All companies except Exempted Micro Enterprises to comply with all elements.
– Except for allowable exclusions
New Ownership ScorecardDescription Points Target
Exercisable Voting Rights in thehands of black people
4 25%+ 1 Vote
Exercisable Voting Rights in the hands of black women
2 10%
Economic Interest to which black people are entitled
4 25%
Economic Interest to which black women are entitled
2 10%
Economic Interest in the hands the following Designated Groups – Designated Groups, ESOPS, BBOS, Co-opsNew Entrants
32
3%2%
Net Value 8
Total 25
Net Value 8
Sub-minimu
m
Ownership Net Value Sub-minimum
Year Net Value
Target
40% sub-minimum
1 2.5% 1.0%
2 – 3 5.0% 2.0%
4 – 5 10.0% 4.0%
5 – 6 15.0% 6.0%
7 – 8 20.0% 8.0%
9 – 10 25.0% 10.0%
Minimum debt-free Black Ownership percentage to
avoid the discount
Challenges - Ownership
• Sub – minimum - 40% of the 8 points allocated to Net Value.
• Makes Ownership compulsory at 10% debt-free in 9 years
• If sub-minimum not met overall BEE level discounted by 1
• FSC allows equity equivalents for all companies• FSC allows ownership exemption• Once empowered always empowered is unique to
the FSC• High – Water principle is unique to the FSC
Recommendation - Ownership
• Ownership to remain as agreed to by the Ministers of Finance and Trade and Industry – with minor changes
• Ownership not set as a priority element, instead we need to recommend another element to be the 3rd priority element
Management Control Scorecard
Description Points Target
Exercisable voting rights of Black board members as a percentage of all Board members
2 50%
Exercisable voting rights of Black female board members as a percentage of all Boardmembers
1 25%
Black Executive directors as apercentage of all executive directors
2 50%
Black female Executive directors as apercentage of all executive directors
1 25%
Same as current targets
Management Control Scorecard 2
Description Points Target
Black Executive Management as a percentage of all executive directors
2 60%
Black female Executive Management as a
percentage of all executive directors
1 30%
Black employees in Senior Management as a
percentage of all such employees
2 60%
Black female employees in Senior
Management as a percentage of all such
employees
1 30%
Increased targets
from 40% / 20%
Same as current targets
Management Control Scorecard 3
Description Points Target
Black employees in Middle Management as a percentage of all middle management
2 75%
Black female employees in Middle Management as a percentage of all middle management
1 38%
Black employees in Junior Management as a percentage of all junior management
1 88%
Black female employees in Junior Management as a percentage of all junior management
1 44%
Black employees with disabilities as a percentage of all employees
2 2%
Total 19 (?)
Same as current targets
Increased targets
from 80% / 40%
Decreased targets
Management Control
• Can be aligned to the revisions in the DTI Codes in terms of targets
New Provisions
The targets for Senior, Middle and Junior Management should be broken down into criteria for the different race groups as per the Employment Equity Act requirements and weighted accordingly.
Targets for African, Indian, Coloured (Chinese) people and womenApplies to Skills Development criteria
as well
Skills Development
Description Points Target
Skills Development Expenditure on Learning Programmes specified in the Learning Programme Matrix for black people* as a percentage of Leviable Amount
8 6%
Skills Development Expenditure on Learning Programmes specified in the Learning Programme Matrix for black employees with disabilities as a percentage of Leviable Amount
4 0.3%
Number of black people*participating in Learnerships, Apprenticeships and Internships as a percentage of total employees
4 2.5%
Number of unemployed black people participating in Learnerships, Apprenticeships and Internships as a percentage of total employees
4 2.5%
Number of black people absorbed by the ME / industry at the end of the learnership programme
5 100%
* Not restricted to employees
Target Double
d
Same as current targets
New
Challenges – Skills Development
• Skills target doubled to 6% but includes external training expenditure for unemployed black people
• Mandatory sectoral training does not qualify as skills development contribution
Recommended changes
• Skills development as a priority element = 40% sub-minimum requirement = 8 points
• Broaden learnerships to include apprenticeships and internships
• Informal and work based training (Category F and G) is recognisable but capped at 15% of the total value of Skills Expenditure.
• Introduces a 15% cap for non-core training costs such as accommodation, catering etc.
• Skills Development pre-requisites • Mandatory sectoral training to count
ESD: Scorecard
Description Points Target
B-BBEE Procurement Spend from all Empowering Suppliers based on the B-BBEEProcurement Recognition Levels as a percentage of Total Measured Procurement Spend
5 80%
B-BBEE Procurement Spend from Empowering Suppliers who are QSE’s based on the applicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend
3 15%
B-BBEE Procurement Spend from Empowering Suppliers who are EME’s based on the applicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend
4 15%
Target up 70%
Target Double
d
ESD: Scorecard
Description Points Target
B-BBEE Procurement Spend from Empowering Suppliers that are at least 51% black owned based on the applicableB-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend
9 40%
B-BBEE Procurement Spend from Empowering Suppliers that are at least 30% black women owned based on theapplicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend
4 12%
Bonus Points
B-BBEE Procurement Spend from Designated Group Suppliers that are at least 51% Black owned
2 2%
Target up from
12%
Target up from
8%
Empowering Supplier
ESD: Scorecard
Description Points Target
Annual value of all Supplier Development Contributions made by the Measured Entityas a percentage of the target.
10 2% of NPAT
Annual value of Enterprise Development Contributions and Sector Specific Programmesmade by the Measured Entity as a percentage of the target.
5 1% of NPAT
Bonus Points: Graduation of one or moreEnterprise Development beneficiaries tograduate to the Supplier Development level.
1
Bonus Points: For creating one or more jobsdirectly as a result of Supplier Developmentand Enterprise Development initiatives bythe Measured Entity.
1
Current Target Split
Challenges - Procurement
• Increased targets– Spend with QSEs / EMEs 30% up from 15%– Spend with Black Owned suppliers 40% up
from 12%– Spend with Black Women Owned suppliers 12%
up from 8%• The exclusion of imports is subject to the
Measured Entity having developed and implemented an Enterprise Development and Supplier Development plan for imported goods and services
Challenges – Enterprise Development
• Merged with Procurement – presents a problem for companies doing Empowerment Financing where ED is merged with Empowerment Financing
• Empowering Supplier definition• Definition of Beneficiaries has
changed – only >50% black owned with a turnover below R50 mil
Recommended Changes
• For companies exempt from Empowerment Financing– Merge Enterprise Development and
Procurement– Expand the scorecard to distinguish
between enterprise development contributions and supplier development contributions
– Redefine ESD beneficiaries to only include black owned and black women owned QSEs and EMEs
Recommended Changes
• For companies required to do Empowerment Financing– Enterprise Development continue to be
part of Empowerment Financing– No change to existing Enterprise
Development requirements
Socio Economic Development
Indicator Weight(Points
)
Target
Average annual value of all Socio-economic Contributions made by the Measured Entity as a percentage of the target
5 1% of net profit
after tax
TOTAL 5
No Changes
Socio-economic Development
• Adopt changes as per the revised Codes of Good Practice
• Keep the target at 0.6%, with the 0.4% being allocated to Consumer Education