Title: BROAD BASED BLACK ECONOMIC EMPOWERMENT AND THE CODES OF GOOD PRACTICE PHASE 1
1BROAD BASED BLACK ECONOMIC EMPOWERMENT AND THE
CODES OF GOOD PRACTICE PHASE 1 2 VENUE CAPE
TOWN -PARLIAMENT DATE 07 March 2006
2Agenda
Background and Context
Codes of Good Practice on B-BBEE Phase 1
Codes of Good Practice on B-BBEE Phase 2
Dispensation for QSEs and Micros (Code 1000
-1700 Statement 1000 -1700)
Ownership Additional Clarification
3The Transformation Imperative
- Colonisation Apartheid systematically
disempowered black people - Result significant imbalances in SA economy
- 90 of population owns less than 5 of JSE
- 40 of black South Africans unemployed vs. 10 of
white South Africans - Majority of SA population excluded from SA
economy
4Economic Prerogative of Broad-Based BEE
- Increase the level of participation by black
people in mainstream economy - Increase income through resultant economic growth
- Increase the real market in the SA economy
Mainstream Economy
Mainstream Economy
BEE Upliftment
Second Economy
Second Economy
More economic participants
Higher Economic Growth
A Bigger Market for All
5Broad-Based Beneficiary Base
Equitable Economic Opportunities
Emerging black middle class investors
Ownership And Management
The Opportunity Barrier
Preferential Procurement
Enterprise Development
Black entrepreneurs
The Business Barrier
Skills Development
Black workers, professionals, graduates,
school-leavers
The Skills Barrier
Employment Equity/Job creation
Corporate Social Investment
Black unemployed rural poor
The Poverty Barrier
- Broad-based BEE must be inclusive
- Result in economic growth Accounted for with
substance over form
6BEE Legislative Framework
2003 - Broad-Based BEE Strategy and Scorecard
- Defines Governments Broad-Based Strategy
- Provide the generic balanced scorecard
2004 - Broad-Based BEE Act
- Enabling framework for the promotion of BEE
- Empowers minister to issue codes of good
practice on BEE - Establishes the BEE Advisory Council
2005 2006 The Codes of Good Practice (partially
complete)
- Provide certainty on B-BBEE implementation in
the economy - Further interpretation of the BEE Act
- Determine qualification criteria for licensing
- Criteria for entering into PPPs with private
sector
Industry Transformation Charters (To be
negotiated)
- Outline industry-specific BEE weightings and
targets - Establish the residual elements of the scorecard
- Standardise industry BEE initiatives and
reporting
7Broad-Based Black Economic Empowerment Strategy
Implementation Levers to promote B-BBEE
2005-2006 Codes of Good Practice on B-BBEE
Use of Balanced Scorecard in Granting of
Licences, Concessions to Private Enterprises,
Sale of State Assets, Public Private
Partnerships (PPP) and Procurement.
Sector Transformation Charter
Funding to promote B-BBEE
8Agenda
Background and Context
Codes of Good Practice on B-BBEE Phase 1
Codes of Good Practice on B-BBEE Phase 2
Dispensation for QSEs and Micros (Code 1000
-1700 Statement 1000 -1700)
Ownership Additional Clarification
9Codes of Good Practice aims to address these
Concerns and Risks around the B-BBEE Process
- Lack of full understanding and appreciation of
the principles of broad-based BEE - Inconsistent application of BEE
- Extensive debates could result in delays
biggest is slow or no progress on BEE - Disparity in Charter Definitions and Targets
- Lack of Implementation Guidelines can result in
Fronting or Sham transactions promoted
10Codes of Good Practice
- (1) In order to promote the purposes of the Act,
the Minister by notice in the Gazette has issued
the codes of good practice on black economic
empowerment that include - (a) the further interpretation and definition of
broad-based BEE and the interpretation and
definition of different categories of black
empowerment entities - (b) qualification criteria for preferential
purposes for procurement and other economic
activities - (c) indicators to measure broad-based BEE
- (d) the weighting to be attached to broad-based
BEE indicators referred to in paragraph (c) - (e) guidelines for stakeholders in the relevant
sectors of the economy to draw up transformation
charters for their sector and - (f) any other matter necessary to achieve the
objectives of this Act.
11Codes of Good Practice
- 10. Every organ of state and public entity must
take into account and, as far as reasonably
possible, apply any relevant code of good
practice issued in terms of this Act in - (a) determining qualification criteria for the
issuing of licences, concessions or other
authorizations in terms of any law - (b) developing and implementing a preferential
procurement policy - (c) determining qualification criteria for the
sale of state-owned enterprises and - (d) developing criteria for entering into
partnerships with the private sector.
12Framework for Broad-Based BEE KEY PRINCIPLES
Key Principles Description Implication
Substance over Form Broad-based BEE must be measured and reported according to economic reality rather than legal form Penalize the use and reporting of fronting or sham BEE structures and entities
Broad-based BEE Scorecard BEE is measured based on seven core elements ownership, management, employment equity, skills development, affirmative procurement, enterprise development and residual Facilitate changes in business behaviour (in all key elements) Extend BEE benefits to as many beneficiaries as possible Systematic and quantifiable approach
BEE Recognition Tiers and Multiplier Effect All companies measure BEE based on a score system, and receive higher recognition for higher BEE compliance Foster competition among companies and industries Encourage all companies to implement and monitor BEE compliance in all its economic interactions
13BEE RECOGNITION LEVEL
14Ownership (Code 100 Statement 100)
- Entrench a key objective of the Act, i.e. to
increase the number of black people that manage,
own and control enterprises and productive
assets. - Provide recognition and measurement criteria for
black ownership - Provide financial sustainability through the use
of the model of net economic interest - Provide for the empowerment of black women, black
designated groups, new entrants and broad based
ownership schemes
15Ownership OTHER PRINCIPLES
Key Principles Description Implication
Women Empowerment Specific targets for black women to ensure participation of black women on ownership Encourage companies to actively involve women in organisation.
Broad-based BEE Schemes Specific qualification criteria for broad-based schemes to ensure participation by beneficiaries. Extensive recognition for companies involving qualified broad-based schemes Encourage companies to involve broad-based and employee share schemes in organization Allows for the inclusion of Trade Union or other special interest investments for black people
Ownership recognition through the disposal of asset Provides a mechanism for enterprises to score ownership points by disposing of assets rather than shares Provide further ownership opportunities to black people Allow companies to sell assets instead of shares which both achieve the same objective
16 Ownership Scorecard
17- Scorecard encourage participation by women and
broad-based schemes and new entrants - Companies entering into transaction with
broad-based schemes and new entrants rewarded
with bonus points
18 Behavioral Impact of the Codes
- The Code
- Significantly increases the participation by
black women, broad-based schemes and black
employees - spreads the BEE ownership base, reduces the
number of deals involving the top six (6) BEE
consortiums - results in more than half of the companies
providing forms of vendor financing to facilitate
entry by broad-based BEE shareholders
19Management Control (Code 200 Statement 200)
KEY PRINCIPLES
Key Principles Description Implication
Setting Targets for Board Representation and Executive Involvement Setting specific targets for Board representation and executive involvement Prescribe the ideal representation level for participation by black people on the board of directors and by black women
Specific Target for Black Women Management Specific target set for black women management participation Companies will not be able to achieve the full score for management without the participation by black women in top management
Specific Measurement of Executive Representation Specific allocation for black representation in executive committees and top executive management Prevent enterprise from achieving quota by only appointing black non-executives Counters market trend in appointing black non-executives rather than executives
20Management Control Scorecard (continues)
21Agenda
Background and Context
Codes of Good Practice on B-BBEE Phase 1
Codes of Good Practice on B-BBEE Phase 2
Dispensation for QSEs and Micros (Code 1000
-1700 Statement 1000 -1700)
Ownership Additional Clarification
22Employment Equity KEY PRINCIPLES
Key Principles Description Implication
Alignment with the Employment Equity Act Measurement of occupational levels based on schedule EEA9 of the EE Act Prevents contradiction in terminology and efforts in the implementation of EE initiatives in both the EE Act and the B-BBEE Act
No score allocation for Black Representation at Semi-skilled Unskilled Levels Measurement based occupational levels on schedule EEA9 ito EE Act, measures senior, middle and junior management (including professionals and skilled) but excludes semi-skilled and unskilled Prevents companies achieving high scores for EE when there is little or no black representation at skilled supervisory, management and senior levels
Specific Targets for Black people with Disabilities Specific target dedicated to overall representation of Black People with Disabilities Meaningful incentive (20 of weighting) for the employment of black people with disabilities
Specific Targets for Black Women across the top two Measured Occupation Levels Specific targets for women set for two of the more senior occupational which are measured for employment equity Specific incentive to employ black women at senior levels (30 of the weighting)
23Employment Equity Scorecard
Criteria Weighting points Compliance targets
Black people with disabilities employed by the Measured Entity as a percentage of all full-time employees 2 4
Black people employed by the Measured Entity at Senior Management level as a percentage of employees at Senior Management level 2 60
Black women employed by the Measured Entity at Senior Management level as a percentage of employees at Senior Management level 2 30
Black people employed by the Measured Entity at Professionally Qualified, Experienced Specialists and Mid-management level as a percentage of employees at Professionally Qualified, Experienced Specialists and Mid-management level 2 75
Black women employed by the Measured Entity at Professionally Qualified, Experienced Specialists and Mid-management level as a percentage of employees at Professionally Qualified, Experienced Specialists and Mid-management level 1 40
Black people employed by the Measured Entity at Skilled Technical and Academically Qualified Workers, Junior Management, Supervisors, Foremen, and Superintendents as a percentage of employees at Skilled Technical and Academically Qualified Workers, Junior Management, Supervisors, Foremen, and Superintendents level 1 80
24Skills Development KEY PRINCIPLES
Key Principles Description Implication
Alignment with Skills Development Act Encourage Skills development initiatives to be in line with the skills development strategy Alignment of skills development initiatives for both the SD Act and the B-BBEE Act.
Additional Recognition for contribution to Core and Critical Skills These include skills that are related to value adding activities in line with the core business and in areas that the Measured Entity cannot outsource. Focus skills development spend on skills which are core or critical to the business
Specific Skills Spend for Black Women and people with disabilities Additional 3 points allocated to skills spend towards black women employees and to black employee with disabilities Specific allocation of skills development spend to those employees who were most disadvantaged in the past
Learnerships Skills development programs approved by the relevant SETA which are fully certified in terms of South African Qualifications Authority Act The allocation encourage registration and participation in learnerships programs
Organisational Transformation Index Organisational Transformation index measures the extent of enterprise commitment transformation This allocation encourages the adoption of plans, policies and strategies to promote transformation Qualitative Measure of transformation
25Skills Development Scorecard
Category Skills Development Element Weighting points Compliance Target
Skills Development Skills Development
Skills Development Spend on black employees 4 3
Skills Development Spend on Critical Skills and/or Core Skills for black employees 2 2.6
Skills Development Spend on Critical Skills and/or Core Skills for black women employees 2 1.4
Skills Development Spend on black employees with disabilities 1 0.3
Learnerships Learnerships
Number of black employees on SETA-accredited Learnerships 2 5
Number of black women employees on Learnerships 2 2.5
Number of formerly black unemployed people and/or black people formerly residing in rural areas on Learnerships 1 1
26Skills Development Scorecard (continues)
Category Skills Development Element Weighting points Compliance Target
Organisational Transformational Index Organisational Transformational Index
Existence of a comprehensive Black Economic Empowerment strategy and which is being implemented Yes 1
Employment of a Skills Development Facilitator Yes 1
Existence of a policy on non-discrimination widely published within the Enterprise Yes 1
Compliance with all relevant employment related legislation Yes 1
Implementation of an effective human resource management plan Yes 1
Existence of a program designed to give practical effect to the stated policies and programs Yes 1
TOTAL TOTAL 6
27Preferential Procurement Scorecard
Criteria Weighting points Compliance target
BEE Procurement Spend from all suppliers based on the BEE Procurement Recognition Levels, QSE Recognition Levels or the Deemed Micro Enterprise Recognition Levels (as the case may be) as a percentage of Total Measured Procurement Spend 15 70
BEE Procurement Spend from Qualifying Small Enterprises based on the QSE Recognition Levels as a percentage of Total Measured Procurement Spend 4 15
BEE Procurement Spend from Exempted Micro Enterprises based on the Deemed Micro Enterprise Recognition Level as a percentage of Total Measured Procurement Spend 1 5
28Statement 500 Preferential Procurement
- Allowable Exclusions
- Salaries
- Third party costs
- Loans and Donations
- Certain imports
- Rates Taxes, levy and
- post retirement funding and
- Medical aid contributions,etc.
- Imports accepted to a maximum
- of 25 of the total procurement
Total Spend
Cost of Sales
Operational Expenditure
Capital Expenditure
TOTAL MEASURED PROCUREMENT SPEND
BEE Spend
Non-BEE spend
29Enterprise DevelopmentKEY PRINCIPLES
Key Principles Description Implication
Recognition of Monetary Non-Monetary Contributions Proviso non-monetary contributions must be quantifiable Insistence on quantifying contributions allows for fair measurement of non-monetary contributions in relation to monetary contributions
Recoverable vs. Non-Recoverable Spend 6 weighting points given to non-recoverable contributions, whilst 4 points allocated to recoverable contributions such as loans. Indicator contributions are summed but no more than 4 allocated to recoverable even if no other contributions made Heavy emphasis place on non-recoverable contributions Adjustment of 6 weighting points for non-recoverable to 10 if only non-recoverable contributions made No adjustment of 4 weighting for recoverable to disincentives recoverable loans as only means of ED contribution
30Enterprise DevelopmentKEY PRINCIPLES (continues)
Key Principles Description Implication
Contributions Measured Cumulatively Choice of Initiation Date ED contributions measured cumulatively as a percentage of cumulative EBITDA. Choose of starting point for cumulative measurement to begin from commencement of Codes OR any chosen date which may not be earlier than 5 years prior to commencement of Codes Large corporations which contributed prior to Codes can enjoy ongoing recognition for these contributions Entities which did not previously contribute will not be penalized and will start on a clean slate
Enhanced Recognition Enhanced recognition for Initiatives which ensure job creation (150) Initiatives which develop micros (125) Initiatives which develop enterprises which produce goods not previously available in SA (150) Incentives focus on initiatives which directly lead to job creation Incentivises development of micros which would otherwise be largely overlooked Incentivises investment in/ creation on companies which focus on local production
31Enterprise Development Scorecard
Criteria Weighting Points Compliance Target
Cumulative Non-Recoverable Contributions made by the Measured Entity as a percentage of cumulative EBITDA measured from the commencement/Inception Date to the date of measurement. 6 2
Cumulative Recoverable Contributions made by the Measured Entity as a percentage of cumulative EBITDA measured from the commencement/Inception Date to the date of measurement. 4 3
32Residual ElementKEY PRINCIPLES
Key Principles Description Implication
Recognition of Monetary Non-Monetary Contributions Proviso non-monetary contributions must be quantifiable Facilitates access to the economy for the beneficiaries Insistence on quantifying contributions allows for fair measurement of non-monetary contributions in relation to monetary contributions
Contribution Beneficiaries Communities, Natural Persons and / or groups of natural persons where at least 75 are black people Provides socio-economic improvements Job creation
Contributions Measured Cumulatively Choice of Initiation Date RD contributions measured cumulatively as a percentage of cumulative net profit after tax. Choose of starting point for cumulative measurement to begin from commencement of Codes OR any chosen date which may not be earlier than 5 years prior to commencement of Codes Large corporations which contributed prior to Codes can enjoy ongoing recognition for these contributions Entities which did not previously contribute will not be penalized and will start on a clean slate
33Residual Element Scorecard
Criteria Weighting Points Compliance Target
Cumulative Rand value of Non-recoverable Qualifying Corporate Social Investment Contributions made by a Measured Entity to Contribution Beneficiaries measured as a percentage of cumulative net profit after tax measured from the commencement date of this statement or the Inception Date until the date of measurement. 5 1.5
Cumulative Rand value of Qualifying Industry Specific Contributions made by a Measured Entity to Contribution Beneficiaries measured as a percentage of cumulative net profit after tax measured from the commencement date of this statement or the Inception Date until the date of measurement. 5 1.5
BONUS POINTQualifying Residual Contributions which benefit natural persons living in rural communities 1
34Agenda
Background and Context
Codes of Good Practice on B-BBEE Phase 1
Codes of Good Practice on B-BBEE Phase 2
Dispensation for QSEs and Micros (Code 1000
-1700 Statement 1000 -1700)
Ownership Additional Clarification
35Framework for Measuring BEE in QSEs
Other Companies (Exceed Revenue or Employee
limits)
Generic Scorecard, with all seven
elements (Statement 000900)
QSEs can elect to implement the entire QSE
scorecard (with enhanced recognition)
QSE Scorecard, Select five of the seven
elements (Statement 10001700)
Qualifying Small Enterprises (As per Statement
1000)
All elements weigh 20
Indicators adapted to QSEs
Micro Enterprises
Micro Exemption, Automatic Level 4 Recognition
36QSE Identification and Classification Table
37QSE Scorecard Ownership Management Control
BEE Elements Code Ref. Weighting Indicators Indicator Weighting Compliance target
Ownership BEE 1100 20 Exercisable Voting Rights by black people 5 25. 1 vote
Ownership BEE 1100 20 Economic Interest in the Enterprise to which Black people are entitled 7 25
Ownership BEE 1100 20 Ownership Fulfillment 1 No restrictions
Ownership BEE 1100 20 Net Equity Value 7 10 - 100 staggered over a 10 year period
Ownership BEE 1100 20 Bonus Points Involvement in the ownership of the Enterprise of Black Women and/or Broad-based Ownership Schemes 3 15
Management Control BEE 1200 20 Black representation at Owner-Manager level 20 25,1 Owner-Manager Representation,
Management Control BEE 1200 20 Bonus Points Black Women representation at Owner-Manager 2 10
38QSE Scorecard Employment Equity Skills Dev.
BEE Elements Code Ref. Weighting Indicators Indicator Weighting Compliance target
Employment Equity BEE 1300 20 Black representation at Manager-Controller level 6 40
Employment Equity BEE 1300 20 Black women representation at Manager-Controller level 6 20
Employment Equity BEE 1300 20 Black employees as a percentage of total employees 4 70
Employment Equity BEE 1300 20 Black women as a percentage of total employees 4 35
Skills Development BEE 1400 20 Application submitted to the National Skills Fund 5 Yes
Skills Development BEE 1400 20 Quantifiable skills development spend on black employees in addition to Skills Development Levy as a percentage of the Leviable Amount (including amount spent on learnerships) 15 2
39QSE Scorecard Preferential Procurement ,
Enterprise Development and Residual
BEE Elements Code Ref. Weighting Indicators Indicator Weighting Compliance target
Preferential Procurement BEE 1500 20 BEE Procurement Spend from Suppliers based on the BEE Procurement Recognition Levels or Deemed Micro Enterprise Recognition Levels as a percentage of Total Measured Procurement Spend 20 50
Enterprise Development BEE 1600 20 Enterprise development contributions made by the Qualifying Small Enterprise as a percentage of EBITDA 20 2
Residual Element BEE 1700 20 Qualifying Residual Contributions made by the Enterprise measured as a percentage of net profit after tax 20 2
40Agenda
Background and Context
Codes of Good Practice on B-BBEE Phase 1
Codes of Good Practice on B-BBEE Phase 2
Dispensation for QSEs and Micros (Code 1000
-1700 Statement 1000 -1700)
Ownership Additional Clarification
41 Ownership Additional Clarification
- Four (4) additional Codes statement have been
released during Phase 2 to provide further
guidance on the measurement of ownership, these
statements include - Statement 102 Warehousing Funds
- Statement 103 Multinational Companies
- Statement 104 Public Entities and other Organs
of State - Statement 105 s21 Companies
42Statement 102 Warehousing Fund
Warehousing Funds
Identification of Intended Black Participants
- Minister approved fund
- Established to hold an Equity
- Interest in an Enterprise purchased
- from exiting black Participants
- Fixed duration
- Obligation ultimately transferring
- ownership to Intended Black Participants
- Tri-partite agreement
- Between vendor, warehousing fund
- and intended black participants
- Ultimate black participants need to be
- identified
- Final purchase price agreed before
- warehousing arrangement recognised as
- black ownership
- Black ownership only recognised based
- on specified principles of ownership in
- Statement 100
- Create exit mechanism for black
- investors
- Ensure companies do not lose BEE
- status when negotiating a BEE
- transaction with new black participants
43 Ownership Warehousing Fund - (Code 100
Statement 102) the recognition of ownership
Contributions Arising from Investments by BEE
Targeted Warehousing Funds
-
- PRINCIPLE
- An Enterprise may be awarded ownership points
for notional black participation arising from the
ownership by a Warehousing Fund. Providing
liquidity and exit mechanism for black investors
Exiting Black Investors
New Black Investors
Warehousing Fund
Measured Entity
44 Ownership Option for Multinational
Companies (Code 100 Statement 103)
Equity Equivalent 25
Multinationals
Sale of Shares
Sale of international interest
SA Multinationals
Sale of assets and operations
- Companies have an option of either doing one of
the following - Options or they can apportion it using a
combination of the options provided
45Statement 104 / 105 Public Entities, Organs of
State and Section 21 Co.
Broad-Based Scorecard
Notional Ownership Points
- B-BBEE score of Public Entities, State Organs
and s21 allocated notional ownership points - Based on contributions to other 6
- scorecard elements
- All Public Entities
- Organs of State
- s21
- Measured in terms of B-BBEE scorecard
- No business entity excluded from B-BBEE
- Except exempted micro-enterprise
- Public entities and s21 allocated notional
ownership points based on converted score from
remaining 6 BEE elements - Formula A B / 80 20
46 Ownership Public Entities, Organs of State and
Section 21 Cos (Code 100 Statement 104 / 105)
Key Principles Description Implication
Broad-based Scorecard All Public Entities, Organs of State and s21 can and will be measured in terms of the Broad-based scorecard No business entity will be excluded from Broad-based BEE (unless it is an exempted micro-enterprise)
Notional Ownership Points The Broad-based BEE score of Public Entities, State Organs and s21 will be allocated a notional ownership points based on its contribution to the other 6 elements of the scorecard Public entities and s21 will be allocated with notional ownership points based on the converted score from the remaining 6 BEE Elements, the formula is as follows A B/80 20
47THANK YOU
- Contact Details
- BEE Unit The Director
- Attention Mr. Jeffrey Ndumo
- The Department of Trade and Industry
- Private Bag X84,
- Pretoria
- 0001
- Tel No. (012) 394 1631/4
- Fax No. (012) 394 2631/4
- e-mail address bee-cgp_at_thedti.gov.za
- Jndumo_at_thedti.gov.za