B-BBEE Amendment Bill
| amendment_bill.pdf |
The Big Bang and the expansion of the Financial Sector Charter Universe
15 August 2011
The Financial Sector Charter (FSC) was one of the first charters published under section 12 of the BEE Act in 2007. This charter was an agreement between Industry, Government a Labour on broad transformational objectives providing a scorecard to assess progress.
Today the FSC still needs to evolve from “ape man” to Homo erectus, but does not have the luxury of time, the human evolutionary processes had.
In December 2010 the first phase of the FSC was gazetted under section 9(5), but excluded the industry specific elements, Empowerment Finance and Access to Financial Services or Products. It also did not address the hot potato, Ownership.
Being one of the first industries to agree on a transformation charter meant that there was insufficient alignment to the Codes (the FSC was essentially developed in 2003 while the Codes where only finalised in 2007). Apart from some unique challenges facing the financial sector, the early-mover-status of the financial sector is arguably the single factor causing the delays to finalising the Financial Sector Code.
Similar to the evolution of man and its cognitive development, it would seem that the ideas of the past (agreements reached under the FSC) is hampering innovation and alignment. It is human nature to retain the status quo; stick to out-dated and inadequate transformational measurements instead of finding innovative ways to align to the Generic Codes and its objectives.
To be fair, there are numerous stakeholders of the FSC who want to explore new horizons, and are venturing into the unknown with a sense of adventurism, while being cautious of financial stability in the markets. It is those people who need to be supported and commended for the creation of the “new world”, the Financial Sector Code, which could result in the true transformation of the financial sector.
Today, the various stakeholders of the FSC are much closer to consensus than they were a year ago. In all likelihood, the Financial Sector Code, in its final format, will be gazetted for public comment early in 2012. This Code will demonstrate much improved alignment to the Generic Codes, as it stands today. It will go one step further and place much greater emphasis on the development of small business, and in particular small black-owned businesses and black women-owned businesses. The FS Code will increase the scorecard weighting directed towards broader society, “the people”, providing access to appropriate, affordable and understandable products and services to a market previously excluded from the use of financial products.
The one remaining contentious issue is that of Ownership and specifically the continued recognition of B-BBEE deal s. The mechanisms provided in the Generic Codes do not make provision for the particularities of the Financial Sector which from time to time requires recapitalisation. This then result in the dilution of the percentage Black representation in Ownership. The recapitalisation issue mostly affect the Banking sector. Again, forward thinking individuals have managed to change the square shaped wheel to a smoother shaped solution, and find possible solutions that are keeping the alignment process alive.
The Financial Sector Charter, or rather it’s implementation, may be the missing link that makes B-BBEE work for all. This could be the next evolutionary step toward “Homo erectus” for B-BBEE.
Christiaan van der Merwe.
The Financial Sector Charter (FSC) was one of the first charters published under section 12 of the BEE Act in 2007. This charter was an agreement between Industry, Government a Labour on broad transformational objectives providing a scorecard to assess progress.
Today the FSC still needs to evolve from “ape man” to Homo erectus, but does not have the luxury of time, the human evolutionary processes had.
In December 2010 the first phase of the FSC was gazetted under section 9(5), but excluded the industry specific elements, Empowerment Finance and Access to Financial Services or Products. It also did not address the hot potato, Ownership.
Being one of the first industries to agree on a transformation charter meant that there was insufficient alignment to the Codes (the FSC was essentially developed in 2003 while the Codes where only finalised in 2007). Apart from some unique challenges facing the financial sector, the early-mover-status of the financial sector is arguably the single factor causing the delays to finalising the Financial Sector Code.
Similar to the evolution of man and its cognitive development, it would seem that the ideas of the past (agreements reached under the FSC) is hampering innovation and alignment. It is human nature to retain the status quo; stick to out-dated and inadequate transformational measurements instead of finding innovative ways to align to the Generic Codes and its objectives.
To be fair, there are numerous stakeholders of the FSC who want to explore new horizons, and are venturing into the unknown with a sense of adventurism, while being cautious of financial stability in the markets. It is those people who need to be supported and commended for the creation of the “new world”, the Financial Sector Code, which could result in the true transformation of the financial sector.
Today, the various stakeholders of the FSC are much closer to consensus than they were a year ago. In all likelihood, the Financial Sector Code, in its final format, will be gazetted for public comment early in 2012. This Code will demonstrate much improved alignment to the Generic Codes, as it stands today. It will go one step further and place much greater emphasis on the development of small business, and in particular small black-owned businesses and black women-owned businesses. The FS Code will increase the scorecard weighting directed towards broader society, “the people”, providing access to appropriate, affordable and understandable products and services to a market previously excluded from the use of financial products.
The one remaining contentious issue is that of Ownership and specifically the continued recognition of B-BBEE deal s. The mechanisms provided in the Generic Codes do not make provision for the particularities of the Financial Sector which from time to time requires recapitalisation. This then result in the dilution of the percentage Black representation in Ownership. The recapitalisation issue mostly affect the Banking sector. Again, forward thinking individuals have managed to change the square shaped wheel to a smoother shaped solution, and find possible solutions that are keeping the alignment process alive.
The Financial Sector Charter, or rather it’s implementation, may be the missing link that makes B-BBEE work for all. This could be the next evolutionary step toward “Homo erectus” for B-BBEE.
Christiaan van der Merwe.
NEF starts fund for BEE enterprise development
June 30 2011 at 05:00am
Kgomotso Zimase
While the National Empowerment Fund (NEF) has registered significant achievements in its mandate, it believes that the urgent quest for an inclusive, growing and employment-generating economy requires that enterprise development receives more focused and systematic attention, in order to highlight its importance.
Enterprise development is a key element of the government’s codes of good practice for broad-based black economic empowerment (BEE).
“ED is integral to the mandate of the NEF,” says Andrew Wright, the fund’s chief financial officer, “which is to grow black economic participation”.
The NEF has identified an opportunity to partner with and provide a mechanism to the private sector for delivery of sustainable broad-based BEE solutions to black enterprises at an accelerated pace.
The opportunity entails private sector enterprises making their enterprise development contributions to the NEF’s Enterprise Development (ED) Fund, and the NEF using these contributions to co-finance its investments in these beneficiaries, in order to facilitate business development, financial and operational independence.
“Our key rationale is that we need to put some kind of lever into enterprise development. In this context, it makes sense to partner with private sector business. It’s very much a two-way partnership.
“While enterprise development is not a unique concept, it is an intricate and complicated task which requires a core range of specialised skills that typically fall outside the competencies of corporates. Managing a fund is a highly specialised function, and the competencies of the NEF are well-suited to the task.”
The fund will fall under the administrative and management authority of the NEF and the fund will benefit from its institutional fund-management infrastructure, support and investment expertise, which have contributed to the success of black entrepreneurs in the past. The application of this expertise will ensure that investments are appropriately targeted, have a high rate of success, and that the investments assist in the development and growth of sustainable black-empowered small and medium enterprises.
The NEF will leverage its existing product offering when making these fund investments.
Through the fund, private sector contributors – referred to as “measured entities” in the Broad-Based BEE Act – will receive enterprise development credits while still retaining focus on their core business.
They will also be able to develop sector value chains in partnership with the NEF through the ED Fund, while the beneficiaries have access to an additional source of funding. Most importantly, the fund will be able to make more investments designed to enable meaningful participation of black business in the economy.
“There are also significant tax advantages for measured entities contributing to the fund,” says Wright. “These include contributions being exempt from donations tax, as well as being income tax-deductible. The NEF is the only gazetted BEE facilitator fund.”
It was awarded this status by the Department of Trade and Industry under the codes of good practice on BEE. This means that the equity investments held by the NEF in any company are automatically regarded as 100 percent black-owned, including 40 percent owned by women and 10 percent by designated groups.
Any equity stakes would be regarded as unencumbered, resulting in the company receiving a perfect ownership score for the equity stakes held by the NEF. In turn, any contributions to the NEF’s ED Fund are defined as eligible enterprise development funding activity, allowing upfront recognition of the contribution by the measured entity, says Wright.
The first fund will launch on July 6. It aims to raise R50 million in private sector contributions, to which the NEF will add R75m. After it closes, a second fund will be launched.
Kgomotso Zimase of Global Interface Consulting handled this article as media liaison for the National Empowerment Fund
http://www.iol.co.za/business/business-news/nef-starts-fund-for-bee-enterprise-development-1.1091000
State moves to close the door on fronting
Government is planning to amend BEE legislation to clamp down on fronting, which gives companies that misrepresent their empowerment credentials a competitive edge over their rivals when bidding for lucrative state tenders. Lionel October, the director-general of the Department of Trade and Industry (DTI), told City Press that consultations were currently taking place among government departments to devise solutions that would eliminate loopholes in the BEE Act.
The act was introduced in 2003 to transfer a larger share of South Africa’s economic wealth from whites into the hands of black people. However, fronting has been blamed for slowing the pace of deracialising the economy and hampering efforts to create a larger pool of wealthy black entrepreneurs.
October said: “We are going to make changes to the BEE Act and the BEE codes of good practice to prohibit fronting. We are going to define categories of offences in the act that amount to fronting. “After we have made fronting explicit in the act, we will set up a special investigations unit to deal with fronting because it is fraud.” He said Government was also mulling establishing a BEE Ombudsman to investigate complaints and make rulings.
“The ombudsman will investigate complaints around BEE where people have been unfairly treated. Some of these complaints could be related to badly structured BEE transactions where black partners get smaller profits or do not benefit as was agreed,” said October. He added that the DTI would get comments from other Government Departments within the next four weeks and it would then draft a bill that would be put before Parliament and would be open for public comment. October added that the proposed legislation would give the state power to impose tough sanctions on offenders, including barring fronters from doing further business with the public sector.
According to Treasury documents, government plans to spend R165 billion this year on procuring goods and services but state-procurement spending has been less successful in trickling down to black-owned businesses, which are supposed to get preferential access to state contracts. South Africa has seen some of the worst forms of fronting with unscrupulous white-owned companies making their low-level staff – such as cleaners and drivers – shareholders without their knowledge in order to improve their BEE scorecards. In some cases, blacks willingly act as fronts to win tenders from government and then pass on the contract to a white-owned company which eventually does the work for higher loot than the original black bidder.
Thabo Masombuka – a former director of BEE charters and partnerships at the DTI, and now an executive director at BEE consultancy firm Siyakha – said government has in the past not been tough enough in clamping down on fronting as unscrupulous businessmen have been getting away with defrauding the state for years by misrepresenting themselves. He said part of the state’s inertia has resulted from the fact that BEE legislation is silent on fronting, giving fronters a loophole to misrepresent themselves without any consequences. “Fronting is effectively fraud because you are misrepresenting the facts in order to gain BEE points so that you gain advantage over competitors when bidding for tenders. Government must link fronting to the Companies Act and terminate licences or deregister companies that engage in fronting. Imposing fines or cancelling contracts has not been effective in combating fronting because companies budget for fines anyway or they reinvent themselves and continue doing business in the private sector,” Masombuka said.
He also proposed a much more lenient punishment than the harsher restraint-of-trade alternative. “For serious offences, where hundreds of millions of rands are involved, government must take away licences immediately. However, it could also look at introducing a demerit system, similar to the one the state is introducing for reckless drivers, where you lose points if you commit offences repeatedly until you ultimately lose your licence,” Masombuka said. He said fronting and other forms of BEE fraud were setting the country back in its efforts to economically empower black people. “Fronting misleads us because it creates a perception that a significant number of blacks are being empowered, whereas this is not true and we are still faced with a huge backlog. We may end up not accelerating investment in skills and enterprise development because we think we have made progress,” Masombuka said.
Gavin Levenstein, the chief operating officer of BEE consultancy EconoBEE, welcomed the proposed Ombudsman. He said companies that were suspected of fronting would now be forced to provide their financial records to the ombudsman when they came under investigation. “It is not easy to catch out companies that are involved in fronting. Some companies deflate their turnover to make themselves smaller than they really are to win tenders."
The act was introduced in 2003 to transfer a larger share of South Africa’s economic wealth from whites into the hands of black people. However, fronting has been blamed for slowing the pace of deracialising the economy and hampering efforts to create a larger pool of wealthy black entrepreneurs.
October said: “We are going to make changes to the BEE Act and the BEE codes of good practice to prohibit fronting. We are going to define categories of offences in the act that amount to fronting. “After we have made fronting explicit in the act, we will set up a special investigations unit to deal with fronting because it is fraud.” He said Government was also mulling establishing a BEE Ombudsman to investigate complaints and make rulings.
“The ombudsman will investigate complaints around BEE where people have been unfairly treated. Some of these complaints could be related to badly structured BEE transactions where black partners get smaller profits or do not benefit as was agreed,” said October. He added that the DTI would get comments from other Government Departments within the next four weeks and it would then draft a bill that would be put before Parliament and would be open for public comment. October added that the proposed legislation would give the state power to impose tough sanctions on offenders, including barring fronters from doing further business with the public sector.
According to Treasury documents, government plans to spend R165 billion this year on procuring goods and services but state-procurement spending has been less successful in trickling down to black-owned businesses, which are supposed to get preferential access to state contracts. South Africa has seen some of the worst forms of fronting with unscrupulous white-owned companies making their low-level staff – such as cleaners and drivers – shareholders without their knowledge in order to improve their BEE scorecards. In some cases, blacks willingly act as fronts to win tenders from government and then pass on the contract to a white-owned company which eventually does the work for higher loot than the original black bidder.
Thabo Masombuka – a former director of BEE charters and partnerships at the DTI, and now an executive director at BEE consultancy firm Siyakha – said government has in the past not been tough enough in clamping down on fronting as unscrupulous businessmen have been getting away with defrauding the state for years by misrepresenting themselves. He said part of the state’s inertia has resulted from the fact that BEE legislation is silent on fronting, giving fronters a loophole to misrepresent themselves without any consequences. “Fronting is effectively fraud because you are misrepresenting the facts in order to gain BEE points so that you gain advantage over competitors when bidding for tenders. Government must link fronting to the Companies Act and terminate licences or deregister companies that engage in fronting. Imposing fines or cancelling contracts has not been effective in combating fronting because companies budget for fines anyway or they reinvent themselves and continue doing business in the private sector,” Masombuka said.
He also proposed a much more lenient punishment than the harsher restraint-of-trade alternative. “For serious offences, where hundreds of millions of rands are involved, government must take away licences immediately. However, it could also look at introducing a demerit system, similar to the one the state is introducing for reckless drivers, where you lose points if you commit offences repeatedly until you ultimately lose your licence,” Masombuka said. He said fronting and other forms of BEE fraud were setting the country back in its efforts to economically empower black people. “Fronting misleads us because it creates a perception that a significant number of blacks are being empowered, whereas this is not true and we are still faced with a huge backlog. We may end up not accelerating investment in skills and enterprise development because we think we have made progress,” Masombuka said.
Gavin Levenstein, the chief operating officer of BEE consultancy EconoBEE, welcomed the proposed Ombudsman. He said companies that were suspected of fronting would now be forced to provide their financial records to the ombudsman when they came under investigation. “It is not easy to catch out companies that are involved in fronting. Some companies deflate their turnover to make themselves smaller than they really are to win tenders."
New Government Regulations on PPPFA Alignment
PPPFA Alignment - Government Procurement aligned to BEE
The new Government Regulations on Procurement states the following:
The new Government Regulations on Procurement states the following:
- Any organ of state and government departments including local and municipal will take into account BEE scorecard when tendering
- The threshold for 90/20 and 80/10 has changed from R500 000.00 to R1million and above, and R30 0000.00 to R1million respectively.
- All tender submissions for a 90/20 tender quoting less than R1million will call for automatic cancellation of the tender and re-invitation unless one tender is quoted in the R1million threshold. The same applies to 80/20 tenders.
- No BEE scorecard calls for automatic disqualification from the tender process
- A company winning the bid cannot sub-contract more than 25% of the bid to another company and the sub-contractor must have same BEE scorecard level or better.
- A winning company is not allowed to sub-contract a large portion of the work to a company that will lead to production of the work being done outside of the jurisdiction of the tender.
- The winning bidder is required to comply with BEE regulations for the duration of the tender.
- Any misrepresentation of the information when submitting a tender will result in the tender being penalised and all cost incurred in evaluating the tender recouped from the tendering company.
- The new regulations will come into effect in 6 months (07th December 2011) meaning that all state departments have 6 months to get their houses in order.
