Archive for April, 2009
I’ve done quite a bit of work with the mining industry recently. The mining charter (which is an act, and not a BEE sector code) sets targets for mining houses to get their mining licenses renewed. The deadline is July 2009, so there is going to be lots of excitement soon.
The mining charter is not broad-based, does not follow the codes and virtually only requires 26% black ownership to comply. It does have other requirements, but they are so tenuous as to be meaningless.
The biggest complaint most people have about BEE is that it is not sufficiently broad-based and does not benefit the people whom the act intended. The mining charter falls into this category.
Now I was wondering how to change this: Ideally the mining charter should become a sector code as part of the B-BBEE act. The way to get a new charter and then sector code is to start with the industry itself . The following groups need to come together to ask the dti minister to start the process;
- The mining houses and mines
- The Chamber of mines
- The unions
- The responsible government department (ie. DME)
They need to prove to the minister that they represent the main and majority interest groups in the industry.
I then realised that there is almost no chance of this happening. Let’s only look at the mines that condemn the mining charter. Would they be happy going to a proper scorecard? Not likely! The few that do not have their licenses will obviously jump at the opportunity. The majority that have, will see this as a way to prevent easy access to the industry. They will feel that they have had to “make sacrifices” to get their 26% ownership . Of course if they had to now fill in a scorecard with a decent target of say level 3, they may find that they fall short. Many ownership deals are not worth that much on the scorecard, and many mines have not looked at the rest of the scorecard, so would have a bad score.
The other role players would probably be even less likely to support a move to a broad-based scorecard.
Sad to say, but I doubt that the mining charter will become broad-based and follow the B-BBEE codes any time soon.
The dti has announced that only accredited BEE certificates will be valid from 1st August 2009.
The reasoning is that many companies front (misrepresent their BEE position), or do not do their calculations properly.
In both cases this may be true. Large companies were planning on getting their scorecard verified, however it puts an added burden/expense onto small businesses (SMEs). There is a cost to preparing a scorecard, even if done badly, and now there is an extra cost to getting that scorecard verified. The cost for a small QSE could be R8000-R15000 per annum.
Government is supposed to support SMEs and now the dti is putting an added burden onto those SMEs. SARS has recently changed policies by offering a turnover tax instead of the complex tax structure to companies with a turnover of less than R1 million. However dti is making it more difficult for those businesses.The new reglations appear to state that all certificates (even accountants certificates for EME must now be produced by a (more expensive) verification agency.
This flies in the face of government’s attempts to remove red tape.
There is anoher issue that has me really worried. Small businesses make up a large proportion of our GDP (gross domestic product). It is SMEs to whom we turn to ty to get them to change hearts and minds to become BEE compiant in the first place. With respect to the dti, they do not talk to SMEs or know how they feel. In the past four years I have spoken to and assisted and converted any SMEs to the idea around BEE. We all know that BEE is an emotive subject, and we have gone along way to getting SMEs to make an effort to comply Yes, they get it wrong sometimes, but at least they have starte to do something about it. I now worry that many of those SMEs will see the added burden and expense of verification as so negative that they will move backwards on BEE. The unintended consequences of this regulation will be less compliance, rather than more.
I ask the minister the question: What is more important – getting more companies to embrace BEE, albeit with a slighly erroneous score, or that they reject BEE completely? How important is a slight error in a QSEs scorecard? It will make almost no difference to a large company’s procurement score!
A further issue is that notwithstanding agencies have been accredited, there is still confusion amongst agencies on how to interpret the codes and calculate your scorecard. There is still no consistency. Why insist on verified scorecards then? The regulations further state that agencies in possession of a pre-assessment letter are also allowed to produce a valid scorecard. They need do no more than get a letter from SANAS and can then verifiy. Are they any good? By definition they have not received accreditation so their quality cannot be measured. In any event once they have received their acreditation is only means that they have adhere to the quality management standards of SANAS and this does not guarantee the calculations or interpretations used.
The DA says: “The Democratic Alliance (DA) believes that Black Economic Empowerment (BEE) is an economic and moral imperative for South Africa. If correctly designed and implemented, not only will it redress the imbalances of the past but it will pull more people into the economy, stimulate competition, improve our skills and productivity, raise our domestic investment levels, reduce poverty, increase employment and broaden our tax base. However, BEE as it is currently constituted has created significant distortions in the economy, which have hampered growth and job opportunities without helping the poor.”
It goes on to complain about specific deals, and specific people who have benefited.
It concludes with
“The DA will review the BEE scorecard to ensure that it accurately prioritises the interests of those who have fallen by the wayside, not those who are already reaping the rewards of the new South Africa. This review will focus on:
- Placing less emphasis on ownership, and more emphasis on skills training and socio-economic investment, in the weightings accorded to the various categories used to evaluate businesses.
- Developing ways to prevent credits from being used over and over again by the same individuals.
- Establishing an ombudsman to resolve questions of compliance quickly.”
My feeling is that the DA has fallen into the same trap as those who do not understand BEE.
They want to place less emphasis on ownership. Currently ownership is 20% of the generic scorecard and 0% of the QSE scorecard if the QSE chooses so. What would they do? They state that they want to develop ways of preventing credits from being used over and over again by the same individual. Have they realised that the current scorecard has 2 points for “new entrants” – people who have not yet done deals to the value of R20 million – what I fondly call the “anti-Tokyo” clause.
What would they put down for skills and socio-economic development? Skills is currently 15% and SED 5% – which elements would they reduce?
A point to note is on a scorecard that has 100%, you cannot break the pie into more pieces than the 100% available.
My conclusion is that the DA is as confused about B-BBEE and the scorecard as anyone else I have ever criticised.
So, the Financial Services BEE charter has now collapsed. This is one case where I can say “I told you so”. For years I have been promoting BEE, but stating that the charters are a total waste of time – the only people who benefited were the lawyers and consultants. I have previously disclosed that I was asked to comment on the legal charter for the department of justice and constitutional development and earned a couple of thousand rands before they listened to me and decided to abandon it as a sector code.
In the case of the financial charter, many banking people criticised me when I stated that the FSC was not following the law, was using incorrect definitions etc. They promised that it would be brought in line with the codes. It did not.
What is more interesting is that the financial sector still seem to have absolutely no understanding on BEE or what a charter, and sector code is all about. The news report is that the banks and government could not reach consensus on the ownership issue. Apparently the banks wanted the ownership target to be 10% and the dti 15%.
I wonder if the banks actually understand what the BEE codes really say and mean? The truth is that they have always had to produce a BEE scorecard. They HAD to use the codes of good practice unless the FSC had become a sector code. In the event Nedbank has actually produced a BEE scorecard based no the codes, while ABSA and Standard Bank have a ridiculous looking FSC scorecard showing that they are level 2s. Seriously, this is not April 1st!
The sad thing is that many verification agencies have chosen to ACCEPT those FSC scorecards even though they carried no legal weight. From now on, all banks – the entire financial sector – must use the Codes of Good Practice scorecard. They have never had any discretion previously and certainly do not have any longer. I personally am going to make sure that the NCR and other financial regulators follow government law and demand a scorecard from the banks.
Now what do those codes say about ownership:
Target = 25% plus one vote.
What did dti want: 15%.
What did the banks offer: 10%.
What are they now going to have to follow: 25% plus one vote!!!!!!
Is the financial sector mad not to have gone along with the dti’s request for 15% ownership? Don’t they see their stupidity?