Archive for July, 2010
Getting and customers and keeping them and making profits is as important to us as anyone. We received a request from a client to produce their EME documentation. As part of the process we ask the client to supply their turnover and industry. It turned out at the client is in the built environment (the generic term for quantity surveyors, architects and other professionals involved in the construction industry, but not construction itself).
The EME threshold for EMEs in the built environment is not R5 million, but R1.5 million. We had to go back to the client to confirm that their turnover is this case was below R1.5million, which it was not. The client was still quite keen for us to produce the documentation, but we knew that this was wrong, and explained the new situation to the client – that it would have to produce a scorecard and get it verified based on the construction sector codes. We obviously agreed to refund any monies paid to us, but would hope that the client would return in the near future to attend a training course or ask for consulting to help build up their scorecard.
All South Aricans are feeling proud today. We did it! We organised an excellent World Cup. We are the toast of the world. The nay-sayers were wrong, and to their credit, many nay-sayers are happy to have been proved wrong. The success can be attributed to all the people of South Africa. The build-up for the World Cup and its success proves that we can work together. Many of the nay-sayers used transformation as the reason that we would fail. The great news is that via transformation – done the right way – we succeeded beyond the expectations of the rest of the world. True transformation means we are a great country, working for our own, as well as the greater good, not seeing colour as a problem, but an opportunity.
Personally I like watching rugby and I cannot praise the Blue Bulls, and their captain Victor Matfield enough for taking rugby to the Orlando Stadium. This is what transformation should be about, and I have to give credit to everyone, from individuals to celebrities to government for ensuring that the past 6 weeks have changed the country forever. Just like Madiba changed the country in 1995, the Super 14 and the World Cup have made us all better.
This is how we at EconoBEE envisioned transformation and B-BBEE when we started our own journey 5 years ago. A system that encourages business to support the lesser privileged and to help more people get into business and everything else in-between. If B-BBEE had not worked, we would not have seen the beautiful stadiums ready well in time for the World Cup. If B-BBEE were so bad, then surely the lights at level 2 BEE contributor ESKOM would have gone out long ago. But they did not. ESKOM, strike threat and all did deliver. The Metro Police and the police service did deliver, because we have competent people running the big organisations, hether black or white, or best of all a combination.
If it were not for transformation, B-BBEE and all the great people in South Africa we would not have been host to the biggest sporting event ever.
This is one of the most confusing aspects of BEE.
What is the difference between a scorecard and a BEE certificate”? A BEE scorecard is a calculation of how many points you have earned. A verified certificate is confirmation that the points you have earned have been verified.
Your customer wants a verified BEE s certificate from you.
How does one go about getting the verified certificate?
1) Obtain a BEE scorecard reflecting points earned
2) Call in a verification agency to verify that the points you have earned are correctly stated and accurately calculated.
1) Obtain a BEE scorecard reflecting points earned.
This is where we come in as a BEE consultant. We help you to build up that scorecard – we don’t “give” you points. We know what is able to earn points, and based no the data we are able to collect from you, we will assist you in calculating your scorecard. We also will assist in desiging strategies to be able to earn more points in the future. The process of building up your scorecard is not an instant fix. It can take months, or even years to be able to build up a really good scorecard
2) Call in a verification agency to verify that the points you have earned are correctly stated and accurately calculated.
Once you have a scorecard, and are satisfied with the estimate of points earned, you can call in a verification agency to verify the accuracy of the data. If you have used our services we can be 100% certain that the points we have calculated will be accurate and will be verified by the agency. The process of verification involved collection and supply to the verification agency all the data that will be used as evidence to substantiate the scorecard obtained. This can take as little as a week – if you have the documentation available. The actual verification takes about a day – depending on the size of your company and the volume of data to be verified. Thereafter the verification agency will issue a certificate showing the score and level achieved. This certificate is valid for a year from date of issue.
Next year the process should be repeated, but as with everything new it will be easier the second time around.
A client has asked for verification. The earliest their appointed SANAS accredited verification agency can perform the verification is 18th August – 6 weeks from now. Let it be said that the chosen verification agency is a well known and very competent agency, but there is obviously a lack of capacity in the industry.
So far, SANAS has accredited 40 agencies. We believe that for BEE to succeed there should be as many agencies as there are accountants or auditors – running into the thousands.
Sometimes journalists annoy me! There is a story on ITweb (http://www.itweb.co.za/index.php?option=com_content&view=article&id=34554:telkoms-empowerment-shrinks&catid=118&Itemid=66) discussing Telkom’s empowerment credentials. Their one big empowerment investor, The Elephant Consortium has sold its shares. The headline of the story is “Telkom’s empowerment shrinks.”
Now, most journalists spend their time moaning about these ownership deals, and criticising the enrichment of some people. Yet, when an opportunity presents itself, the journalist chooses to put a negative spin onto the fact that Telkom has lost some of its black shareholding. One would think this is a good opportunity to suggest that Telkom spend more time, effort and money on the other 6 elements.
In the meantime the journalist did not analyze the affect on the Telkom scorecard of this sales of shares: Since the consortium owned shares for 5 years, the recognition of ownership after loss or sale of shares comes into place. Their scorecard will not be too badly harmed. In any event they only earned 15.39 points on ownership, out of 73.21 points. It will be very easy for Telkom to remain a level 4 company. They only earned 5.3 points on ED, so achieving full marks on ED will automatically help them reach level 4, despite losing all ownership points, which will not happen anyway.
A better approach by the journalist could have been – “New enterprise development opportunity for small IT firms looms now that Telkom has to make up points lost on the sales of shares!!”.
The following individuals have been elected to serve on the ABVA Board for the 2010/2012 term of office.
1. Brigitte Brun, AQRate KZN (Pty) Ltd
2. Chris van Wyk, AQRate (Pty) Ltd
3. Dumisani Mpafa, Black Economic Empowerment Verification Agency t/a BEEVER Agency cc
4. Kate Moloto, Moloto BEE Verifications cc
5. Loyiso Majija, EmpowerLogic (Pty) Ltd
6. Tony Balshaw, Grant Thornton East London
7. Wade van Rooyen, IQuad Verification Services (Pty) Ltd
With a new board comes new responsibility, let us hope that these new board members put the interests of True Empowerment and transformation first and not lobby for more business by offering interpretations that benefits verification at the cost of transformation.
Many people ask us what the cost is of becoming B-BBEE compliant. It is a bit like asking “How much does giving your children a good education cost?.” Most people will agree that a good education is an investment in your children’s future and not a cost at all.
We can identify various types of costs in becoming BEE compliant. Costs depend on the size of business, the type of business and the level of compliance required.
These are direct costs and indirect costs:
1) The cost of a consultant
2) The cost of obtaining your verified certificate
3) Direct costs in earning points
4) The cost in time and effort in carrying out the activities needed to earn points
The cost of getting BEE compliance wrong
1) The cost of a consultant:
A business needs to learn about BEE, in order to implement BEE properly. This could be a little as a R1200 training course, to multiple seminars. On-going consulting, for the first couple of years is usually a good idea, and can cost from R1500 per month to R5000 for a large business.
2) The cost of obtaining your verified certificate:
Verification agencies charge based on the annual turnover of the company and expected time and difficulty of performing the verification, including taking into account the number of employees and branches. Verification costs start at R6000 going to R50000 for large companies and much more for giant corporations. This is an annual expense.
3) Direct cost in earning points:
Some elements – enterprise development and socio-economic development have specific targets, based on spend compared to net profit after tax. A small business (QSE) needs to spend 2% of net profit after tax in order to earn 25 enterprise development points, and 1% of net profit after tax in order to earn 25 socio-economic development points. If a company makes R1million net profit after tax, it will need to spend R30000 to earn 50 points on enterprise development and scico-economic development. If it spends less it will earn points pro-rata, Skills development requires the same small company to spend 2% of its total payroll on training.
4) The cost in time and effort in carrying out the activities needed to earn points:
There are costs in producing a strategy and collecting documents to be verified. Procurement has no financial target but requires a company to collect BEE scorecards from its suppliers and to calculate its procurement spend with each supplier. This is a time consuming task for large companies but could be quick, easy and no cost for small businesses that have one large supplier with a good BEE score.
Some costs, like assisting enterprise development beneficiaries can be offset against direct costs (see (3) above).
5) The cost of getting BEE compliance wrong
BEE, like your child’s education should be an investment and achieve its goals. A good BEE strategy and implementation should achieve more sales and profits for the business and a higher equity value for the shareholders. If it does not, then at best you have wasted lots of money, and at worst the business itself is at risk of failing.
Getting it wrong could imply that the business has not reached the level of compliance required by customers, or that the level is lower than the opposition that will get more business to the detriment of your business. It could imply that the overall strategy was wrong, and costs the shareholders money or equity that does not give the required return on investment. For example if the shareholders sell equity to a black partner, but do not earn the maximum points, or price the deal to low.
The above all depends on the size of the business and the importance attached to BEE by the company shareholders and directors. A business with an annual turnover of less than R5 million needs only to produce a document stating this. If produced by an accountant, consultant or verification agency this is about R750 – once-off expense, though many business people have learned how to write up the required documents – effectively at no cost.
I still feel that the new mining transformation strategy falls short of broad-based aspects. They don’t emphasise all the other elements sufficiently, and there are still too few objective measurements.
They do concentrate ownership – the target is for 26% of the mining industry to be in black hands by 2014. This is not unreasonable. When analysing targets I always look at demographics, and the facts remain that whites make up 10-15% of our population. The target for mining is for 74% ownership of mining assets to be in white hands, because only 26% is to be in black hands.
Look at it again: The policy is for 10% of the population to hold 74% of mining assets in the country. If there can be a criticism of the new policy many will say that this is far too generous. The policy is for 85% of the population to hold 26% of assets. So, from the viewpoint of a member of the population in the privileged group, i.e. one who is part of the 15% and is expected to hold ownership rights of 74%, this is extremely generous. From the viewpoint of a member of the population in the non-privileged group, i.e. one who is part of the 85% and is expected to hold ownership rights of 26%, this does not go nearly far enough.
The saddest part of all is that the non-privileged group has so far not come close to achieving those targets – ie. 26%. It will be a huge strain to achieve that targets by 2014, which is why the targets are not far higher, as many would expect.
Question to ask: Why has it been so difficult to reach targets? How can we ensure that targets for 2014 will be reached?
Some of the answers are self-evident: The owners of mining assets are those that have historically owned mining assets: 10-20-50-100 years ago mining houses were dominated by white families, and those families remain shareholders in mining assets today. Mining requires a lot of money – one cannot start a mine with little finance, and a spade. It only works only on huge economies of scale. Unfortunately, the non-privileged group has also traditionally had no access to finance, and with a low disposable income stills struggles to raise finance.
To even reach the 26% target will be very difficult due to lack of finance, or the knowledge and track record of knowing how to raise
There are of course huge opportunities for the privileged group, and anyone who has access to finance.