Archive for January, 2011
We have supported transformation since the day it was genuinely proposed. We have rejected enrichment, and tenderpreneurs, but always felt, and known that economic transformation was needed. Our country’s history was such that the vast majority of the population were denied access to the economy, and a change of government, and allowing all people the vote ensured political transformation, but did nothing for economic transformation. While 80% of the people who have the political power only own 20% of the economy (rough estimates), this country is a powder keg.
Almost every political party or pressure group agrees that economic transformation must take place. The ANC offered B-BBEE. The DA’s policy is “broad-based economic empowerment”. Even Afriforum agrees that some form of transformation must take place. The best thought out is definitely B-BBEE, but not properly implemented.
Unfortunately, not enough economic transformation has taken place. The media, their readers and the general population are more interested in discovering faults with the system, than proposing a better alternative. To generalise, all we have had in the past couple of years are complaints about anyone who become wealthy through government contracts. The companies who have made serious efforts at B-BBEE are ignored or even criticised.
So, why is business to blame? Well, the direction that government is taking with economic policy and jobs is not one that I can fully support. The President, in his recent address spoke about the need for government to create jobs and transform the economy. For many years the B-BBEE act was expected to do that exact job, and for many reasons it did not achieve all that was expected. One big reason is given above. Business did not support it sufficiently. My fear was always that if business did not transform properly and voluntarily, government would step in and start doing the job for them. This is now happening.
I am a strong supporter of a freer economy. The free enterprise economy is more likely to help grow an economy than leaving it in the hands of the government. All governments throughout thew world create laws and the B-BBEE act was not different and no more harsh than any of a thousand laws here and elsewhere. Yet, the B-BBEE act and its codes were more often criticised. Companies did front, companies did ignore the codes, companies did ignore the charters. Every time the President or government made a comment about transformation there is some rude comment or cartoon ridiculing him and our government.
Did those people not realise that economic transformation WAS going to follow political transformation? Did they really think that B-BBEE was going to fall away? Did they think that the level of economic inequity would result in a stable country? Now, by rejecting B-BBEE, and again I’m generalising because many companies have made good and far-reaching efforts, government is moving towards a more controlled economy.
The President now wants to create more jobs via government. Government already accounts for about one third of the economy. It looks like the President wants government to become an even bigger player in the economy. The free market economy relies on less government, not more, so I would have liked to have seen less government. However since we do need economic transformation, and business made every effort to resist it (and let’s not hold government blameless either), it is no surprise that if government, and the people do not see the positive results of true transformation, it is obvious that they are going to try another approach. This approach is asking government to directly intervene to create those jobs.
Wouldn’t it have been better for the country to have encouraged private enterprise to grow the economy. Wouldn’t it have been better for private enterprise to have taken the initiative? Instead we have a man whom most people love to hate – Julius Malema – accusing white males of dominating the economy. He is of course 100% correct. His proposed solution is incorrect – that of nationalization. From his point of view too little economic transformation has happened so we need an alternative policy. It would have been nice if business, and government had done the right thing, and rendered Julius’ comments obsolete!
Currently all BEE certificates contain an item called “Date of issue”. This represents the data on which the verification agency issued the certificate. All certificates are valid for a period of one year from date of issue.
The codes talk of a “Measurement period”. This represents the period under measurement. This would be the financial year on which the verification is based. Typically this is used to provide turnover figures. It is also used for procurement, skills development spend, ED and SED spend and net profit after tax.
Verification can take place many months, or even years after the end of the financial year. Most verifications make use of audited financial statements, and producing audited financials can take anywhere between 3 month and more than a year.
Verification can take many months from the initial appointment of the agency, to gathering the information, verification, queries and appeals until the final certificate is issued.
It sounds wrong that a certificate that is based on financials for the year ended 2009 can be issued today (6th January 2011), and it remains valid for the rest of 2011.
On the other hand a certificate issued in March 2010 based on the same financial period is valid from March 2010 until 2010.
Some verification agencies, wrongly, use current information for some of the other indicators including ownership, management and employment equity. One of the key principles of the codes (2.2) is “The basis for measuring B-BBEE initiatives under the codes is the B-BBEE compliance of the measured entity at the time of measurement”. In the case of financials it is the period used for the financial statements. It would not make sense to use disparate measurement periods, like 2009 for financials, but 2010 for ownership.
We would propose that the measurement period and validity date of the certificate be aligned. A new certificate based on two year old data is not an accurate representation of the BEE status of the measured entity, certainly not as it stands today, yet that certificate is regarded as valid because it was issued today and is valid for another year.
One option we have considered is that the certificate validity period be one year after the end of the measurement period: If your year-end is December 2010, then your certificate issued based on that period is valid for a year until 31st December 2011, no matter when the certificate was actually issued. If a measured entity delays getting its financial statements until October 2011, then its certificate will only be valid for 2 months.
This sounds a bit harsh, and it is impossible to obtain audited financial statements on the last day of the financial year. The JSE and SARS gives deadlines as to when financial statements should be issued, and we suggest this be incorporated into certificate validity dates, for example give a leeway of six months. so, if the financial year end is December 2010, then the measured entity would have a gap until June 2011 to get its financial statements and obtan a verified certificate. That certificate would be valid until June 2012. If the entity was only verified in December 2011, then its certificate is also only valid until Jun 2012, and not December 2012.
This will encourage entities to be verified as soon as possible after year-end, and to use current information. It will also ensure that the certificate is a more accurate representation of its BEE status.
It should be noted that audited financial statements are not a pre-requisite for verification. Signed management accounts are also acceptable – though the verification agency will have to perform extra checks to confirm some data. Therefore undue delays in preparing financial statements is not a good excuse for not obtaining an accurate and up to date verification certificate.