Tutu’s wealth tax and B-BBEE
Posted by Keith in BBBEE Knowledge, General, True Empowerment on August 17th, 2011
The recent comments by Archbishop Tutu caused some controversy. He complained that the rate of transformation is too slow and the inequalities in our economy still remain – the gap between rich and poor is still too great. He is of course correct. The recent release of the employment equity statistics by the commission for employment equity shows that management jobs are still dominated by white people.
Tutu then suggested a wealth tax. Please note he did not suggest a white wealth tax. The “white” was added by the media without foundation. His actual comments can be found here (courtesy of @gussilber via Twitter), and a video of his talk can be seen on Youtube. The Archbishop is probably not aware that B-BBEE is intended to solve all the problems he identified, in a far more elegant manner than a tax.
B-BBEE is not a tax, because it is voluntary and companies are encouraged to comply, by not necessarily only spending money. It is not a tax because it requests actions, rather than a pure monetary spend. In some ways it can be seen as a levy – e..g with regards to skills development it asks companies to spend 2% or 3% of their payroll on training of their own staff. With regards to enterprise development and socio-economic development it asks companies to spend between 1% and 3% of net profit after tax on those activities. The spend does not need to be pure money – it can be a monetary equivalent, e.g a company can spend time helping a smaller business, and this will be classed as enterprise development. There are other methods of earning B-BBEE points that do not require spending money (tax), like procurement where companies will encourage transformation by asking their own suppliers for their B-BBEE certificates. In this way every company will contribute towards transformation, leveling the playing fields, without the need for a wealth tax.
Some companies have done a wonderful job of complying with the B-BBEE codes and genuinely made a difference to the lives of the people they touched. Many other companies have a reluctance to achieve, and it is this reluctance that Tutu, and others are seeing. Their good, but slightly misguided intentions are a direct result at seeing slow transformation.
Some years back we wrote an article headlined “The alternative to B-BBEE is B-BBEE”, implying that when you look at it, and if transformation is needed the best alternate remains the B-BBEE codes, warts and all. Any other alternative proposed would not be as effective or efficient!
With regard to a wealth tax, government does not have a great record of spending our tax money. Given the option I’d far rather decide for myself whom to support, train than let government tell me, and possibly waste the money. This is what B-BBEE proposes. If you do have to spend 3% of profit after tax, why not decide for yourself how best to do it, in the way that works, and makes business sense to you?
For five years we have been saying that B-BBEE has to succeed – the alternative will be people proposing some outrageous solutions taht we are seeing right now, such as nationalisation or wealth taxes.
The lack of support for black businesses
Posted by Keith in BBBEE Knowledge, Enterprise Development, procurement on July 26th, 2011
One of the aims of transformation is to grow black business. For true transformation we need more black owned businesses and to support black businesses.
I came across a very typical situation just today. We analyzed procurement spend of a large company, part of a JSE listed business.
The company spends R592 million every year with local suppliers.
Of this, R23 million is spent with companies that are more than 50% black owned. This is 3.92% of their total procurement. Note that this could well imply that the companies are as little as 50.1% black owned and 49.9% white owned.
In addition they spent R2.6 million with companies that are more than 30% black female owned. This is 0.46% of their total spend. This could well imply that the company is 30% black female owned, and the remainder 70% white owned.
All other spend, 95.62% of their spend is spent with companies that are not majority black owned or 30% owned by black females.
In terms of the B-BBEE procurement calculation, the company obtained 16.46 points out of 20, which is relatively good – compared to the many companies we have analyzed.
Comments by Rob Davies dti minister during his budget vote
Posted by Keith in BBBEE Knowledge, Enterprise Development, Fronting, General, Interpretations, True Empowerment on April 20th, 2011
Minister Davies spoke about B-BBEE during his budget vote: He said the following:
“Regarding economic empowerment more generally, the BEE Codes of Good Practice were promulgated 4 years ago and we are now in a better position to assess their impact. The Presidential Advisory Council has made several policy recommendations to allow for greater participation by black people in productive activities and to tackle what is now emerging as increasingly complex practices of fronting. To this end, the dti and the Presidential Advisory Council are focusing on reviewing the BEE Codes of good practice and possibly amending the BBBEE Act. This could entail, amongst others, refinements to ensure greater policy coherence in the application of BBBEE across government and to strengthen access to procurement opportunities through the now approved and aligned PPPFA regulations. We are also looking at ways to strengthen our efforts to combat the fraudulent practice of fronting.”
Business Day – 20th April 2011 is reporting as follows :
“Department of Trade and Industry acting director-general Lionel October said yesterday the recommendations of the advisory council — now being considered by the economic cluster of government departments — would shift the focus of BEE away from equity investment and ownership towards productive activities.
Currently, companies scored high marks on the BEE scorecard for black ownership, which gave them a high overall score even when they performed poorly in areas such as enterprise development and procurement.
A proposal being examined by the economic cluster is that minimum scores would be required for enterprise development and procurement — or the overall score would suffer. This would compel companies to aim for achievement in all areas.
Mr Davies said what was under consideration was that points would be deducted from the overall score if minimum scores for enterprise development and procurement from small companies were not achieved.
It would also not be enough to merely hand over money for an incubator or enterprise development project. Companies would have to be actively involved in fostering small businesses.
“In Asia, small and big businesses have a symbiotic relationship where big business gets a lot of input from small business and works hard to ensure that it has the required capacity and the technology,” Mr Davies said.
Complex forms of fronting also had to be addressed.
“We have seen that people who participate in ownership deals imagine that they have one thing, but then when they look at the fine print, they have something else,” Mr Davies said.
“There is now a whole industry of lawyers and accountants who are structuring these deals in particular ways.”
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The above is not too different from our crystal ball gazing in our previous newsletter. This is what we said:
The dti has been looking at revising the codes, and recently issued a tender for companies, presumably law firms to take this further. Once the service providers are appointed, the process will take many months or even years to evaluate and then re-evaluate the B-BBEE codes. We are quite sure that this will not result in “canceling” B-BBEE, but gazing into a crystal ball we expect in one or two years time to see the following:
Ownership
Ownership indicators will change to award more points to broad-based and employee ownership schemes. Individual ownership will be awarded less points. Less emphasis will be placed on direct voting rights and more emphasis placed on a new form of economic interest to ensure that new owners get direct benefit out of their investment. To date many companies do not declare dividends so a minority owner has no benefit, other than when he sells his shares, and in private companies there is no good way to value shares like the JSE does.
Management Control
Will be worth less points than present. Currently one new black director can be “worth” up to 6 points. This is seen as only benefiting a few, it is not broad-based enough. Management may be reduced to 5 points or even consolidated into the Employment Equity element reducing the number of elements to 6.
Employment Equity
Definitions will be cleared up. Allowing a significantly more objective measure of “senior, middle and junior” management employees. More points will be awarded. There is a possibility to have the definitions expanded to broaden the reach of the management levels. It should be noted that as from next year the targets for EE go up anyway.
Skills Development
Skills is anticipated to be the biggest beneficiary of the re-evaluations and will certainly be worth more points. Additional indicators, similar to the excellent construction charter will be created. This will include a more detailed breakdown including mentorships and bursaries. The cost of Skills Development will not be a major discussion point, rather what does that spend get used for. The cost will therefore be targeted in more specific and beneficial areas.
Preferential Procurement
As from next year the targets for procurement go up anyway. Definitions and interpretations, especially around exclusions – imports, third party will be cleared up. The procurement element cannot change substantially as it is the theoretical driver behind Black Economic Empowerment.
Enterprise Development
Points may drop slightly. More indicators like those in the construction charter will be added. Some “easy” points, may decrease in importance. Mentorships for developing enterprises will be added. Increased emphasis will be placed on the type of beneficiary ensuring better Enterprise Development opportunities and not generic spend with any qualifying beneficiary.
Socio-economic Development
Points may drop slightly in favour of the EE and Skills elements.
QSEs may find that the “easy” points on ED and SED will have less value.
The thresholds on EMEs will rise.
The charters will also have to be re-evaluated, so there may be a recommendation to decrease the number of gazetted charters
Let’s re-look at this in two years time and see how accurate we were.
Dear Minister
Posted by Keith in BBBEE Knowledge, Charters, Fronting, Sarcasm, True Empowerment, Verification, politics on March 9th, 2011
Dear Minister,
Please advise urgently.
My client is a QSE BEP. If he follows the BEP scorecard his ED target is R22 500 because ED is based on leviable amount. His SED target is R11250.
If he follows the codes of good practice his ED target is R2800 because we will use indicative profit and R1400 for SED.
If he follows the BEP scorecard he will need to pay R33 750 for both ED and SED, but if he follows the codes his cost is R4200 – a differential of R29 550.
Since the dti and SANAS are still seeking clarity, apparently now from the DG, and you have not any statement either, I need to know if the dti will condone my client following the codes that most suit him. The precedents have of course been set and we all know that SANAS will not regard this as a non-conformance and dti will not withdraw the certificate…….
On the other hand I’ve got some clients who are NOT in the construction sector but tend to like the lower adjustment for gender so are going to follow the construction/BEP codes. Is this also okay?
I know of a company that signed the final gazetted forestry charter but wants to follow AgriBEE and will use generic until that happens. Is this ok?
Now that I think of it, another client who has a turnover of over R1billion would like to follow the QSE scorecard for tourism. Also, a difficult client (you know how clients are) likes the Construction generic ownership element, the freight transport management control (for QSEs), the codes for EE, the QSE codes for Skills, and forestry for the other elements. Can I please have special permission to change the codes to suit my difficult client? He also wants to use a verification agency that had a pre-assessment letter in Feb 2010 but has now expired.
Another client would like to use ArcelorMittal as their verification agency. According to SANAS, ArcelorMittal has been accredited (for legal metrology, specifically weighing instruments), and the client feels that since ArcelorMittal, like SANAS, has no BEE certificate, they are a good organisation to do their BEE verification. Is this possible?
Minister, in any event we know that the dti/BEE Council will never be able to identify and really does not care about fronting, but being law abiding I’d like your approval to recommend fronting to my clients, who are being hamstrung by my honesty.
Yours sincerely
Keith
A dti scandal – The beginning of the end of the sector codes and B-BBEE
Posted by Keith in Accreditation, BBBEE Knowledge, General, Interpretations on March 7th, 2011
The dti, gatekeeper of the BEE codes has wasted an enormous amount of taxpayers money in setting up the BEE codes, and the sector codes. Latest rumours are they are about to dump the sector codes.
Way back, before the B-BBEE act was gazetted, the financial sector came up with its financial sector code, and other sectors stated following suit. The B-BBEE codes specifically made allowances for sector codes. Many sectors, believing that they were being steamrolled into following a charter spent huge amounts of time and effort to try to create their charter, mostly without success. At the time we are totally anti the charters, as we said that it would cause more confusion and costs and not contribute towards transformation. At the time we were criticised by the dti.
It turns out were correct all the time: The sector codes have proven a total waste of time and money. Industry bodies, government and private enterprise have wasted our money, to create a non-functioning sector codes process.
The minister did indeed gazette four sector codes, construction, transport, tourism and forestry back in 2009. All four came into effect on the date of gazetting, and only one had a transitional period – but implying that all had to be followed from the date of gazetting. In 2009, no one bothered to follow those charters.Around about 10 other charters have been or are still in the process of gazetting including covering Financial services, ICT, property, accountants and legal.
Also in 2009, the minister stated that BEE certificates would only be valid if produced by a SANAS accredited verification agency. His initial notice gave a deadline of 31 July 2009. We pointed out to the minister that at the time SANAS did not have a methodology to accredit agencies based on the sector codes. It would imply that every company in the affected industry would be unable to produce a valid certificate. The minister then delayed the deadline to 1st February 2010. Even with this delay SANAS did not manage to accredit any agency to verify against the sector codes until March 2010. Only a small number of agencies ever managed to become accredited for the sector codes.
It did not really matter – most companies in the affected industries continued using the generic codes and passing that certificate off as a valid certificate – contrary to the regulations of SANAS and the codes. One need only look at certificates produced in 2010 for transport companies, hotels, freight and all the other affected industries to see that the sector codes and the minister’s notice was being completely ignored.
The rumours around BEE from SANAS is that “the dti may make a pronouncement as there have been complaints from the industries saying they should have a choice of utilizing the sector codes. Apparently the DG is aware of the complaints. There was a meeting in Cape Town last week where this was discussed, and from the SANAS point of view they will not view this as a non-conformance until clarity is given by the DTI.”
So legislation is being run by the DG “being aware of problems”, and SANAS, four years after the codes were gazetted is still waiting for clarity on an issue they have been accrediting agencies to do for over a year.
Is there anyone at the dti or SANAS who has the faintest idea of what is going on?
We knew this would happen. SANAS and the dti were unable to keep up with the sector codes. Most agencies did not even know about the sector codes, and failed to check the industry of their client when the client requested verification. Each sector code requires the formation of a sector council, so for example the Tourism Sector Council was formed to manage and report back on the progress the sector has been making in accordance with the sector codes. To date, no sector council has reported back to the minister of the BEE Council as to the progress made. It would be quite easy to do so: They would say “NO PROGRESS”. Every sector council is therefore in breach of their own sector code. If the dti, SANAS and sector councils can’t manage the process, it is not surprising that most measured entities have no idea what is going on, and their level of compliance is lower as a result.What is quite ironic is that even companies that were signatories to the sector codes have not even bothered to use them. For example both York Timbers and Hans Merensky were signatories to the forestry charter. Neither even follow the forestry charter.
It is exactly as we said many years back – sector codes are a waste of time and will result in lower levels of compliance. However, once the sector codes did come out we supported them, because that is what the codes say we must do. We are the consultancy raising these issues with the dti and SANAS. We are the people identifying the errors and inconsistencies. We are the people confronting the verification agencies, measured entities, the dti and SANAS about which scorecard to use.
The problem is that until the minister issues a notice removing the sector codes, any company in an affected sector that issues a certificate that bears the SANAS logo as its official BEE status will be misrepresenting its BEE status. The codes say that deliberate misrepresentation constitutes fronting and is fraud.
A COMPANY THAT ISSUES A CERTIFICATE CARRYING THE SANAS LOGO FOR THE WRONG SCORECARD IS FRONTING.
This is the beginning on the end for the sector codes, and I’m not sorry about that. I have to state that the only high profile person who agreed with us about the useless sector codes was Jimmy Manyi! Even as late as the end of last year Thabo Masombuko of the dti angrily confronted anyone who said that the sector codes serve no purpose. Well, his own DG had has to be brought into the fray, and SANAS, the organisation appointed by the dti still don’t know that a certificate issued in terms of the wrong scorecard is non-conformance.
What I am genuinely sorry about is if this debacle by the dti and SANAS is anything to go by, it looks like the B-BBEE codes could die a similar death. Many people will be only too happy to see the BEE codes go the same way. To them I say “Be careful what you wish for”. (I’ll explain this last statement in a future blog.) We personally will continue to support the codes until the very end.
Jimmy Manyi
Posted by Keith in BBBEE Knowledge, politics on March 3rd, 2011
Everyone has an opinion on the Jimmy Manyi interview issued by Solidarity. Strange then that as at this morning (3 March 2011) only 6474 people have actually viewed it. I have to suspect most critics of Jimmy have not seen it, and none have seen the entire interview nor the context in which he made these comments. The part that has been uploaded is only 47 seconds, and very selectively chosen.
The context is he was talking about was the employment equity act, and he is very well briefed on the B-BBEE codes.
He knows that companies earn BEE points by employing black people in various management, and sometimes non-management positions. Many companies will specifically try to find a certain profile person in order to improve their BEE scorecard. We ourselves always tell our clients that they will earn more points, if they were to employ a higher percentage of black people in certain management categories.
At the same time we tell our clients that for example a black female in a particular category will earn them more points, and therefore they should try to find the best person for the job, but be aware that they will earn or lose points based on their decision.
From the black person’s viewpoint, we can easily direct a particular person to where there are opportunities. We know that for example most construction companies would be keen to interview a black female civil engineer. We would not hesitate to advise a person on how best to market themselves to get a good job. At this very moment I have 1300 CVs in front of me from people who are desperate for a job as a junior admin clerk – a very sad state of affairs. I’d like to employ every single person, but obviously cannot.
Let’s look at Jimmy’s comment. The number of coloured people in the Western Cape is generally higher than the rest of the country, just as we would expect more Indians in KZN than the rest of the country. I would have no hesitation in advising a coloured person who is unsuccessfully looking for a job in Western Cape to look further – specifically target regions and companies than have poor employment equity scores.
Is this what Jimmy meant? Is this what Jimmy said? Please watch the video and decide if it leaves out the context.
Also decide if the context is as I have described.
ED and SED Proposed Changes
Posted by Keith in Accreditation, BBBEE Knowledge, Enterprise Development, General, Interpretations, Socio-economic development on March 1st, 2011
The minister has gazetted proposed changes to the B-BBEE Codes of Good Practice.
The proposals are gazetted in terms of Section 9(5) of the act, which gives interested persons the opportunity of commenting for a period of 60 days from the date of publication of his notice. (18th February 2011).
The proposals affect enterprise development (codes 600/806) and socio-economic development (codes 700/807).
1) Enterprise Development – Shorter payment periods:
Change in shorter payment periods: The existing codes state that you can earn ED points by offering shorter payment periods to suppliers. The codes say that if you pay COD, you can claim 15/15 (i.e 100%) of the value of the payment. If you pay one day after receiving the invoice you can recognise 14/15th of the value. If you pay 5 days after receiving the invoice you can recognise 10/15th , ie. 66.6% of the payment value and so on. The old codes stated that you cannot go beyond 10 days for your payment.
The actual formula used is (15 minus number of days from date of invoice)/15
The proposed amendment allows you to take as long as 15 days to repay. It should actually be only 14 days though!
If you take 14 days to pay then you can recognise (15-14)/15 of your payment: ie 1/15th of the payment – 6.67% of the payment.
If you take 15 days to pay, the formula is (15-15)/15 = 0% which is why we stated that it can only be 14 days!
Commentary:
This is an extra dispensation given to companies and public enterprises that find it difficult to arrange payment as fast as 10 days. The extra benefit is very small though. If you take 12 days to pay an invoice to an approved beneficiary, you can only recognise 3/15th, ie 20% of your payment spend.
What is more interesting is the fact that the minister has given this dispensation on the shorter payment periods. Without doubt shorter payment periods is the most controversial ED activity. In the past many agencies used to regard only a small portion of the shorter payment as being recognisable ED spend. They use the formula of (15 – days to pay) as a percentage. so, if you paid COD, ie zero days, they saw it as (15-0)% of the payment = 15% of payment. We had asked the dti for an explanation and they gave us the interpretation as we have always used. Recently ABVA issued practice notes reverting back to the old arrangements. Fortunately only a few verification agencies are following this incorrect method.
There must be a reason for the dti emphasising shorter payment period, and maybe this is it. In our own submission, we will recommend that the dti issue a very specific explanation and worked example to ensure consistency.
2) Enterprise Development/Socio-economic development – Change from average annual spend to annual basis:
The codes state that ED and SED contributions are measured cumulatively (average annual) from date of inception of the codes, or even up to 5 years prior to the codes (which were issued in 2007.). This means that if your NPAT (net profit after tax) in 2007 was R1m and R1.5m in 2008, R1.3m in 2009 and R2m in 2010, then for your ED calculation our target is set at 3% of the cumulative profit of R5.8m = R174 000.
Your spend is also cumulative so if you spent R24 000 in 2007, R100 000 in 2008, R50 000 in 2009, then you would have reached target in 2010 by 2009 already, and would earn full points in 2010. We used to use the phrase “you can bank your overspend”, so if a company had overspent one year, the overspend would be carried forward to the next. There are good reasons to use the cumulative method: No one really knows what their net profit after tax will be until after their audit and their tax assessment. The best they can do prior to the year-end is use estimates and budgeted figures. With the new proposal, to be on the safe side, a company will have to overspend slightly just in case it turns out that their net profit after tax is higher than expected. The overspend will be lost next year.
Other considerations:
Many companies have not yet begun their empowerment journey. Some have spent no money on ED or SED, so they would have had to make up a huge amount of spend if the cumulative had applied. This could have been asking them to spend 12% of NPAT on ED and 4% on SED over the past 4 years. Since the majority of businesses are not yet compliant they will be happy with the new proposed ruling. Businesses that have overspent on their ED and SEC will be unhappy.
Transitional period: There is no direct transitional period for the proposed changes. Paragraph 5 of code 600 and code 700 does state: “The Minister may from time to time by notice in the gazette revise or substitute the Benefit Factor Matrix. Any changes will only be applicable to Compliance Reports prepared for a measured entity in respect of the first 12 month period following the gazetting of a revision or substitution.”
The benefit factor matrix (annexe 600 (a)) lists the various types of contributions that can qualify as ED (and similar with SED). Paragraph 5 states that any changes to this annexure comes into effect only after 12 months. The Minister’s proposed changes however affect both the benefit factor matrix – the early payment periods , and the actual code 600 – the change from average annual to annual.
The shorter payment period will therefore only come into operation in 12 months time, but the change from cumulative to annual would come into effect as soon as it is gazetted.
Overall Commentary:
We do not disagree with the proposed amendments, though we will recommend that the minister allow a transitional period for those companies that have overspent on their ED and SED targets. We welcome the fact that the minister is issuing amendments, proving that B-BBEE is still top of mind. We still have huge problems with lack of standards, fronting and lack of clear interpretations of the codes. Even these proposed changes will not clear up many issues and we will be issuing our comments to the dti recommending that when they issue this amendment, they clarify some of the issues referred to.
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Call for SANAS to be suspended
Posted by Keith in Accreditation, BBBEE Knowledge, True Empowerment, Verification on February 24th, 2011
Code 000, statement 000 paragraph states that various entities are measurable under these codes. The list includes SANAS.
SANAS is the South African National Accreditation System, a public enterprise whose job is to accredit various organisations. Their job of accreditation includes that of BEE verification agencies.
The term “measurable under the codes” implies that those organisations require a valid BEE certificate.
SANAS does not have a valid BEE certificate. This is especially ironic since SANAS is the body whose job is to accredit BEE verification agencies. I wonder how SANAS is allowed to operate as an accreditation body when it does not adhere to the law of the land? Surely SANAS is not competent to do its job when it flouts the law?
The minister’s recent proposals for statement 005 require all accreditation bodies, including SANAS to be at least a level 3 contributor. Whether or not the proposals are gazetted, I cannot see how the minister can allow SANAS to operate while not in possession of a valid BEE certificate. I informed SANAS of this requirement more than a year ago, and today on calling them they still do not have a valid BEE certificate. It is four years since the codes were gazetted, and SANAS have still not bothered to become compliant.
We can only speculate why they have chosen to neglect their legal duties. Perhaps they don’t know, or maybe they don’t care about obeying the law. Maybe they know that their score is very low and are embarrassed. Either way SANAS is in breach of the law – the very law they they supposedly follow in order to accredit BEE verification agencies. I cannot imagine how can an organisation can insist on others following the law while they are in breach of it. How can they effectively accredit BEE agencies when they themselves do not follow the law?
I call upon the minister to immediately suspend SANAS as an accreditation body, and appoint other organisations that do choose to follow the law as a BEE accreditation body. I call upon the minister to remove the board and the CEO from their positions and institute an inquiry why SANAS has failed in its duty towards the country.
The law has been broken, and charges should be laid against both the board and the CEO.
Parliament has been very vocal about stopping fronting. They have so far been very quiet about SANAS and its willful neglect and denial of the law. SANAS have not fulfilled its mandate. It is time for SANAS to face the music!
Yes, business is to blame
Posted by Keith in Economics, True Empowerment on January 11th, 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!
Call for changes to BEE certificates
Posted by Keith in Accreditation, BBBEE Knowledge, True Empowerment, Verification on January 6th, 2011
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.
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