Posts Tagged BEE Compliance
The Codes of Good Practice provide for 3 categories of broad-based Black Economic Empowerment compliance and the only criteria used to define these categories is a measured entity’s total annual revenue. The listed categories therefore include:
- Exempted Micro Enterprise
- Qualifying Small Enterprise
- Generic Enterprise
In this article we will focus on the first category; Exempted Micro Enterprises.
What Is An Exempted Micro Enterprise (EME)?
Measured entities with less than R5m annual turnover are accordingly exempted from producing a BEE Scorecard. Annual turnover thresholds for the Tourism and Construction (Built Environment Professionals) industries is R2,5m and R1,5m respectively. Qualifying entities are therefore regarded as Exempt Micro Enterprises (EMEs) and are deemed to be automatic level 4 (four) BEE Contributors. Any qualifying purchases from such an enterprise can be claimed at 100%. In a scenario where black ownership is more than 50%, such an entity is deemed as a level 3 BEE contributor whereupon Procurement Recognition is at 110%.
Start-up companies are regarded as EMEs for the first year following their formation regardless of their expected revenue with the exception of tendering for contracts above R5million.
What Does an EME Need?
An EME must obtain the relevant documents as full proof for their status. At EconoBEE this is a very short and simplified process, which has a turnaround time of 2 working days. For further information, please contact us at firstname.lastname@example.org or 0861 11 3094
Published 1st March
Response to Business Report Article ABVA has sent an immediate response to the Editor of Business Report in regards to the inaccurate article running in Business Report Monday March 1st.
To the Editor:
ABVA would like the right of reply to the article in Business Report of Monday March 1st, BEE Verification Industry in Turmoil.” The article contains many factual errors and unsubstantiated claims and has a sensationalist tone not often found in the Business Report.
While ABVA Chairperson Andile Tlhoaele was quoted in the article, many other inaccurate claims were made in the article that ABVA did not have the opportunity to respond to.
The so-called BEE verification leaders quoted seem to only include a representative from Emex who makes wildly inaccurate claims about ABVA and a BEE consultant who has opposed the accreditation process from the beginning. It is also important to note that the agency that has resigned its membership from ABVA is one that, at the time of resignation as ABVA member, was in the process of a disciplinary procedure due to complaints from other ABVA members against them, for illegally copying the content of other agencies’ certificates and then distributing it in the market as their own.
The generalizations made about the verification industry based on these two very personal views are therefore shaky at best and should not have been the basis for such an inflammatory article.
In regards to the main and inaccurate claim that ABVA is manipulating the industry or interpreting codes, ABVA has had many meetings with the dti in this regard. As stated by the Dti and agreed by ABVA, ABVA does not set policy and never has or ever intends to pronounce on policy.
ABVA however, does have a role to ensure that a consistent application of the codes is practiced in the market place. This is why draft practice notes, pertaining to the legal interpretation of the Codes and related legislation, were issued for comment to members. These draft practice notes have nothing to do with policy, but are an attempt at bringing a level of consistency to the application and legal interpretation of BEE.
Government would not put themselves at legal risk by interpreting legislation. In January 2009, Dti withdrew the “Interpretive Guide” (published in 2007). This is the same document which your article also refers to. If anything, this action on the part of the Dti at the very least supports our contention that they do not see their role as the legal interpreters of the legislation.
It is important to note that ABVA has not issued a single practice note to thus far and that the document circulated to members contained draft practice notes for their comment. The draft practice notes currently represent the compilation of external and internal legal opinion on certain key interpretational matters. Policy issues are not addressed in the document. The circulation of these draft practice notes follows a mandate given to the ABVA board from ABVA members at the last AGM of ABVA in May 2009 and is not a unilateral action by the chairperson of ABVA.
It also required no amendment to ABVA’s constitution as is alleged by EMEX. ABVA’s technical committee has received several comments (even from non-members) following the circulation of the draft practice notes. All of these comments are currently being evaluated before circulation of any final practice notes. It is important to note that EMEX did not make use of the opportunity to comment on the draft practice notes or to express their dismay with the process while they were a member. Their actions rather seem to reflect those of a disgruntled ex-member for the disciplinary procedures instituted against it.
One can question why one particular BEE Verification Agency does not wish to apply a consistent approach to the implementation of the Codes, especially when any final practice note will be the result of legal opinion and an inclusive and consultative approach with members and non-members. ABVA strongly condemns actions that enable every Verification Agency to do as they please in the market place, leading to varying interpretations that allow for the giving away of points on the scorecard and diminishing the intentions of BEE. The vast majority of members responded very positively to the circulation of the draft practice notes.
The only amendment to the constitution of ABVA occurred at the May 2009 AGM of ABVA and related to the widening of ABVA’s membership base to include the corporate sector and BEE consultants. The very purpose of this move by ABVA was to obtain a more representative input into legal / interpretational matters. This change to the constitution had nothing to do with creating policy as claimed in the article and everything with being transparent and responsible following the mandate given to us by our members to issue practice notes to ensure consistency and standardization with interpretation.
On the issue of acceptance of member’s certificates, ABVA never recommended that only its member’s certificates should be accepted in the market place, but has always referred to the legal interpretation of all the legislation which governs BEE implementation, the Codes of Good Practice, the SANAS R47 and the Verification Methodology. The legal position embodied in these documents show that only agencies that have made application to SANAS before the 1st February 2010 could be regarded as a “verification agency” for purposes of the minister’s notices issued during the course of 2009. This was ABVA’s position whether or not a particular verification agency was a member of it or not.
The article also makes mention of a complaint against ABVA to the Competition Commission yet fails to mention that this complaint was dismissed. BEE consultants such as Levenstein have been opposed to the accreditation of BEE verification agencies from the outset, however this accreditation process is the ONLY way to ensure a credible and consistent industry.
The article’s claim that the verification industry is in turmoil could not be further from the truth. Thanks to the assistance of organisations such as ABVA, there are now accredited agencies and a host of agencies who will soon be accredited that can take BEE verification to the next level.
ABVA is proud of its achievements working with government and business so as to ensure credible and consistent application of the BEE codes.
Email sent 1st March in reply.
I would sincerely suggest you check your facts BEFORE you issue them to the press.
I’m attaching(http://www.econobee.co.za/downloads/general-bee-documents/competition-commission-ruling/download.html), for the umpteenth time to ABVA, the response from the Competition Commission – which Business Report also has in its possession. The relevant exact wording is as follows:
“The Competition Commission will not refer this complaint to the Competition Tribunal”.
It goes further to give it reasons for the non-referral – please read page 2 and page 3 carefully including:
“ABVA has undertaken to raise awareness among its members regarding the concerns raised in the complaint to ensure that if the practice exists among its member it is not condoned.”
This was an undertaking that ABVA gave to the Competition commission ON CONDITION that they would not refer the matter to the Tribunal. We both know that ABVA never followed up on that undertaking, but I was satisfied with the decision taken by the Competition Commission, on the basis that they had obtained a legal undertaking from ABVA and they clearly defined what certificate is acceptable or not. (see point 1 at the bottom of page 2).
It is therefore absolutely untrue to say that the “complaint was dismissed”. It was thoroughly investigated and not referred because the Competition Commission was given an undertaking by ABVA.
ABVA has in the past recommended that certificates only be accepted if produced by a member of ABVA that has applied to SANAS for accreditation. This is patently incorrect, which is why the dti are pretty irritated with ABVA for continuing to make the rules.
At no stage have I personally attacked any person, so do take offense to your untrue assertion that “I have been opposed to the accreditation process from the outset”. I have been opposed to any person or organization choosing not to follow the B-BBEE Codes of Good Practice. I have always and continue to support the process as defined by the government, the dti, and the minister. I was the first person to inform my clients and readers of my newsletter that they would eventually have to use an accredited agency because the minister decided so.
Your untrue and potentially defamatory statement and and my response will appear in my newsletter tomorrow unless you retract them before my newsletter is published. I have more than 100 000 readers.
There are other issues with your response on which I don’t have time to comment, but I do think you will incur the further wrath of the dti by stating “that they do not see their role as the legal interpreters of the legislation.” I would actually rather not see ABVA, me, the dti and SANAS fighting each other as it does not further the good cause of transformation.
Econoserv SA cc/EconoBEE
Email received 2nd March
Hi Kevin (sic),
The condition was never communicated to ABVA.
Email sent 2nd March
Theo Lombard was the chairman of ABVA at the time. He was contacted by the Competition Commission over my comment. The board must have given that commitment. Someone at ABVA must have received the final determination from the Competition Commission. In any event ignorance of the law is no excuse, and the Competition Commission’s decisions are legally binding.
Bear in mind that:
* The decision was communicated to the PR company that ABVA hired when they issued a press article on the subject in 2007.
* It must have been available to the board when they determined that “the complaint was dismissed”. How could the board react to the ruling if they never received it?
* It has been on our website since the day we received it.
* I sent it to Wade van Rooyen recently.
* How did you personally reach that conclusion yesterday without reading the document?
* I therefore repeat – your public statement yesterday rebuking the Business Report for inaccurate reporting is in itself incorrect.
Furthermore ABVA has an obligation even today to uphold its commitment given to the Competition Commission in 2007.
Business Report has been unfairly attacked by you. They did not make factual and unsubstantiated claims as per the above. I suggest an apology to them is in order.
Econoserv SA cc/EconoBEE
We have always stressed on the importance of doing self-assessment before going for verification. This is something that cannot be emphasized more. It is a purposive process relying on assessing and analyzing the existing situation for a measured entity and reporting thereof. The reason for doing self-assessment is to ensure that every point is accounted for in its entirety. Depending on the size of your company, earning one point can translate to a certain amount of money. Without doing self-assessment, you stand to lose a couple of points which in reality means you would have lost an X amount of money.
Let’s do the numbers game on Socio-Economic Development, both for a Qualifying Small Enterprise and a Generic Company.
|Net profit After Tax (R)||Target (%)||Target (R)||Cost/Point (R) QSE||Cost/Point (R) Generic|
As shown in the table above, it costs a certain amount of money to earn just a point under SED. Question is, how many points or how much money are you losing because you haven’t done introspection? A great deal of money is lost without a comprehensive approach to self-assessment yet more often than not, we have realized that companies pull away from looking inside. As a remedy to this constantly overlooked drawback, we have online, a software to guide you throughout the process. For the Demo version, please click here http://econobee.co.za/dmdocuments/econobeev3/econobeev3%20presentation.htm
In all fairness, self-assessment is just one the many other stages of BBBEE compliance. It is equally as important as the rest. BBBEE compliance should be seen as a process not a once-off event. We recommend companies to follow our 10-step process in becoming BBBEE compliant. Visit the following link for the 10 steps: http://www.econobee.co.za/general/become-bee-compliant/10-steps-to-bee-compliance.html
The Tourism sector code is based on the Codes of Good practice, however it has some differing weighting points, targets and definitions. The Exempt Micro Enterprises have a reduced threshold of R2.5 million and not R5 million. They enjoy automatic BEE level 4 and those, which have more than 50% black ownership, are elevated to a Level 3. The Qualifying Small Enterprise (QSE) threshold is between R2.5 million and R35 million, whilst the Generic threshold is above R35 million. The Tourism sector code has a two-phased approach, points and targets for 2012 and 2017
The main acclamation of the Tourism sector code is the prominence of skills development, which we believe should be the foundation that will spearhead Broad Based Black Economic Empowerment. The sector certainly took heed of Zuma’s emphasis on training and skills development as the cornerstone of transformation in the country. The skills development element now has 20 points, which is the highest on the scorecard until 2012. The sector code recognises the skills shortage in the country and that all the other elements of Broad Based Black Economic Empowerment can easily be achieved if the nation has skilled employees.
The reduction on the ownership element weight and targets affirms the need to shift focus from the ownership element to other elements of true empowerment. Ownership targets for the period up to 2012 for both QSEs and Generics was reduced from 25% to 21% and ownership fulfillment, net value and the bonus points were removed. The weighting points dropped from 28 to 25 for QSEs and from 23 to15 for Generic Companies. However there was a regression on the preferential procurement element, which was reduced from 20 to 15 points and Enterprise development, which was slightly reduced from 15 to 14 points.
Socio-economic Development points increased from 5 to 8 and included two additional indicators. A drive towards the inclusion into the mainstream economy of the black unemployed school leavers without work experience was included. Enterprises in the sector are encouraged to employ black new recruits with no prior work experience and the target is 10% of all new recruits. Furthermore if the enterprise is a TOMSA (Tourism Marketing South Africa) levy collector it earns 3 additional points.
EconoBEE assist companies to understand the B-BBEE codes and to produce and improve their scorecards through workshops, EconoBEE V3 Scorecard software and BEE managed services.
The reason why any company should produce a BEE scorecard is not to please their Verification Agency. In reality, the Verification Agency should not be in the position of dictating the whole process of BEE compliance. The company has all the responsibility to make sure that the process towards getting BEE compliant is effective and produces the desired result. The scorecard is essentially produced for the customer so that the company does not run the risk of losing business because of failure to produce a good scorecard. This means a company is actually supposed to work on the scorecard because they fear losing business from their customers. In most instances, the customer wants a scorecard with good points. The urgency to work on the scorecard should not be initiated by the Verification Agency. Verification Agencies are in no position to punish a company for failing to produce a scorecard. Therefore, companies should make decisions that ensure they have the best BEE scorecard points. Some companies have even gone as far as skipping important stages in the BEE compliance journey like getting a consultant’s help because they have been given undue pressure by Verification Agencies..
Tony Leon has written an interesting articles in the Business Day in discussing BEE and Moeletsi Mbeki. Amongst others Leon states:
“The taproot of Moeletsi Mbeki’s discontent is that BEE, as commonly practised, “creates a small class of unproductive but wealthy black crony capitalists” and thus strikes a blow against the emergence of genuine entrepreneurship.”
I wonder if Leon is correct is his assertion that Mbeki’s concern is about “BEE, as commonly practised…”? Either way many people are concerned about the way “BEE is commonly practised”. Does this imply that since some people choose to call their actions “BEE”, but do not practice it as required, then the entire B-BBEE policy is flawed? If Lance Armstrong teaches me to ride a bicycle, but I choose to use a car instead, do we blame Lance Armstrong, or the bike, or myself for not implementing riding bikes properly? Just because a company implements a system that someone dislikes, why blame B-BBEE for that action? If the company says it is taking that action in the name of BEE, does it make that action a proper BEE action? In which case, I’ll bring my car and win the Tour de France, because I choose to call driving a car, “riding the Tour de France”. In the case of me winning the cycle race, the organizers can and will disqualify me. Do we disqualify every company and every person who states that they are BEE compliant, or taking actions in terms of the BEE codes, but end up not doing so? When a company states that a particular position is a quota position do we blame BEE, or the company for doing it wrongly in the name of BEE?
I’m not at all concerned about “BEE as it is commonly practiced”. BEE can only be practiced in one way – the way defined by the concept of implementing B-BBEE – the codes of good practice, and the EconoBEE way of implementing it. I’m concerned about people practicing something (let’s call it “anti-BEE”, but stating that they are in fact practicing and implementing B-BBEE).
Who, or what should we blame? Not B-BBEE because most people, when they understand it do agree that B-BBEE is a good policy. Rather let’s blame those companies that contribute to Mbeki’s feling that it “creates a small class of unproductive but wealthy black crony capitalists” and thus strikes a blow against the emergence of genuine entrepreneurship”.
ISO (International Standards Organisation) gives this description:
“Why standards matter
Standards make an enormous and positive contribution to most aspects of our lives.
Standards ensure desirable characteristics of products and services such as quality, environmental friendliness, safety, reliability, efficiency and interchangeability – and at an economical cost.
When products and services meet our expectations, we tend to take this for granted and be unaware of the role of standards. However, when standards are absent, we soon notice. We soon care when products turn out to be of poor quality, do not fit, are incompatible with equipment that we already have, are unreliable or dangerous.
When products, systems, machinery and devices work well and safely, it is often because they meet standards. And the organization responsible for many thousands of the standards which benefit the world is ISO.
When standards are absent, we soon notice.”
The relevance? We are still seeing various SANAS (on behalf of ISO) accredited verification agencies that give vastly differing opinions on various aspects of the codes. As a result you cannot be assured that your scorecard will be consistently calculated by different agencies, or even by different analysts from the same agency.
We heard today of an agency that allows a measured entity to choose the inception date of enterprise development spend. The codes are clear, the inception date is the commencement date of statement 700, i.e. date of the publication of the codes (9th February 2007, or up to 5 years before, but definitely not after!).
It means some companies have had to spend twice as much this year to make up for last year’s shortfall, but if they had chosen this particular agency, could have saved their money. Since ED is 3% of net profit after tax, this “saving” could be millions of rands for large companies. On the other hand, any company that chose to use this agency and allow their interpretation stands the chance of their scorecard being declared invalid.
Some standard indeed! It’s about time SANAS, or ISO did something about it.
Given the priority of staying as competitive as possible, companies need to exploit all existing opportunity channels. This requires a knowledge and understanding of possible environmental impacts on your business.
In the South African business environment, BEE compliance plays a significant role particularly to those companies dealing at a business-to-business level. Your clients will require you to produce evidence of your BEE compliance status, without which they will opt to do business with your rival.
How do you address this problem? One of the largest sources of competitiveness is a customer-needs driven approach. Identifying and satisfying your clients’ needs provides the necessary competitive edge. Therefore, getting the proper BEE documents is not a choice for those companies with such clients who require such evidence. In such a scenario, a company’s competitiveness is based to an extent on its BEE score.
Therefore, how competitive is your business without evidence of its BEE status, in a market where such evidence is held with high regard?
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.