Media briefing on Broad-Based Black Economic Empowerment Amendment Bill to be tabled in the National Assembly

Journalist: When you say the Broad-Based Black Economic Empowerment (B-BBEE) Code had significantly lightened the regulatory requirement for small business; was this in the original code or will it be in the amendment? Can the Minister also explain how the code was being changed?

Minister Davies: What I said was that a reform will come out in the new code. At the moment there were demands for verification certificates by bigger companies doing business with small companies. Much of the comments are about the numbers, targets and the time to reach the targets. We are engaging on this; some of the fundamental principles will continue. We are emphasising broader empowerment, but the parameters, the timeframes, the targets were all the things currently being discussed. It was not common that something went out for public comment and it came back without a single coma changed.

Journalist: When the assessment was done it was said that there had been too much emphasis on ownership; it was said that owners were not real enterprises but paper enterprises. Why have you included ownership as one of the issues that would be incentivised?

Minister Davies: This came back to the fronting question. There was ownership as an economic concept (meaning exercising the powers of ownership), and also there was a formal contract of some sort of shareholding. What had happened was that most of what had occurred as ownership was some kind of share transaction. This was not to say this form of ownership was okay; because someone procured from black-owned small businesses did not mean one could stay 100% lily white.

We do not want to give the message that one did not have to move on ownership as long as business had addressed skills development. While we are weary of empowerment as a kind of ownership share transaction deal; we do not want to say now we are broadening out and we do not care if ownership stayed as it is. What we want to see in ownership is people who are empowered, and exercising the economic powers of ownership.

This means they are the people who direct the way companies operate. These are people who will sit in a proper boardroom and take proper decisions on how the company operates, and not just in subordinate areas. Some of the contracts seen were those of people who expected to be directors and managers, and yet when they look at the fine print they realise they are confined to something less. This was the kind of the complex fronting type transaction; this was one thing that the commission will need to look at.

Journalist: The racial foundation of the legislation had been explained, but it was worrying that there could not be a definition that embraced all those who had been disadvantaged. The definition somehow would apply to white people who 20 years ago were never thought as disadvantage. This was 20 years ago, and people entering the economy had come through a new education system. Why can there not be term limits on this; why are there no deadlines?

Minister Davies: The fundamental difference between SA and other emerging economies is that people were subjected to racial categorisation. This had to do with social definitions. People were classified by the apartheid regime as white, black, coloured and Indian. Depending on how one was classified through the Population Registration Act, this defined your life chances; your education; your skills development and even for small business development. Apartheid neglected black small businesses until about “five minutes” before the democratic transition.

This occurred at various stages in time, we are talking about the 1913 Land Act. But before that there was a history of disempowerment of peasant farmers in the Transkei, who competed with white commercial farmers. One could clearly see how these farmers were disempowered and prevented from being commercial farmers so that they could be available to go work in the mines. Small black shop owners were not allowed to operate in the city centre and compete with the white shop owners.

We have to say okay, it is 20 years later, and there are people who have been born during that time were not under that. But the life span of disfranchisement even once the discrimination ended continued way beyond that time. White people had the best chances that other people did not have; this was the fact of the matter and was what had to be dealt with. The eventual idea is to create a non-racial society in which these kinds of racial categories will no longer be considered.

Do we then put term limits and say, whether or not we achieve equity when that deadline passes that’s it, whether the objectives were achieved or not; or do we say the time when this ends is when we see a pattern in the economic participation where the country had overcome all the divisions of apartheid. We are nowhere near that. The overall level of empowerment in this economy was 8 in 2007, and if that is the case we are not remotely close to equality. This is the situation we find ourselves in.

Journalist: What penalties are you looking at for fronting and would this Act be above all other BEE legislation?

Minister Davies: At the moment the only remedy was the common law offence of fraud; and fraud will be criminally punished. The only remedy at this point in time was the criminal one. The commission was not the only resort but it could decide other cause of action. As it stands, the remedy is a ten year sentence that is subject to court process, when someone is convicted of fronting.

Journalist: Can’t government consider class when looking at BEE, because some people already benefited through this policy, and there were a lot of those who did not have access opportunities. A bunch of people got richer whilst a number of others stayed far behind.

Minister Davies: In many respect the revisions that were put into the codes about broadening Black Economic Empowerment, we are saying this has got to be something that could be put in a broader class base, the historically disadvantaged people in the country. The aspirant small business has not sufficiently benefited through BEE. There were programmes, including incubation that sought to empower companies. Now we are saying here is another tool to use if someone wanted to be called 'Black empowered' in the country. We are trying to broaden the impact so that it does embrace a broader category of people of other social classes in the country.

Journalist: How many companies were found to be on level 8? Could this be elaborated on? My understanding is that, on the JSE for instance, most companies were at level 4, and part of the issue is it was too easy to get to level 4, and not do any empowerment. It appeared that there was no compliance. What would this mean for the mining industry, especially that the mining charter was done before the changes were effected? This will certainly lead to whole new level of complexities and the sector was already in crisis. Was this a concern at all?

Journalist: Level 8, what will it be; so that people may not have to refer to level 8 when they did not know what level 8 was.

Journalist: Research on level 8; was it done on all companies doing business with government or was inclusive of the whole private sector?

Minister: Everyone in the economy; what was the overall level of BEE, it comes out as 8. Why one would want to be involved as an empowerment was because this presented one as a South African company representative. If one wanted to go out in the broader public, it was better if one presented himself as a representative of the SA broader public. When one interacted with government at all levels or other companies that sought empowerment points, one was asked to show points as BEE, up to a particular level. This was what it had; it had significance in those kinds of transactions as a tool to try and promote BEE more broadly. The commission will present evidence against those that the court called.

Minister Davies: There were a number of studies, including on pension funds. We went through a piece of work with the University of Pretoria, to determine the scale of the economy as a whole. There was a higher level of empowerment in the state. There are 8 levels of BEE; if one is on level 8, that company was basically making the minimal intervention to BEE. What is happening is far too much of a tick-box character and far too little of any real economic empowerment of those that are disadvantaged. For example, companies do not care very much what categorisation means to a small black supplier, they are only concerned with points, such that one was forced to go out and pay R40 000 to a verification agency. This is what we’ve seen. Level 8 meant nothing.

Minister Davies: On the mining industry, that’s why this change happened at the level of the Portfolio Committee process. This was not in the original Bill, but what had been built in is a period of transition. We do not think that the whole of the mining charter is out of sync with BEE codes. We do not believe that everything was uncertain, but certainly we do think there is some work to be done to align and there was an opportunity for that to happen.

Journalist: With the 2014 elections looming, the likes of Julius Malema and the Economic Freedom Fighters are making noises. Would the Minister concede the state, or society as a whole, has failed in trying to transform the economy?

Journalist: That an amendment bill had to be brought on economic empowerment to tighten the screws a lot more on cheating, was it an indictment on white business?

Minister: We can not conclude that BEE is a complete failure. I think that some aspects of it showed some progress. We have seen the emergence of business people from historically disadvantaged communities playing leadership roles in business, state-owned enterprises, and government. There were examples of small businesses; this is not the case that there had been a failure in that regard.

What lacked was the impact that was desirable. With any kind of legislation there will always be a need to tweak it. I do not know what the economic freedom fighters would have to say about BEE; they were best placed to comment on what they thought of BEE.

We are certainly not making a generalised comment that all white business were cheating. We are saying that we have seen a number of companies who have been sincere with economic empowerment; this is welcomed. But there also were those that behaved in a manner that contravened legislation. A few of them were here in the Western Cape, and were removed from contracts because they presented themselves as something that they were not.

Journalist: In terms of law, how will fronting be measured as described by the Minister? What would be the legal definition that would be used to determine that a person was a toy-telephone, and who will determine that company A was a fronting for company B? This appears to be well intended but the consequences are not clear.

Minister Davies: There was a definition of fronting process. It includes black persons appointed in an enterprise, but discouraged or inhibited from substantially participating in core activities of the enterprise. Also in the definition is involvement in a relationship with a black person for the purposes of that enterprise achieving a certain level of broad-based economic empowerment compliance without granting the black person the benefits reasonably expected to be associated with the status or position held by the black person.

You put somebody in a certain position so that you could pretend that the enterprise is something other than it is in terms of empowerment. The commission would look at this, and in the worst case scenarios it would recommend that such cases go through the criminal justice system. One did not have to be black empowered to operate in the economy. But if one wanted to get a tender with government institutions, and presented credentials as though you were a black participatory company and yet you were nothing of the sort, this is cheating, it is fraud. We are now putting some meat into the definition.

Journalist: When was the commission likely to be established?

Minister: This would function as any piece of legislation; the Bill would have to go through the National Assembly; to the National Council of Provinces; and then it would have to be signed into law. Then the process of establishing the posts would be done in conjunction with the Department of Public Service and Administration. Those posts would have to be advertised.