Amended Codes of Good Practice: briefing; MP Oriani-Ambrosini's National Credit Amendment Bill [PMB1-2012]: response to submissions

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Trade and Industry

19 February 2013
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

Amended Broad-Based Black Economic Empowerment (B-BBEE) Codes of Good Practise
The dti said the codes of good practice had been amended because it was five years old. The amendments sought to improve the focus of the instrument’s ability to de-racialise the economy and to introduce black businessmen into the mainstream economy. The core objectives of the amendment was to ease the onerous process of filling in the scorecard, to allow micro entrepreneurs who were black owned to be automatically exempted although larger black and white owned businesses still had to qualify. The scoring and some of the elements of the scorecard had been changed, with increased points for entrepreneurial development and procurement so as to better integrate it into the demand side. The new scorecard was more focused and made it easier for businesses to comply. There had been moderate progress in terms of the direct equity element and that many existing regulations were not aligned with BBBEE and that circumvention was prevalent. The dti had consulted widely in the review process and on 2 October 2012 the revised BBBEE had been unveiled.

The revised principles were aligned to government priority programs, enhanced the recognition status of black owned and black controlled companies. All companies with the exception of micro companies with a turnover of less than R5m had to comply. Employment equity and management control had been merged into one item namely management control. Preferential procurement and enterprise development had been merged into one item namely entrepreneur and supplier development. A minimum requirement for priority elements had been introduced. The priority elements were for ownership, skills development and entrepreneur and skills development. Qualifying small enterprises had to comply with at least two priority elements, ownership which was a compulsory element and either enterprise and supplier development or skills development. Large companies had to comply with all priority elements. If they did not meet requirements, their levels would be discounted with large companies moving two levels down and qualifying small enterprises moving one level down. Exempted micro enterprises that were 100% black owned would automatically be at level 1 while if their ownership was 50% or more, they would be automatically at level 2. Ownership points on the scorecard had increased from 20 to 25. The junior level category had been taken out of management control as there had been no effective escalation of junior executives. The BBBEE had been aligned to the Department of Labour's compliance targets on employment equity. The skills development points had been increased to 20 and the learnership elements broadened to include apprenticeships, internships and targeted training as well as allowing companies to train people outside of the company. Enterprise and supplier development would get enhanced recognition if procurement was obtained from new companies or qualifying small enterprises and if there was a three year contract in place. Supplier development would only include black owned, black controlled and black controlled qualifying small enterprises and exempted micro enterprises. The revised thresholds for exempted micro enterprises increased from R5m to R10m and qualifying small enterprises from R4-R35m to R10 to R50m.
 
Members were concerned about how the amendments addressed the development of previously disadvantaged individuals without re-racialising society. Members said the fundamental question was whether the amended codes would work. Members said calling for 100% black ownership of companies penalised whites who might have skills beneficial to a company. Members said it appeared no consultation had been done with organisations representing co-operatives and the disabled. Members complained that the Department had been given a legal opinion from an independent legal expert as an input to the amendments and as yet the Department had not responded. Members said the country had experienced centuries of asset stripping on the basis of race evolving into a formal economy of insiders and an informal economy of outsiders and the challenge was to pull the informal economy into the formal economy. Members felt the codes were a device that could accomplish this and there was a need to grow the entrepreneurial class. Members said most of the components of the scorecard could be non-racial with only management control and ownership, out of necessity, having a racial bias. Members said there should be a sunset clause to allow for scaling it down and out of the system over a set period of years while other members took issue with the sunset clause. Members said that if the transformation of the economy through BBBEE did not take place there was a risk of a revolution nobody would be able to control. Members said that large companies expected all its suppliers to adhere to the codes and this forced smaller companies out of the market. The codes should allow minorities to be partners in a small business company.


National Credit Act Amendment Bill - response to submissions
Mr Oriani-Ambrosini responded to the submissions of the Department of Trade and Industry (dti), the Banking Association of South Africa (BASA), the Credit Bureau Association, Bentley Attorneys and the Western Cape government (see attached matrix report). He said that if Parliament was not allowed to make submissions for immediate action and had to wait for the Department’s processes to be completed, then Parliament would have given up what little parliamentary initiative they had in the matter.

The dti said it was busy with a ten-yearly policy review process which would generate amendments in the problem areas of the Credit Act rather than piece meal amendments. The review process had already started and was anticipated to be completed before the end of March. A holistic approach to amendments was better and this had happened last year in the case of Lotto when a private members bill had been raised. The issues raised in the private members amendment bill were of a technical nature and no Regulatory Impact Assessment had been done on the amendments. The dti believed its position converged with those raised by other stakeholders and it stood by its earlier position. No submissions had been received to rescind the protection of small businesses with a turnover under the threshold level of R1m. On the matter of suspension of the accrual of interest, he said the interests of stakeholders needed to be balanced. BASA had said that it would have huge implications and affect the cost of credit and influence whether banks could be credit providers. The National Credit Regulator said it supported the inclusion of the amendments into a broader legislative review


Members asked what Mr Oriani-Ambrosini’s position was on the policy review being undertaken by the Department. Members said that the issues had to be tackled in a comprehensive approach rather than piece meal and that the amendments had to take into account policy, which in this case was in the process of being reviewed by the Department. Members suggested that the Committee wait for the proposed amendments from the Department and incorporate Mr Oriani-Ambrosini’s proposals into the debate.
Members said Mr Oriani-Ambrosini’s proposals should not be held hostage to the Department’s processes if there was valid reason to make immediate changes to the Act. Members said that a departmental review did not nullify a private, member’s submission and the Committee had called for the policy review. Members said the Bill had merit and was an important issue which did not need to wait for the policy review and that the Committee should take a decision. Members said that in respect of the gambling bill, the DA had concurred that however important it was, the interest of beneficiaries was best served by a holistic approach

 

Meeting report

Briefing
Amended Broad-Based Black Economic Empowerment (B-BBEE) Codes of Good Practise

Mr Lionel October, Director General of the dti, said the codes of good practice had been amended because it was five years old. The codes had been well received by the sector. The amendments sought to improve the focus of the instrument’s ability to de-racialise the economy and to introduce black businessmen into the mainstream economy. The core objectives of the amendment was to ease the onerous process of filling in the scorecard, to allow micro entrepreneurs who were black owned to be automatically exempted although larger black and white owned businesses still had to qualify. The scoring and some of the elements of the scorecard had been changed, with increased points for entrepreneurial development and procurement, in essence supplier development, so as to better integrate it into the demand side. The new scorecard was more focused and made it easier for businesses to comply.

Ms Nomonde Mesatywa, Chief Director of B-BBEE at the dti, said that there had been moderate progress in terms of the direct equity element and that many existing regulations were not aligned with BBBEE and that circumvention was prevalent. The dti had consulted widely in the review process and on 2nd October 2012 the revised BBBEE had been unveiled. The revised principles were aligned to government priority programs, enhanced the recognition status of black owned and black controlled companies. All companies with the exception of micro companies with a turnover of less than R5m had to comply. Employment equity and management control had been merged into one item namely management control. Preferential procurement and enterprise development had been merged into one item namely entrepreneur and supplier development. A minimum requirement for priority elements had been introduced. The priority elements were for ownership, skills development and entrepreneur and skills development.

Qualifying small enterprises had to comply with at least two priority elements, ownership which was a compulsory element and either enterprise and supplier development or skills development. Large companies had to comply with all priority elements. If they did not meet requirements, their levels would be discounted with large companies moving two levels down and qualifying small enterprises moving one level down. Exempted micro enterprises that were 100% black owned would automatically be at level 1 while if their ownership was 50% or more, they would be automatically at level 2. Early payments were applicable to exempted micro enterprises and qualifying small enterprises that were 50% or more black owned. The maximum amount of points under enterprise and supplier development was 15% of 15 points.

Ownership points on the scorecard had increased from 20 to 25. The junior level category had been taken out of management control as there had been no effective escalation of junior executives. The BBBEE had been aligned to the Department of Labour's compliance targets on employment equity. The skills development points had been increased to 20 and the learnership elements broadened to include apprenticeships, internships and targeted training as well as allowing companies to train people outside of the company for example unemployed graduates. Enterprise and supplier development would get enhanced recognition if procurement was obtained from new companies or qualifying small enterprises and if there was a three year contract in place. Supplier development would only include black owned, black controlled and black controlled qualifying small enterprises and exempted micro enterprises. The revised thresholds for exempted micro enterprises increased from R5m to R10m and qualifying small enterprises from R4-R35m to R10 to R50m. She said new trajectory needed to change the culture to be one supporting entrepreneurship and diversify value chains and link with BBBEE with development strategies like IPAP and to focus on business sand industry to create jobs

Mr October said 500 submissions had been received. It would meet with the principle stakeholders and see what amendments needed to be included as the codes were not the final version.

Discussion
Mr Mackintosh (COPE) said what concerned him was how to address the development of previously disadvantaged individuals without re-racialising society.

Mr Alberts (Freedom Front+) said the fundamental question was whether the amended codes would work. Calling for 100% black ownership of companies penalised whites who might have skills beneficial to a company.

Mr B Radebe (ANC) said he appreciated that the revised codes was not only attempting redistribution but also sought to increase the size of the wealth by the codes alignment to government’s industrialisation policies. He raised the issue of people receiving university education but not being able to find work skills training for their profession.


Mr X Mabaso (ANC) said it appeared no consultation had been done with organisations representing co-operatives and the disabled.

Mr Oriani-Ambrosini (IFP)  complained that he had given the Department a legal opinion from an independent legal expert as an input to the amendments and as yet the Department had not responded. Ignoring the input was not acceptable. He said one should forget race and think economics or alternatively the applicability of the act should be limited to people whose education started before 1994. He said the tweaking of legislation was not the answer.

Mr Selau (ANC) said that change necessarily had to be effected but the changes should not be seen as oppressing whites.

Mr W James (DA) said the country had experienced centuries of asset stripping on the basis of race evolving into a formal economy of insiders and an informal economy of outsiders and the challenge was to pull the informal economy into the formal economy. He felt the codes were a device that could accomplish this and there was a need to grow the entrepreneurial class. He said most of the components of the scorecard could be non-racial with only management control and ownership, out of necessity, having a racial bias. He added there should be a sunset clause to allow for scaling it down and out of the system over a set period of years.

Mr N Gcwabaza (ANC) said that if the transformation of the economy through BBBEE did not take place there was a risk of a revolution nobody would be able to control.

Mr October said the questions reflected a concern about the re-racialisation of society, on criminalising non-conformance and what its impact on poverty would be. The changes were to criminalise fronting as it was illegal to lie about your status to get a government contract. The codes and the Act were an economic issue and were not addressing the past because it focused on the underdevelopment of the supply side of the economy. The Department had consulted with the Department of Women, Children and Disabilities and would relook at the question of closed shops and professional guilds. Importers had to be allowed as 25% of goods were imported. Co-operatives were a key factor in the policy of bringing small businesses into the market. South Africa was not unique in having an affirmative action policy, as Malaysia had had a successful policy called Bhumiputra. The policy was not about creating marginalised white entrepreneurs. The Department would look into the suggestion that apart from ownership and management control of companies, the rest of the scorecard components be non-racial in nature.

Mr Sipho Zikode, dti Deputy Director General: Empowerment Enterprise Development, said research had been initiated on the codes in 2012 and the final report was due the end of March.

Mr October said effectively 2% of businesses, comprising big business, had to comply with the scorecard while for 95% of companies (small and medium enterprises) the management control and ownership components were compulsory. No compliance was necessary for the remaining 3% which consisted of micro enterprises.

Mr Alberts said that large companies expected all its suppliers to adhere to the codes and this forced smaller companies out of the market. The codes should allow minorities to be partners in a small business company.

Mr Oriani-Ambrosini said he wanted a response to the legal opinion he had given even if it went against his view.

Mr
Radebe said he took issue with the addition of a sunset clause because as long as the country was beset with racial problems, this matter had to be addressed.

Mr October said that in keeping with the World Trade Organisation rules, one could not discriminate between foreign and national firms. Small and micro business which were 100% black owned were exempt from completing the scorecard because of the onerous requirements to do so. He said that Mr Oriani-Ambrosini’s input had been discussed in the Department and had been referred for a considered response. Affirmative action policies were fully endorsed by the Constitution so there was no problem with the constitutionality of the Act. The amendments were only trying to maximise the benefits of the scorecard. The introduction of discrimination was not an issue for debate. He said the sunset clause as an input would be looked at and be subject to debate.

MP Oriani-Ambrosini's National Credit Act Amendment Bill
Mr Oriani-Ambrosini responded to the submissions of the dti, the Banking Association of South Africa (BASA), the Credit Bureau Association, Bentley Attorneys and the Western Cape government (see attached matrix report). The first issue he discussed was the Department’s submission that the dti was currently busy with a review of the Act. He said that if Parliament was not allowed to make submissions for immediate action and had to wait for the Department’s processes to be completed, then Parliament would have given up what little parliamentary initiative they had in the matter. It was up to the Committee to accept or accept with amendments or reject the Bill. He said the Department talked about the suspension of interest while the Bill discussed the accrual of interest. There had been comment that the Act already excluded businesses and business transactions. The dti wished the act to do so but it did not. Section 6 was not the relevant section it was section 4.1 which was subject to section 5 and the Act applied to juristic persons and to juristic persons who were buying to trade, that is they were not consumers but were distributors. BASA fully supported the first clause but suggested that the term business to business be defined. He felt that no definition could add further clarity to the term. BASA and Bentley Attorneys suggested that juristic people be excluded from the Act. He felt that eliminating juristic persons still did not protect the people who were the consumers of the goods or services. BASA was against the second clause of the Bill as it would increase defaulters and increase costs to banks. He said it was not an automatic debt break, a debt councillor or a magistrate would decide who it would give it to. One should give an incentive to debt restructuring if the choice was between debt restructuring and insolvency. BASA said there was too much discretion. He said the entire Act gave a lot of discretion. BASA said the cost of lending might increase the interest rate. He felt the second clause would result in a reduced default rate.

Mr Macdonald Netshitenze, Chief Director of Policy and Legislation at the dti, said the Department was busy with a ten yearly policy review process which would generate amendments in the problem areas of the Credit Act rather than piece meal amendments. The review process had already started and was anticipated to be completed before the end of March. A holistic approach to amendments was better and this had happened last year in the case of Lotto when a private members bill had been raised.


Mr Andisa Potwana, Director of Consumer and Corporate Law (dti), said the issues raised in the private members amendment bill were of a technical nature and no Regulatory Impact Assessment had been done on the amendments. The dti believed its position converged with those raised by other stakeholders and it stood by its earlier position. He said no submissions had been received to rescind the protection of small businesses with a turnover under the threshold level of R1m. On the matter of suspension of the accrual of interest, he said the interests of stakeholders needed to be balanced. BASA had said that it would have huge implications and affect the cost of credit and influence whether banks could be credit providers.

Ms Nomsa Matshegare, CEO of the National Credit Regulator (NCR), said the NCR supported the inclusion of the amendments into a broader legislative review
 
Discussion
Mr Gcwabaza suggested that the Committee wait for the proposed amendments from the Department and incorporate Mr Oriani-Ambrosini’s proposals into the debate.

Mr James said Mr Oriani-Ambrosini’s proposals should not be held hostage to the Department’s processes if there was valid reason to make immediate changes to the Act.


Mr Oriani-Ambrosini said the Bill was posing a dilemma. If the Department first had to review the Act and then take its revisions to Cabinet and then Cabinet had to make a decision would mean that there would be a delay till the next legislative session.

The Chairperson said that a departmental review did not nullify a private, member’s submission and the Committee had called for the policy review. The Committee had decided in the case of gambling legislation to wait to make changes so that all issues could be addressed.

Mr October said that the Department was finalising the policy in February and would take it to Cabinet in March 2013. The department was expediting the matter and would be able to give a time line in two weeks’ time. The Department wanted a coherent response on consumer credit because there had been structural changes in this area with banks entering the arena and because of issues of reckless lending.

Mr Oriani-Ambrosini said the issue was the strengthening of Parliament. The problem in respect of the process outlined by the department was that policy had to come from the legislators and not from the Department.

Mr Gcwabaza said it was not a matter of relinquishing responsibility but rather of a holistic approach which incorporated consequential amendments without undermining the Bill’s proposer.

Mr James said the Bill had merit and was an important issue which did not need to wait for the policy review and that the Committee should take a decision.         

The Chairperson said that in respect of the gambling bill, the DA had concurred that however important it was, the interest of beneficiaries was best served by a holistic approach

Constitutionality of the Intellectual Property Laws Amendment Bill
The Chairperson said that the President had had reservations about the constitutionality of the Intellectual Property Laws Amendment Bill, one of which was the classification of the Bill under Section 75. The Speaker had referred the matter to the Committee and the Committee would write to the Speaker to refer the matter to the Joint Tagging Mechanism.

The meeting was adjourned.


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