Overview of Broad-Based Black Economic Empowerment Policy and Codes of Good Practices

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Trade and Industry

11 November 2014
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Department of Trade and Industry briefed the Committee on Trade and Industry on the Broad-Based Black Economic Empowerment (BBBEE) Amendment Bill, focussing on the Code of Good Practices, the establishment of the BBBEE Commission, the alignment of Sector Charters and the way forward.

The Act had been amended to ensure effective and consistent implementation and reporting across the economy. It had established the BBBEE Commission to monitor and evaluate BBBEE, and had aligned the Act with other legislation impacting on BBBEE and with the Codes of Good Practice. It dealt with non-compliance and circumvention, and gave effect to government policy aimed at reducing inequality, defeating poverty and creating employment. The Amended Act proposed the introduction of offences, penalties and prohibitions to deal with non-compliance and offences in connection with the Commission.

The amendment had been signed into law on 27 January 2014, and all provisions had come into effect on 24 October 2014, except for the trumping clause (section 3), which had been deferred for 12 months, and would come into force in October 2015. The Regulations would be finalised by the end of November 2014.

Members of the Committee expressed their concern about the “soft law” nature of the Amendment Bill and the power of the BBBEE Commission to enforce the Amendment Bill. They posed questions aimed mainly at whether the Amendment Bill would bring with it a radical transformation in the economy, whether the amendment had been based on sound research, whether the Bill would contribute to eradication of poverty, and how black people would be assisted to become not only entrepreneurs, but own and control companies. There was a public perception that it was only the black elite who benefited from BEE programmes, so how would the poor black community benefit from the amendment, and how would new entrants be assisted and classified?

Meeting report

Briefing by Department of Trade and Industry (DTI)

Ms Nomonde Mesatywa, Deputy Director-General, DTI, took the Committee through the presentation, focusing on the Broad-Based Black Economic Empowerment (BBBEE) Amendment Act 46 of 2013, the Codes of Good Practice, establishment of the BBBEE Commission, alignment of sector charters and the way forward.

It had been ten years since the promulgation of the BBBEE Act, which had been positioned as “soft legislation” with no consequences for non-compliance.  The Act had been amended to ensure effective and consistent implementation and reporting across the economy. It had established the BBBEE Commission to monitor and evaluate BBBEE, and had aligned the Act with other legislation impacting on BBBEE and with the Codes of Good Practice. It dealt with non-compliance and circumvention, and gave effect to government policy aimed at reducing inequality, defeating poverty and creating employment.

The Amended Act proposed the introduction of offences, penalties and prohibitions to deal with non-compliance and offences in connection with the Commission.

She said that the amendment to the BBBEE had been signed into law on 27 January 2014, and all provisions had come into effect on 24 October 2014, except for the trumping clause (section 3), which had been deferred for 12 months, and would come into force in October 2015. The Regulations would be finalised by the end of November 2014.

The process of setting up the BBBEE Commission was at an advanced stage and would be operational by 31 March 2015. A new era of empowerment would be centred on skills development, job creation, localisation, industrialisation, and supplier development.

She briefed the Committee on phase one and two of the Codes of Good Practice.

The alignment of sector charters was at an advanced stage in all sectors. These included the construction, property, tourism, transport, financial, mining, chartered accountancy, forestry, AgriBEE, and the Information, Communication and Technology sector charters.

The amended Codes would come into effect on 1 May 2015.

Discussion

Ms P Mantashe (ANC) sought clarity on what the DTI was going to do differently to ensure the Codes of Good Practice were complied with.

Mr B Mkongi (ANC), with regard to the DTI’s claim that companies were showing willingness to conform, asked how willingness was measured. He remarked that normally graduates who worked as interns were restricted to administrative work such filing and making copies. He asked how the DTI would ensure that they were trained. Did, or would, the DTI monitor internship and training? He sought clarity on why the Amended Act explicitly talked about “every organ of the state must take into account any relevant Code of Good Practice in terms of the Act”, but it did not do the same with regard to private companies and enterprises. Finally, he sought clarity on how the BBBEE Commission would be turned into a “biting” entity, and on what the status of the BBBEE Commission was. Was it one of the Chapter Nine institutions?

Adv A Alberts (FF+) sought clarity on the objects of the Amended Act, and asked how sure the DTI was about claiming that the Amended Act would defeat poverty and create jobs. Were those claims based on the outcome of research, or merely a perception? Was there any company that was complying with the Codes of Good Practice? He asked whether it made sense to exempt companies with an annual total revenue up to R5m, given that most of the companies were small entities.

Mr G Hill-Lewis (DA) remarked that the BBBEE Act offered rewards only to companies that complied with it, by allowing them to do business with the government. If a company did not comply, it could not do business with the government, or with any other companies doing business with government. That was awful. The DTI should consider an extension of the finalisation of the Codes of Good Practice to accommodate all stakeholders’ comments. The calculation in terms of generic scorecards was unclear, and the timeline of implementation was problematic. He sought clarity on how 25% plus one vote was, for example, calculated to determine the compliance target.

Mr Hill-Lewis raised concern about who would benefit from the BBBEE Amendment Bill. There was a public perception that it was only the black elite who benefited from BEE programmes, so he asked how the poor black community would benefit from the amendment, and how new entrants would be assisted and classified.

Mr F Shivambu (EFF) sought clarity on why the DTI was just focussing on amendments rather than focussing on monitoring and evaluating whether companies were complying, and why nothing had been done to determine that. Why should the DTI draft the Codes of Good Practice if they were not sure that the companies would comply with them? With reference to the implementation of the BEE, he said that companies had a tendency to recruit black people in senior management positions, but that tendency should not be interpreted as complying, because the company would still be white-owned and controlled. He suggested that there should be an agreement between companies and the state on how BBBEE would be complied with, and the penalties to be enforced for non-compliance.

Dr Z Luyenge (ANC) sought clarity on the new mechanism that would be used to monitor and evaluate compliance and to ensure that the Codes of Good Practice were taken seriously. Would the BBBEE Commission have a locus standi, cutting across all spheres?  How would the effectiveness of the BBBEE Commission be ensured? 99% of the companies were white-owned companies, and he asked when the South African economy would be transformed.

Mr D Macpherson (ANC) supported Mr Hill-Lewis on the argument that the BBBEE benefited the few. He remarked that BBBEE had been designed and redesigned to suit the governmental agenda, and sought clarity on when there would be “a broadened and genuine black participation.’ The DTI should move beyond focussing on narrow participation.

The Chairperson asked Mr Macpherson what “genuine black participation” meant, or entailed.

Mr Macpherson replied that he meant the black economic empowerment programme from which the majority of the black people would benefit.

Mr N Koornholf (ANC), referring to Mr Mkongi’s argument, said that his work was limited to making copies when he was a candidate attorney, and that was usually the work done by interns. The issue of training was problematic. How would the DTI ensure that young people received training?

The Chairperson asked the presenter not to use jargon when answering questions, and remarked that the Committee would need a report on economic empowerment transformation.

Adv. Alberts sought clarity on whether there was research indicating that BBE had contributed to economic growth and eradication of poverty, and remarked that it would be difficult to enforce BBBEE, given that it was a soft law.

Mr Shivambu commented that a law should not require an individual to comply voluntarily. In this respect, the law could not achieve its objective. The legislation was useless, spineless and toothless. For economic transformation to be achieved, black-owned and controlled companies should be created. There should be a clear guideline on how black economic empowerment would be realised. Real economic transformation would be realised only if the ANC was taken out of power and a new ruling party came with a new ideology.

Dr Luyenge asked the Chairperson how she could allow Mr Shivambu to make a political comment instead of interrogating the substance of the presentation. He should not have made a comment undermining the ANC in a Committee meeting. Such comment could be allowed only in the House of Parliament.

The Chairperson responded that engagement in debate should be encouraged, and Members should allow debate to flourish.

Mr Mkongi said that he was surprised that the Chairperson had allowed Mr Shivambu’s comment on the ANC. Allowing such a comment would open a political debate which had nothing to do with the Committee’s agenda. What would happen if he argued that the EFF would never rule the country? These kind of arguments should be discussed among themselves after they had completed their work for the day.

The Chairperson said that the Committee was not sitting for six hours, otherwise it could entertain the political debate. The Members should be concerned on whether BBBEE would bring the change that South Africa needed.

Mr Shivambu said that there was no other platform where he could make the remarks he had made concerning the ANC’s failure to take a firm stance on economic empowerment. Transformation was a political phenomenon.

The Chairperson agreed. In 1996, the executive had been excited and proud of BBBEE. The legislation that had been passed was, however, more sophisticated.  It had good objectives, but lacked implementation due to the absence of enforcement mechanisms.  The issue of skills that could have facilitated new entrants to develop their own businesses had been neglected.

Mr Takilani Tambani, Acting Chief Director: DTI, replied that the DTI had been overseeing, monitoring, and evaluating black empowerment. The DTI had focused on ensuring key developmental strategies were implemented, including skills development, ownership, management, socioeconomic development, and preferential procurement. With regard to research, there had been a survey on economic empowerment. The report had showed that empowerment was at level eight. That was its worst performance. Over period of time, a follow up study had been conducted; covering all sectors and all provinces, and the entire economic empowerment had been at level four. This was what the DTI had achieved, despite various challenges. On the issue of monitoring training, the DTI had interviewed employees and compiled reports on companies and, on the basis of the reports; it had determined whether the employees were being offered training for critical positions. The analysis had been conducted, together with the South African Revenue Service (SARS).

The DDG remarked that some of the issues raised by Members had been simply comments and did not need to be responded to. Referring to the BBBEE Commission, she stated that it was an independent body, which would be capacitated to ensure compliance.

Mr Tambani, with reference to the enforcement capacity, said the BBBEE Commission would be entrusted with the power to oversee, monitor and enforce implementation. On the issue of calculation, technical advice or guidance would be offered. On the typing errors, there was a group in charge of editing, and the document would be edited before publication. He admitted that a lot of work had to be done on radical transformation to ensure that transformation was achieved.

The DDG stated that she would prefer to come back and brief the Committee on technical matters.

Adv. Alberts stated that none of his questions had been answered.

Mr Mkongi suggested that the DTI go back and prepare a response on technical matters, and reiterated that the Amendment Bill was a soft law with no “biting” mechanisms. The DTI should look at whether the Amendment Bill would assist South Africa to radically transform the economy.

Mr Hill-Lewis stated that if the DTI could not explain how calculations would be done, it should do so in writing.

The Chairperson said that time would not allow the Committee to arrange for another DTI briefing on technical matters. Clarity on the unclear issues raised by Members was needed before closing for the festive season. It was of concern that the Deputy Director General could not explain basic issues. The Committee’s secretary would write a letter to the DDG requesting responses. Responses should be submitted to the Committee by Tuesday, 18 November 2014.

The DDG stated that baseline research was carried out in 2007. The DTI had recently released another survey. These surveys could be found on the website, and had been presented at the BBBEE summit. These surveys indicated the extent of the companies that were doing business illegally. The Amendment Bill introduced mechanisms to ensure that business was conducted legally.

The Chairperson informed the Committee that there would a joint meeting on 18 November 2014.

The Committee discussed upcoming meetings.

Mr Mkongi suggested that the Committee should call at least two entities to brief the Committee.

Mr Macpherson informed the Chairperson that he and Mr Hill-Lewis would not be available on 26 November 2014 due to by-elections.

The meeting was adjourned until 18 November 2014.

 

 

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