The Department of Trade and Industry (dti), in the presence of the Deputy Minister, briefed the Committee on its Broad Based Black Economic Empowerment (BBBEE) Codes, and the implementation of the BBBEE Act. It was noted that there was still a need to increase the pace of transformation in the economy of South Africa. Since 1994 the South African economy had doubled in growth, as evidenced by the 9 million jobs in 1994 rising to 15 million currently. However, there was concern that transformation in the economy had been much slower, and the benefits of economic growth had not been spread around enough. Some history was given to the introduction of the Broad-Based Black Economic Empowerment (BBBEE) Act 53 of 2003, which had come into operation on 24 October 2014. The BBBEE Codes of Good Practice (the Codes) came into effect on 1 May 2015. A BBBEE Commission was in the process of being established, and an Acting Commissioner had been appointed. The Commission was an entity within the administration of the dti, with the mandate to oversee, supervise and promote adherence with the Act, to receive and investigate complaints relating to BBBEE, to investigate any matter relating to BBBEE, to promote advocacy, access to opportunities and educational programmes and initiatives, to maintain a registry of major BBBEE transactions, and lastly to receive and analyse prescribed reports concerning BBBEE compliance. The process of establishment was quite advanced.
One major problem when starting to implement the BBBEE Act was that it was discovered that other legislation was in conflict and the interpretation clause, section 3, was therefore amended to provide that, in the event of inconsistencies or conflict in other earlier pieces of legislation, in respect of areas covered by the BBBEE Act, the BBBEE Act would prevail. The trumping provision was given a 12 months transitional period and would come into effect in October 2015. The dti was currently in the process of engaging relevant public sector stakeholders on the implications of the clause.
It was explained that the developmental objectives were skills development, job creation, localisation, industrialisation and supplier development. For the Codes of Good Practice, the Generic Scorecard was aligned in accordance with government key priorities, and its five elements were described. All companies, apart from Micro-Exempted Enterprises (those with a turnover of under R10 million) would have to comply but they were divided into categories, defined by turnover. The Codes came into effect on 1 May 2015. Sector Codes were developed, which could not be any weaker than generic codes, in five sectors of tourism, property, AgriBEE, forestry and media, to date. A process had also started to align the Mining Charter and Liquid Fuel Charter to the Codes. A BBB Ownership Task Team, with representatives from various sectors, had been set up, to investigate and explore the appropriate model for structuring BBBEE deals, as well as to develop an ownership guideline on the composition of beneficiaries in an ideal BBBEE transaction. It would meet in August and then table recommendations to the Minister, and the BBBEE Verification Manual was also to be published before end August for implementation, and a Technical Assistance Guide was being prepared.
The dti corrected some incorrect media reports about those who were included, and also addressed the suggestion that the time was not appropriate to implement the Codes. Members questioned why the dti had concentrated on employment, without mentioning that unemployment had also increased, and this should be a major focal area. The dti conceded that the current 25% unemployment was too high. Other Members, while commending the good work being done by dti, were worried that many companies did not understand the significance of the BBBEE Codes, and greater and better dialogue was needed. The threshhold figures were queried, and concerns raised that the same groups of people were benefiting without new entrants being given enough chance. Dti was asked what the role of the BBBEE Commission on the enforcement of the Act and Codes would be, whether it had sufficient powers to enforce and to stamp out instances of non-compliance, and how it would address fronting. Members noted that mining was another sector needing attention, as well as other sectors that were lagging behind, and asked how dti would interact with the manufacturing sector that was facing difficulties. Members seemed united in their concerns at the current state of economic development in the country.
Members adopted minutes of meetings on 17 June 2015 and 29 July 2015.
Broad-Based Black Economic Empowerment (BBBEE) Codes and the implementation of the BBBEE Act
The National Department of Trade and Industry (dti) briefed the Committee on its Broad Based Black Economic Empowerment (BBBEE) Codes and the implementation of the BBBEE Act. The delegation comprised of Mr Lionel October, Director General, Mr Sipho Zikode, Deputy Director General, Ms Lindiwe Madonsela, Acting Director: Black Economic Empowerment and Mr Liso Steto, Acting Chief Director: Black Economic Empowerment. Deputy Minister Mzwandile Masina was also in attendance.
Mr Lionel October, in his introductory remarks, said that there was a need to increase the pace of transformation in the economy of South Africa (SA). Since 1994 the South African economy had doubled in growth. In 1994 there had been a total of 9 million jobs whereas at present there were 15 million jobs. It was, however, of concern that transformation in the economy had been much slower. The benefits of economic growth had not been sufficiently spread around.
Mr Liso Steto gave a background to the legislation. The Broad-Based Black Economic Empowerment Act 53 of 2003 (the Act), as amended by the BBBEE Amendment Act 46 of 2013, came into effect on 24 October 2014.The BBBEE Codes of Good Practice (the Codes) came into effect on 1 May 2015. He then elaborated on the establishment of the BBBEE Commission (the Commission), which was an entity within the administration of the Department of Trade and Industry (dti).The functions of the Commission were to oversee, supervise and promote adherence with the Act; to receive and investigate complaints relating to BBBEE; to investigate any matter relating to BBBEE; to promote advocacy, access to opportunities and educational programmes and initiatives; to maintain a registry of major BBBEE transactions; and lastly to receive and analyse prescribed reports concerning BBBEE compliance.
The process of establishing the Commission was at an advanced stage, and was awaiting Cabinet consultation, in line with the Act, on the appointment of the Commissioner.
It had been found, when starting to implement the Act, that certain other legislation was in conflict with the Act. To remedy this, the interpretation clause (Section 3 of the Act) was extended to include a trumping provision, which meant that the BBBEE Act would trump any law that was in force prior to the date of commencement of the Act, insofar as any conflict pertained to any aspect dealt with in the Act. The trumping provision had a 12 months transitional period, and would come into effect in October 2015.
The dti was currently in the process of engaging relevant public sector stakeholders on the implications of the clause.
The developmental objectives of the Act were skills development, job creation, localisation, industrialisation and supplier development. For the BBBEE Codes of Good Practice the Generic Scorecard was aligned in accordance with government key priorities. The Generic Scorecard had five elements: Ownership, Management Control, Skills Development, Enterprise and Supplier Development and Socio Economic Development. The Committee was provided with specifics on the requirements for each of the elements with which enterprises of different sizes would have to comply. Basically, all companies except for Micro-Exempted Enterprises (EMEs) - equivalent to small enterprises - would have to comply with all five elements. The recognition status of black owned EMEs and Qualifying Small Enterprises (QSEs) - equivalent to medium sized enterprises - were enhanced. The Codes came into effect on 1 May 2015.The thresholds for EMEs, QSEs and large entities had been adjusted. The threshold for EMEs had increased from R5 million to R10 million; for QSEs it had increased from the initial R5 million -R35 million range to the current R10 million - R50 million range, and large entities would be those of R50 million and above.
Sector Codes were developed in terms of the Generic Codes of Good Practice. The Sector Codes had to be a step up from the Generic Codes, and could not be weaker. To date five sector codes had been submitted for approval, covering the areas of Tourism, Property, AgriBEE, Forestry and Media. The Tourism Sector Code was published on 30 June 2015 for the 60 days public comment period. The rest of the sector codes were still being considered. The process of aligning the Mining Charter and Liquid Fuel Charter to the Codes had started. A Broad Based Ownership Task Team had been set up. The terms of reference for the Task Team were to investigate and explore the appropriate model for structuring BBBEE deals, as well as to develop an ownership guideline on the composition of beneficiaries in an ideal BBBEE transaction.
The Task Team consisted of representatives from the Presidential BEE Advisory Council, labour, business, academia; and industry experts and practitioners. The first meeting was scheduled to take place in August 2015. One month later the Task Team would be expected to table recommendations to the Minister. The amended BBBEE Verification Manual had been completed and would be published before the end of August 2015 for implementation. The dti was in the process of finalising the Technical Assistance Guide (TAG). Further nationwide workshops and briefing sessions on the BBBEE Codes were under way.
Deputy Minister Masina informed the Committee that he had read an article on the previous day in The Mercury, which made him somewhat worried, for it had claimed that the new BBBEE Codes would exclude people of Indian descent. He responded that this was simply not true and would be contrary to the spirit of the Constitution.
Mr October explained that the BBBEE Act did contain a definition of “black”. It included Africans, Coloureds and Indians. He said that people were distorting the BBBEE Codes. The fact was that 70%-80% of top management in companies were still in White and Indian hands.
Mr W Faber (DA, Northern Cape) was concerned that companies did not understand the significance of the BBBEE Codes. He also asked what the difference was between a value adding supplier and an empowering supplier. He also asked what would be the definition of "a good citizen"?
Mr Faber asked whether the fact that the turnover threshold for small business had been increased from R5m to R10m was not making the wealthy even wealthier. A turnover of R10m was not, to his mind, a small business. The focus should be on really small businesses.
Mr Steto responded that the definitions of value adding and empowering suppliers had, in the past, been very simple. For a value added supplier cost of sales and skills transfer were the main considerations - and here, the issue was really how to verify the figures. However, an empowering supplier, in the context of BBBEE, was a BBBEE compliant entity which could show that its production activities took place in the country. He noted that the verification manual was to be gazetted for value-adding businesses. It would be applied and implemented. Companies with empowering suppliers needed to adhere to regulations.
Mr S Mthimunye (ANC, Mpumalanga) said that the interventions by dti were commendable. He asked what the role of the Commission would be, on the enforcement of the Act and the BBBEE Codes. He asked at what intervals the dti would be doing assessments when it attended to compliance monitoring.
Mr October said that the dti was aware of the unintended consequences of fronting. The purpose of the new amendments was not only to deal with the usual fronting that everyone was aware of, but also to deal with complex fronting at corporation level. The problem was prevalent with multinationals, where full benefits were not flowing to black people in SA. He pointed out that the appointment of the Commission was imminent. Funding issues were being sorted and it should be up and running within the next month or two. The Commission would deal with fronting and complaints.
Mr Steto spoke to the frequency of reporting, and said that the idea was that the Commission would enhance it. The Commission would enable the dti to keep its hand on the pulse, as well as having access to data.
Mr B Nthebe (ANC, North West) noted that he followed the media space with keen interest. He wished to make it clear that he was not suggesting that the dti should be contesting the same space as the media. The Committee appreciated the work that dti did. He asked what the state of readiness was, of the dti, to put its stamp of authority on practices like fronting. He suggested that, in particular, the dti had to take action in the mining industry. He asked if skills transfer was taking place and what were the modes of such transfer. He asked what the patterns were that the dti was seeing. The dti was asked how it intervened on the importation side. Speed was needed in sectors that were lagging behind.
Mr October was aware that implementation had to be speeded up. The communication of the BBBEE Codes was considered important. Media reports stating that the economy was "in a mess" were wrong. The media suggested that, given the current state of the economy, the BBBEE Codes should be delayed until the economy picked up. The dti needed to challenge these statements. He pointed out that the Black Industrialist Campaign had received good media coverage. A positive image needed to be presented. It was true that the mining sector was going through some pressures at present. History was sufficient evidence in itself in that all things were cyclical, and hence the pressures would pass. In the year 2000 the mines had made huge profits, but now they were saying that they could not implement the BBBEE Codes because the economic outlook at the moment was bleak. When things were going well the same mines did not implement BBBEE either. The mines were coming up with excuses in order not to transform the sector. He stressed that there was a distorted view of economic progress in SA. In 1994 there had been 9 million people employed, but the current figure had risen to 15 million. In the late 1990s and early 2000s growth was around 5%. There was a wrong perception that BBBEE slowed down economic growth. The Commission was now in place to ensure that excuses were no longer tolerated.
The Chairperson said that it was well known that the manufacturing sector was a key driver in the economy. Manufacturing was, however, going through some difficulty at present. He asked what interactions the dti was having with the manufacturing sector on the Codes.
Ms Z Ncita (ANC, Eastern Cape) agreed that the dti was doing good work. She asked whether the Commission would have teeth to investigate complaints of non-compliance. The idea was to see a narrative change, as the dti needed to communicate what it did, and to display what the BBBEE Codes would mean for the whole of SA.
Mr October stated that implementation had been done on legislation and the BBBEE Codes. Consultation had also been done. The dti had even given extensions on the drafting of Charters. In the past, the dti had no teeth and no legal power to investigate fronting. The new amendments gave the Commission the power to investigate and to impose sanctions. He reiterated that this Commission was being established at present.
Mr Londt remarked that if Mr October was saying that the narrative in the media and the general public on the state of the economy was false, then was he suggesting that SA’s economy was indeed on the right track and was even on the up? He said that a comparison of employment rates of 1994 with those of the present was one point, but he thought that it was necessary also to look at SA’s huge unemployment rate. Not only had employment increased but so too had unemployment. The dti should focus on dealing with the unemployment. Perhaps the BBBEE Codes could try to help. New people needed to be brought on board in relation to BBBEE. It could not be the same pool of people who were benefitting from BBBEE. He observed that the guidelines seemed to apply to the same people over and over, and asked why new players were not being given a chance?
Deputy Minister Masina responded that radical socio-economic change was needed in SA. Issues of unemployment were well documented. Mr October was emphasising the positive change that democracy had brought to SA, in the rise from 9 million jobs in 1994 to15 million jobs at present. The narrative in the media seemed to indicate that that BBBEE was only there to empower a select few, but this was not the intention.
Mr Londt said that he had wanted Mr October to respond to his questions, and not the Deputy Minister.
The Chairperson pointed out that the Deputy Minister was fully entitled to respond to questions of Members.
Deputy Minister Masina said that he was simply adding to the conversation. He represented the South African government. The narrative on BBBEE had unintended consequences. A balance was needed on direct ownership and BBBEE. Everyone needed to work together to build on the narrative.
Mr October said that unemployment in SA was currently 25%, and he conceded that it was very high. The reality was that new people came into the labour market each year. It was hoped that SA could reach a growth rate of 5%. SA was on the right path. Manufacturing, industrialisation and agriculture were being encouraged as drivers. The intention was to create more jobs. SA, in the past, had been on the wrong path, where its focus had been on the export of raw materials and on consumption expenditure. This focus was good for the early 2000s but took a downturn in 2008 with the worldwide economic crisis. Back then, China was SA’s biggest customer for raw metals and materials. However, China was now fully industrialised and no longer needed raw materials. The mistake that SA had made was not realising that commodity export would follow a cyclical trend. SA was now on a new growth path. He emphasised that mining needed to be invigorated. The USA had a good economy because it had diversification, including both manufacturing and agriculture amongst other things. SA had problems, partly due to its legacy, and one could not simply blame the current administration. The fact was that there were very few black companies in SA. The problem was that whilst government could put legislation on BBBEE in place, it was up to the private sector to implement. He reiterated that the narrative out in the public eye was false. If implementation was done properly, then the economy would grow.
Mr Steto pointed out that the dti had enterprise development to assist entrepreneurs. The dti supported businesses but the problem was that the public was not procuring from them.
The Chairperson said that it seemed that all members were concerned about economic development. People who were previously disadvantaged needed to benefit. Inequalities in the space had to be dealt with. One concern was that women’s empowerment was not going as well as it should. He noted that Minister Rob Davies had informed him that an Acting Commissioner had been appointed to the Commission, who was Ms Zodwa Ntuli, a Deputy Director General in the dti.
Adoption of Committee Minutes
Committee minutes from the meetings on 17 June 2015 and 29 July 2015 were adopted, with no amendments.
Mr Mthimunye asked how matters arising in meetings would be dealt with by the Committee.
The Chairperson responded that there were a number of options. Firstly, the matter could be raised in a meeting. Secondly, the matter could be brought to the attention of the Committee Secretary. Lastly, the Committee Secretary could be asked to follow up on matters.
He noted that the Committee would not be meeting the following week as it would be on oversight.
The meeting was adjourned.
Download as PDF
You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.
See detailed instructions for your browser here.