Broad-Based Black Economic Empowerment Commission on its establishment and progress

Meeting report

Presentation on the newly established BBBEE Commission
Ms Zodwa Ntuli, Acting Commissioner, BBBEE Commission, Department of Trade and Industry, thanked the Chairperson for the opportunity to address the Committee.

Ms Ntuli began by saying that although the purpose of the meeting was to engage with the Committee on the progress of the establishment of the BBBEE Commission, the Commission also wanted to get input on the progress that has been made so far, which was at quite an advanced stage. The Minister would be announcing in due course when the Commission would officially be opening its doors.

She said that the BBBEE Commission is so far happy with the progress made since its establishment in September  2015, and all processes needed to implement the BBBEE legislation have been put in place. Key to the process will be the need to get the stakeholders' views. The mistake of officials and implementers is that they often assume that they know what needs to be done. The Commission has taken the approach of speaking to the people that will be impacted upon, in order to hear what their expectations are on what this entity should be doing.

She said that the mandate of the Commission is articulated in the legislation, but it is important to understand what the expectations are within the market. The legislation was enacted by parliament, and the implementation  will receive direction from Parliament. It is therefore crucial that engagements between this particular Committee and the Commission take place to ensure and assess the practicality of the legislation.

The BBBEE legislation was passed in 2003, with the BBBEE Act 53 of 2003. The legislation was introduced to primarily address transformation in the economy. The Act is aimed at redressing the imbalances of the past. It is going to take the involvement of every sector and stakeholder to accelerate the implementation of the Act, until a point is reached where all person are on an equal footing, and can compete for the same opportunities.

The Act was  framework legislation, with no institutional mechanism. It did not outline how non-compliance would be dealt with, and was not aligned with other pieces of legislation. The lack of monitoring and guidance within the industry led to discrepancies and uncertainties which affected the productivity and efficiency within the industry. Misrepresentation and fronting practices took place, including companies changing their names to appear more African, or putting a black person as the face of the company, giving a false reality of transformation, when in fact no transformation was taking place.

The legislation had gaps which were addressed by amendments effected on 24 October 2014, and the revised codes came into effect on 1 May 2015. The Minister had published regulations for public consultation on 17 February 2016, which are available on the dti’s website and the Government Gazette. The Regulations will give effect to some of the functions of the Commission, so that the Commission is able to operate fully.

The amendments introduced an institutional framework that will not only ensure the implementation of the Act, but also monitor its effectiveness on an on-going basis. The Minister is responsible for the overall oversight of the legislation, as well as issuing regulations from time to time. The BBBEEE Advisory Council consists of members from various sectors and industries,  to advise the Minister and President and the Commission, together with every person in the BBBEE sector, on some of the issues emanating from time to time. This Council can also recommend changes to the legislation where necessary.

The BBBEEE Commission has the duty to monitor and ensure that the BBBEE legislation is implemented in a manner that achieves the objectives of the legislation. The BBBEE Verification Professional Regulator is created by the legislation, and the Minister is yet to make a determination of who this Regulator will be and what role it will play within these institutions. This is important because the verification process is a key aspect of the industry; it determines the levels. If the verification process is flawed, the outcomes will be flowed. Integrity is important for transformation.

The Sector Councils report collectively to the Minister, based on the reports given to them by the sector codes and sector charters on the activities in that sector.
 
The definition of what is called Broad-Based Economic Empowerment is based on the effort to achieve viable economic empowerment of all black people, in particular women, workers, youth, people with disabilities and people living in rural areas. This is done through diverse but integrated socio-economic strategies that include increasing the number of black people who manage, own and control businesses. It will include the facilitation of management and ownership by communities, workers, cooperatives and other collective enterprises, increasing human resources and skills development within communities, achieving equitable representation in occupational workforce and categories, preferential procurement of black owned companies and investment in enterprises that are black owned or managed by black persons.

Ms Ntuli said that the student protests around access to finance and accommodation show that the approach to those issues, especially in relation to BBBEE, should change in order to get the country to where it needs to be. There must be viable and sustainable investments that have a direct impact on transformation. The legislation provides clarity on the Chinese people that were in South Africa before 1994, and they are now included in the group of black, Indian and coloured for the purposes of this Act.

There are many rural areas in the country that do not only know, but also do not see the transformation, because it does not reach those areas. More can be done in this regard. The legislation must be able to facilitate entry, by relaxing barriers into the critical areas of the economy, especially those sectors that black people were previously not allowed to penetrate. The issues relating to access to finance and access to capital need to be dealt with urgently, because failure to do so will mean that black people will never access those sectors and be economic participants.

Ms Ntuli said that she would not present some of the slides but was happy to answer any questions relating to them. She then moved on to outline the progress achieved so far by the legislation, and the lessons learnt.

The guidelines had been revised in order to reduce the cost of compliance. Companies with a threshold of below R10 million can now produce an affidavit outlining their position, unlike in the past. There are some sectors that are still not complying with this, and who will still request companies to produce documents when they can actually just give an affidavit. Ten sector codes were gazetted previously, and an allowance has been made to align the codes with the recent codes and the legislation. The alignment has taken place in respect of eight sector codes, which have been submitted to the Minister. The construction and chartered accountancy sector codes have since been repealed because they were not able to meet the deadline and its extensions.

The definition section has been improved to make implementation easier, and gives extensive definitions of concepts and examples of what practices the Commission should be looking into. A trumping provision was introduced and came into effect on 24 October 2015. This provides that if there is  legislation that is not aligned with the BBBEE legislation, and there is any conflict, the BBBEE legislation will prevail. The Commission therefore has the duty to ensure that consistent application is achieved. The legislation clearly indicates who should be reporting in terms of monitoring and evaluation, and a process is under way to determine the frequency of the reports.

The legislation has introduced consequences for non-compliance, which includes penalties which go to the core of business, which is the cancellation of contracts. This means that where there has been a misrepresentation in terms of BBBEE status or level, that can be a ground for cancellation.  A business can be excluded from doing business with the state for a period of ten years where it is found guilty of violating a provision of the Act. The penalties would be a last resort, because they are aimed at ensuring that people do things right, in order for real transformation to take place.

The general mandate of the Commission is to oversee, supervise and promote adherence to the Act, in the public interest. The Commission is also tasked with strengthening collaborations between the public and private sectors, to safeguard the objectives of the Act, promote advocacy, access to opportunities and educational programmes and initiatives. It must also maintain a register of major BBBEE transactions, promote good governance and accountability, and increase public knowledge and awareness through educating, guiding declaratory orders, and researching. The Commission is also mandated to receive and investigate complaints.

The engagements with stakeholders are important to develop strategy and the annual performance plan. Engagements with SOEs, business formations, media and regulatory entities within government have been held. A relationship with the BBBEE Advisory Council has been established, including a clarification of roles. Discussions have been initiated to conclude collaboration agreements with specific regulatory authorities.

Several common issues were raised by the stakeholders. These included comments that the Commission must be well resourced, with an adequate budget to employ skilled staff to perform its functions. There was an urgent appeal to deal with the prevalence of fronting and misrepresentation, and to dispel the impression created that BBBEE is for the elite few. A prioritisation of clear and consistent communication for the general public and industry on requirements needs to be made, together with education and awareness programmes to support compliance by entities. The visibility of the Commission in investigations and prosecutions must be ensured, and focus must be shifted from not only ownership, but all elements of BBBEE. There is a further need to align the verification standards for consistency.

There is an unreliable verification process due to the lack of oversight and effective regulation, and emphasis has been made on skills development and enterprise and supplier development needed to advance real and sustainable transformation. The skills development must help with the creation of a pipeline in critical sectors. Equity equivalent programmes must be aligned to the priorities that enhance impact, and there must be clarity on the verification certificates, their expiry and material changes in status after contract is awarded. The township and rural economies must be targeted to broaden empowerment, and there must be active monitoring of sectors to prevent collusive platforms through the sector codes.

Ms Ntuli said that BBBEE must benefit the poor and create employment opportunities, and the stakeholders requested that consistency within government must be addressed in the implementation of the BBBEE Act. There must be clarity on the trumping provision, the black empowerment schemes, and the concept of ‘once empowered always empowered’. An alignment between the BBBEE Act and the Preferential Procurement Policy Framework Act (PPPFA) is needed, as this hinders procurement initiatives aimed at advancing transformation. Guidance on the exemption and deviation to exceed generic codes, and consistency in the approaches of the department, the National Treasury and the Auditor General on BBBEE will be needed also.
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The stakeholders raised the importance of partnerships and collaborations in monitoring compliance with the Act, and noted the lack of buy-in from stakeholders and between boards and CEOs on the application. An appeal was made for the Commission to look into the qualitative aspects of BBBEE such as content stripping and creation of joint CEOs where black senior people are appointed. The stakeholders were concerned about the trends taking place in companies that on appointment of a senior black manager, the content of that position automatically changes so that this person is basically the face of the position but does not make decisions in respect of the company. The way positions are created are not in the core of the business, but on the side-lines.

The alignment between the BBBEE Act and the Employment Equity Act was emphasised, as well as the call to remove barriers to transformation such as the credit policies of financial institutions and access to markets. The need for advisory services and cost effective dispute resolution mechanisms was emphasised, because disputes between shareholders result in unaffordable legal costs. The structure of contracts strips minority shareholders of their rights, and delayed economic benefits.

There were areas that were identified as needing immediate attention, such as the alternative dispute resolution mechanism, advisory services on BBBEE transactions, and education and awareness campaigns on the BBBEE Act, consistent application of the Act across sectors and systematic investigations and remedies.

Ms Ntuli concluded by saying that BBBEE must improve equality, create jobs and reduce poverty. It must shift to promote quality, impact and sustainability of BBBEE transactions. The consistent and transparent application of the Act is needed to create confidence in the system and policy, and more support is needed to advance transformation. All organs of state and public entities must implement the Act and contribute towards an inclusive economy.

The Chairperson thanked Ms Ntuli and requested her to deal with a few issues before the Committee engaged with questions. She asked her to speak to the development of the supplier chain, and companies being able to progress, and the indirect skills transfer.

Mr Liso Steto, Acting Chief Director, BEE Unit, dti, responded that in the past there was not a stringent approach to investing in a black-owned business, and buying from or doing business with the same business. The change is now focused on value, the quality of the products and how the products are supplied, which is what most businesses are grappling with. There had been an effort to try and relax some of the requirements pertaining to smaller businesses, but for the big businesses with a turnover of more than R50 million, there is an expectation that the requirements must be met. There is also the issue of local content and local value creation, which means that instead of importing, consideration must be made towards local suppliers, and it makes good business sense to do so.

Discussion
Mr G Hill-Lewis (DA) asked a question relating to the call for businesses to actively engage in the BBBEE Act and comply with it. He further asked about the trumping provision and its enforcement, and compliance in dealing with real redress and transformation in supplier development by simplifying the compliance requirements.

Mr A Williams (ANC) asked a question relating to the real and actual picture of who owns and controls the economy.

Adv A Alberts (FF+) requested whether the information the Commission will be receiving on the trends will be taken to the Minister, so that an evidence-based decision is made to eradicate poverty and ensure transformation. He further wanted to know whether the Commission is engaging with stakeholders in the social development sector and what their contributions have been.

Mr D Macpherson (DA) said that the country is getting frustrated with BBBEE because the same people are benefitting from it. He mentioned the President’s son who received a tender to supply Eskom with coal for the fourth time. There must be a requirement for companies to train, employ and provide skills specifically for black people, and people in rural areas, so that BBBEE can be seen to be effective. He expressed concern over the new codes and their provisions, and the effect they have on the sustainability of businesses. There are only four steel producers in South Africa, of which are not black owned. Companies cannot be awarded preferential treatment because they are not able to access certain markets.

Mr J Esterhuizen (IFP) asked about stakeholder engagement, and the repeal of the construction and chartered accountancy codes. New compliances were gazetted with a compliance deadline being 1 March, which has brought confusion within companies as to why they were given only ten days to comply.

Mr B Mkongi (ANC) asked about the enforcement and the right to subpoena entities that do not comply with the requirements. He asked about the strategies to deal with fronting and misrepresentation by companies, and wanted to know whose responsibility it is to deal with supplier and enterprise development. He further wanted to know about the time period within which the Commission will produce the guidelines to supplement the gaps within the Act.

Mr M Kalako (ANC) requested that the Committee re-visit the discussion because there is a lot that needs to be discussed, He commended the Commission on the progress that it has made so far. He noted that after 20 years it is only being noted now that all the charters of BEE did not work. He further noted that the trumping provision is key to the legislation being implemented. He requested that there should not be an impression created that the relatives of Members of Parliament should not be excluded from individually benefiting from the BBBEE legislation.

Ms Ntuli highlighted that the engagement today was intended to get views from Parliament, and that the Commission will be returning to brief the Members on its strategy and way forward.

Mr Steto responded to the question of sectors being caught unaware by the notice of compliance published on 17 February 2016. He mentioned that the process began in 2013, and letters were sent to the sectors informing them of the changes in the legislation on which they are based, and a call for alignment was made. The deadline was set for a 12 month period, which was extended three times, up to October 2015. The Minister of Trade and Industry had already said that repeals will be considered where alignment is not achieved, to avoid  double standards. The construction and chartered accountancy codes were repealed on 17 December 2015 because the constituencies of the sector failed to reach consensus on issues.

He responded to the question of enterprise development by saying that is it the responsibility of the business, remembering the position of the customer, and the business buys products. Many businesses have taken on the responsibility, proving that a lot can be achieved. There are enhanced efforts for skills development and entry into work opportunities, and provision for enhanced recognition if a business creates jobs.

Ms Busisiwe Ngwenya, Director, Strategy and Special Projects, dti, responded to the question of compliance results by saying that there is a need for a research, analysis and report unit that will be doing the market and trend analysis, and the results of this will form part of the report to be submitted to the Minister. The Commission will be linking up with the JSE to monitor trends in transactions. At present the Commission does not have a strategy to deal with social development organisations but is looking into how to collaborate with them going forward.

Ms Ntuli added that the Commission will be working with industries to manage the process of reverting to the generic codes. The guidelines are important because stakeholders have already alerted the public that the codes are complicated and are working to simplify the codes. The black industrialist programme is a key component of BBBEE, and there is a responsibility on the Commission to monitor how it is going to be implemented.

Mr Macpherson urged the Commissioner to look into industries where there are currently no black owned companies, and to respond to the issue of how the calculation of the R50 million cap in terms of first time entrance, and the issue of black-owned companies versus black managed companies.
The Chairperson asked Ms Ntuli to respond to this question in writing. She requested that all the relevant legislation be given to Members.

The meeting was adjourned.