Amended Financial Services Sector Code: DTI briefing & B-BBEE Commission response

This premium content has been made freely available

Trade and Industry

08 March 2017
Chairperson: Ms J Fubbs (ANC)
Share this page:

Meeting Summary

The Committee was briefed on the draft Amended Financial Services Sector Code. The meeting was convened in preparation for the Transformation of the Financial Sector hearings with the Finance Standing Committee the following week.

Department of Trade and Industry (DTI) directorate on Broad-Based Black Economic Empowerment highlighted that B-BBEE Sector Codes were a means of addressing sector specific issues that hindered transformation within a specific sector. However Sector Codes were not meant to undermine the Generic Codes. The Sector Codes address: skills backlog; skewed participation; competitiveness; reduction of poverty and unemployment and creates a class of black people who have sufficient income to uplift their living standards and creates long term wealth in black hands. It was emphasised that the Financial Sector Code (FSSC) have not being finalised however the Financial Services Sector Charter Council (FSSCC) met on 7 March 2017 and considered some of the inputs of the DTI B-BBEE directorate to ensure black people have more access to capital and simulate economic transformation. The current status showed a regression in average ownership of financial services entities and average management control according to a survey by the FSSCC in its 2013 and 2014 reports. Although access to financial services has improved, a lot still needs to be done. The challenges facing transformation include low level of transformation; lack of establishment of black industrialists as the next phase of empowerment; lack of access to affordable and reliable financial services and insurance products; lack of establishment of enterprises per sub-sector to properly measure B-BBEE compliance and despite the monitoring indicators of the FSSCC there is very little response rate from the industry. However there had been attempts within management control to address the empowerment of black participants but DTI feels more should be done.

In response to the proposed Amended Financial Services Sector Code, the Acting Commissioner of the B-BBEE Commission stated that the proposed FSSC in its current form should not be approved because it does not advance radical economic transformation but regresses it. She listed several aspects that the Commission was not satisfied with:

• The flawed ownership is retained at a target of 26% despite the worrying ownership patterns in the sector. Some companies do not have black senior managers and this is further diluted by introducing equity equivalent through empowerment financing at the same rate with other bank lending. Other challenges are giving bonus points for already low targets on black industrialists funding and empowerment. In terms of management control, one has not seen a lot of top black executives but there is also dilution of job descriptions through Joint Chief Executive Officer positions (with a black and white CEO). The Commission is concerned that the Code seeks to exempt certain entities which is not authorised in terms of B-BBEE.
• The Skills Development element of FSSC proposes to spend more money on developing lower skills as opposed to senior and executive skills. The Commission would want a review of the percentages allocated so there would be upward movement. The Commission wants to see incentives included as well.
• The Preferential Procurement and Supplier Development FSSC do not directly address the deviations in procurement. Banking procurement is about 90% information technology yet black industrialists suppliers have not being empowered so the Commission seeks the introduction of new black players in the system.
• The Codes for Socio-Economic Development should recognise consumer education which is already in the National Credit Act, Consumer Protection Act and the legislation administered by the Financial Services Board which provides for clear disclosure and explanation in simple language.
• The additional two elements that are needed are Empowerment Finance and Access to Financial Services. Empowerment Finance does not state the rates and benefits that accrue to blacks that are supposed to be empowered. She stated that the FSSC in its current form should not be approved because it does not advance radical economic transformation but regresses it. The concerns included the FSSC has not been able to clarify the additional elements because the additional elements could result in deviations; if sector players were not colluding on services that they should compete for.

She noted current challenges that needed to be solved: the ‘once empowered, always empowered’ principle which creates regression; the non-finalisation of Sector Code; lack of access to funds by black people which encourages fronting; lack of implementation by government entities which affects the transformation pace; abuse of B-BBEE arrangements and concepts in implementation; and lack of integrity in the verification process and conduct of professionals.

She emphasised that the B-BBEE Commission was not set up to change the law but to implement the law. However there are challenges with what is in the Codes because some of the concepts and principles in the Codes allow a further dilution of the real transformation in the Financial Services Sector due to the way they are applied. The Commission is issuing guidelines on the proper application of the Codes, because these concepts allowed in the Sector Code do undermine the Generic Codes. The Commission monitored five elements in the Codes: Ownership; Management Control; Skills Development; Enterprise and Supplier Development and Socio-economic Development.

In discussion, Members asked which government entities were not complying. As matter of urgency the top ten non-compliant government entities should be invited to brief the Committee on why they are not complying. Fines should be imposed on non-compliant companies and the B-BBEE Commission should implement legislation that compels the Financial Services Sector to comply. The Committee observed that the statement that the Financial Services Sector was successful was not a true picture because of the recent development about corruption in the sector. The Committee registered its disapproval of the current Sector Code and suggested that the Financial Services Sector should be forced to come up with new Sector Code that are compatible with the Generic Codes and therefore enforce transformation in South Africa. Research was requested to confirm that the Financial Services Sector had more clients that were black and poor. B-BBEE should not be selective but should be applied across all entities. Members asked the B-BBEE Commission to state what action the Commission has taken on Department of Social Development’s non-compliance in enforcing B-BBEE in procurement such as in the case of Cash Paymaster Services.

Members asked the B-BBEE Commission to give the statistics that showed the number of black people employed in financial institutions and how many black clients are serviced by financial institutions; how government and the Financial Services Sector could create banking ownership opportunities for poor people. Members observed that corruption and government failure in economic growth were the biggest impediments to transformation and asked how financial institutions could ensure transparency and accountability in the Financial Services Sector. Members asked for the extent of the involvement of black industrialists in the ownership of insurance, asset management, pensions and investment funds in the Financial Services Sector. Members said black entrepreneurs found it difficult to access empowerment capital and the Committee needed to be a strong advocate of capitalisation through the National Empowerment Fund (NEF). It was suggested that the Commission should advocate for releasing funds used to bail out government entities to black industrialists.

Members remarked that the basis for Black Economic Empowerment (BEE) was problematic because the economy was owned by white people therefore the legislation for ownership by black industrialists should be done properly to capture the context of control outside of institutional investors. The hearings on Tr should include the need to legislate on economic inclusion particularly at ownership level which must be categorical in terms of black empowerment. It should also include that when licences are issued in the Financial Services Sector a certain number of licences must be issued to black companies. Both the Commission and DTI needed to get their figures clear rather than depending on surveys from other people because legislation has empowered them to do so. Members asked DTI to look at the possibility of co-operative banking expansion. The Committee remarked that from their recent oversight they came across black owned companies that had established themselves correctly, with capital and equipment and employed skilled people, but they were still not given contracts. This abuse should be investigated as these were state-owned enterprises.

The Committee adopted its Committee Report on the Gauteng Oversight Visit in January 2017.
 

Meeting report

Amended Financial Services Sector Code
DTI Acting Chief Director: Broad Based Black Economic Empowerment, Mr Liso Steto, noted that the Financial Services Sector (FSS) was a developed and successful sector which comprised of more than 30 banks which were diverse and competed with global standards. It was sub-divided into non-banking financial institutions, short term and long term insurance companies and smaller financial intermediaries. It had the Johannesburg Stock Exchange which was the 19th largest in the world as at 2015. It managed over R8 trillion assets, contributed 21.6% of the GDP and over 15% of corporate income tax and had become one of the fastest growing employers in South Africa. His office was charged with regulating the industry, protecting the interests of people that deposit money and strike a balance in the regulations for those that own funds. B-BBEE Sector Codes were a means of addressing sector specific issues that hindered transformation within a sector as promulgated the B-BBEE Act in Section 9(1)(e) although the Sector Codes were not meant to undermine the Generic Codes. The Sector Codes address the skills backlog; skewed participation; competitiveness; reduction of poverty and unemployment and creates a class of black people who have sufficient income to uplift their living standards and create long term wealth in black hands.

The amendment of the Financial Services Sector Code (FSSC) emanated from the 2002 National Economic Development and Labour Council (NEDLAC) summit where stakeholders committed to a sector charter with the aim to transform the Financial Services Sector. The stakeholders were Government; black professionals; NEDLAC Organised Labour and Organised Community and trade associations. The existing FSSC was gazetted on 26 November, 2012. The existing FSSC is going through a process of review but the final draft has not yet being finalised because it is going through public comments, to promote a more radical approach and to discuss some of the questions that have been raised. He emphasised that the FSSC had not being finalised however yesterday the Financial Services Sector Charter Council (FSSCC) met and considered some of the inputs of DTI to ensure black people have more access to capital and simulate economic transformation. The current status showed a regression in average ownership of financial service entities and average management control according to a survey by the FSSCC in the 2013 and 2014 reports. Although access to financial services has improved, a lot still needs to be done. For instance in 2016 there were high total B-BBEE scores for financial services institutions but the total B-BBEE ownership scores were considerably low.

The challenges facing transformation include low level of transformation; lack of establishment or development of black industrialists as the next phase of empowerment; lack of access to affordable and reliable financial services and insurance products; lack of establishment of enterprises per sub-sector to properly measure B-BBEE compliance and despite the monitoring indicators of the FSSCC, there is very little response rate from the industries.

The FSSC proposes three different scorecards for entities. Banks and Life Insurance Offices have over and above the Generic Code elements, two sector specific elements; Empowerment Financing and Access to Financial Services. Short-term insurers have an additional element: Access to Financial services. Other financial institutions have the same elements as the Generic Code. In addition to the reduction in ownership, there is a reduction in skills development and there is no motivation for black industrialists. Capital adequacy ratios need to be formulated and followed to address ownership issues. For instance banks find it difficult to lend money to acquire interests in their own business because there is a clause that says for money lent they need to have 100% in reserves. However there had been attempts within management control to address the empowerment of black participants but DTI feels more should be done.

Broad-Based Black Economic Empowerment Commission (B-BBEE) response
The Acting Commissioner of the B-BBEE Commission, Ms Zodwa Ntuli, stated that there had been fronting practices, misalignment and inconsistent interpretation that had led to challenges to the B-BBEE Act of 2003 even though there had been amendments such as the amendment Act of 2013, 24 October 2014 amendment, 1 May 2015 Codes of Good Practice, 24 October 2015 Trumping Provision and the 6 June 2016 regulations.

The challenges experienced were the ‘once empowered, always empowered’ principle which creates regression (it makes a mockery of the Act); the non-finalisation of Sector Codes (because until they are  aligned, the old Sector Codes are used even when the Codes were revised in 2015); lack of access to funds by black people which permits fronting (most vendor-financed deals lead to blacks not having controlling rights and this compromises the system), lack of implementation by Government and its entities which affects transformation pace; abuse of B-BBEE arrangements and concepts in implementation; and lack of integrity in the verification process and conduct of professionals.

Investigations are on-going and the results would be released in due course She reported that the flaws in applying the Sector Codes were: lack of many senior management black staff, Sector Codes that deviate from Generic Codes, flaws in the application of Sector Codes and Generic Codes by state organs, exemptions for multinationals, creation of automatic approval of equity equivalent without legal mandates, not setting timelines to review targets, lack of black managers in asset management, no clear definition of what constitutes responsible banking; and Sector Codes which give itself powers to exclude certain entities.

She noted priority elements which undermine the principle of the FSSC such as the introduction of compulsory compliance with skills development for Exempted Micro Enterprises (EME) and Qualifying Small Enterprise (QSE) must change. The flawed ownership is retained at a target of 26% despite the worrying ownership patterns in the sector. For instance, some companies do not have black senior managers and this is further diluted by introducing equity equivalent through empowerment financing at the same rate with other bank lending. Other challenges are giving bonus points for already low targets on black industrialists funding and empowerment. In terms of management control, the B-BBEE Commission has not seen a lot of top black executives but has observed dilution of job descriptions through Joint Chief Executive Officer (CEO) positions (with a black and white CEO). This has shown that the FSSC on management control has not had a direct intervention and the Commission is concerned that the code seeks to exempt certain entities within the sector which is not authorised in terms of B-BBEE.

The Skills Development FSSC proposes to spend more money on developing lower skills as opposed to senior and executive skills but looking at the Commission for Employment Equity report for 2015/16 it was observed that the Financial Services Sector has challenges because there are no blacks employed in top management and senior management. Therefore, an intervention for Skills Development that addresses areas without problems does not directly address the transformation challenges that exist in the Financial Services Sector. As a result, the Commission would want the Skills Development FSSC to review percentages allocated so there would be upward movement because even when blacks were appointed as managers they were not employed for a long time. The Commission therefore wants to see incentives in the Skills Development FSSC.

The Preferential Procurement and Supplier Development FSSC do not directly address the deviations in procurement. For instance, Banking procurement is about 90% information technology yet black industrialists suppliers have not being empowered therefore the Commission seeks the introduction of new black players to support B-BBEE in the system.

The codes for Socio-Economic Development should recognise consumer education which is already in the National Credit Act, Consumer Protection Act and the legislation administered by the Financial Services Board which provides for clear disclosure and explanation in simple language for products and contracts.

The additional two elements that are needed are Empowerment Finance and Access to Financial Services. For instance Empowerment Finance does not state the rates and benefits that accrue to blacks that are supposed to be empowered. Although Mr Steto had hinted that there is an improvement in finance for lower income black people this is as a result of Act which states that lending should not be declined as a result of colour but this improvement in terms of access to financial services is not because of the FSSC. She stated that the FSSC in its current form should not be approved because it does not advance radical economic transformation but regresses it. The concerns included the FSSC has not been able to clarify the additional elements because the additional elements could result in deviations; if sector players were not colluding on services that they should compete for (the entrance of Capitec bank made lending practices change for traditional banks who started to address lower markets). In addition, she stated that the Financial Sector should be monitored because they had a ripple effect on the economy as they affected business, housing and students loans.

Discussion
Mr A Williams (ANC) observed that South Africa was facing a situation where transformation was not happening as government and government entities were not complying with the current codes and suggested that the B-BBEE Commission needed to be decisive on such organisations. He suggested that these government entities should be invited to brief the Committee on why they are not complying. He remarked that fines should be imposed on the banks. The B-BBEE Commission should enact legislation that compels the Financial Services Sector to comply.

The Chairperson remarked that the Committee should get information on whether the current legislation empowered B-BBEE Commission to reprimand such organisations.

Mr B Mkongi (ANC) welcomed the presentation but observed that the statement that the Financial Services Sector was successful was not a true picture because of the recent developments of corruption in financial services. DTI stated that the Sector Codes were exploited to undermine the Generic Codes. Consequently, the Financial Services Sector should be forced to come up with new Sector Code that are compatible with Generic Codes and therefore enforce transformation in South Africa. He asked for a research to confirm that financial services had more clients that were black and poor.

Mr Macpherson remarked that he would have welcomed the B-BBEE Commission namimg the government entitiess that are not complying with B-BBEE and shame them. He reported that for instance the Department of Social Development (DSD) had little compliance with B-BBEE processes. B-BBEE should not be selective but should be applied across all entities. Consequently, he asked the B-BBEE Commission to state what interactions, views and actions the Commission has taken on DSD‘s non-compliance with enforcing B-BBEE in local procurement. B-BBEE should be about creating jobs, giving more black people opportunities and allowing more black people to create and access wealth. He was concerned that the Acting B-BBEE Commissioner had stated that the principle of ‘once empowered always empowered’ should be removed from the Sector Code of the Financial Services Sector because there was nothing stopping someone going into a company selling their shares and moving to another company because black empowerment in business should be recognised business. He expressed concern about situation where financial institutions did not lend people based on race and this needed to be addressed.

Adv A Alberts (FF+) asked the B-BBEE Commission to give the statistics on the number of black people employed in financial institutions and how many black clients are serviced by financial institutions so that the situation could be analysed correctly. He asked why government had not created an environment that makes people create new banks to exist apart from the five major banks, especially in the event of bank collapse. The Financial Services Sector did not have more than one black co-operative bank and asked how government and the Financial Services Sector could create bank ownership opportunities for poor people.

Mr J Esterhuizen (IFP) observed that corruption and government failure at economic growth were the biggest impediments to transformation and asked how the financial institutions could ensure transparency and accountability in the Financial Services Sector.

Mr F Shivambu (EFF) asked the B-BBEE Commission to state the extent of black people participation in the economy in terms of ownership. A lot of companies have B-BBEE Code levels but are still 100% white owned and this situation should be addressed because whites would still be the ones employing the blacks as in the apartheid era. He asked how the B-BBEE Commission dealt with such ownership issues because legislation was available to deal with culprits. He suggested that the insurance Sector Code should be addressed as well as the bank Sector Code in the Financial Services Sector. He asked the B-BBEE team to state the extent of the involvement of black industrialist in the ownership of insurance, asset management, pensions and investment funds in the Financial Services Sector.

The Chairperson asked Mr Steto to reiterate the points on ownership with respect to the Financial Services Sector from the DTI side as earlier mentioned when Mr Shivambu was not yet present in the meeting as a result of his medical appointment.

Mr Steto reported that the DTI was concerned about the level of ownership of black industrialists as it had reduced and not improved over the years, especially given that the Sector Codes were supposed to reduce the conditions of the Generic Codes. However, the Sector Codes are undermining the Generic Codes. These were some of the issues that the B-BBEE arm of DTI were deliberating on in the Financial Services Charter.

The Acting B-BBEE Commissioner, Ms Ntuli, reported that the DTI brief could not give a sense of the status of black participation but one of the advantages the Commission has now are the reports. In the past surveys and figures prepared by certain organisations were used but the reports present opportunities for analysis. With the legislation in place, the reports can be analysed and used to present the status of black participation. In addition, she reminded them that the B-BBEE Commission started operating in June 2016 with the regulations passed by the Minister. In the recognition of non-compliance on the side of government, the B-BBEE Commission has taken the step, in its compliance approach, to write to all entities, alerting the entities to the areas of non-compliance and the Commission has requested that all entities amend these areas of non-compliance. The next step is to start formal processes if these entities do not comply, letters have been sent to all entities and the B-BBEE Commission has met directly with some of these government and public entities where there are serious challenges.

Acting B-BBEE Commissioner Ntuli emphasised that the B-BBEE Commission was not set up to change the law but was set up to implement the law. However there are challenges with what is in the Codes because some of the concepts and principles in the Codes allow a further dilution of real transformation in the Financial Services Sector because of the way they are applied. The Commission is issuing guidelines on the proper application of the Codes, because these are concepts allowed in the Codes. However, there are five elements – Ownership; Management Control; Skills Development; Enterprise and Supplier Development and Socio-Economic Development. Jobs to be created are accounted for by the Skills Development element, for instance, to facilitate training. Hence in the revised codes a further additional 3% was included to make training on skills have 6% funds so that companies could train non-employees to prepare them to enter the employment market but impact can only be seen when the Commission accesses the application of these Codes.

Acting B-BBEE Commissioner Ntuli said the comment against ‘once empowered always empowered’ was stated because it was a compromise in the Sector Code that was not part of the Generic Codes. As a Commission our mandate is to oversee what is in the legislation not what would be introduced that would not have a legal authority in the legislation. Therefore, it would be best to have a principle of continued recognition in the Generic Codes, the Commission emphasises this position so that there would be consistency in the application of B-BBEE to ensure that there would be no disservice in the system. Her comment of lending according to race was because historically the National Credit Act (NCA) was implemented because lending practices were based on profiling people according to race. Black people did not have access to funds even when they could afford repayment. Therefore the NCA was implemented to ensure that people that wanted access to funds to build a house, school or anything would not be excluded based on race but purely on affordability. The success of this law advances consumer interests but does not extend to the protection of black people as industrialists in terms of lending because the threshold for the NCA are consumers only.

In terms of holding non-compliant entities accountable the Commission has legislation that empower it according to Mr Shivambu’s observation and the Commission is working on this. For instance the legislation allowing fining organisations 10% of their annual turnover would be implemented for any organisation that is non-compliant. This is based on the Commission’s report which would be released at the end of March 2017.

In addition any case that the Commission is investigating would be applied to other transactions and this would impact on the market. Even though the Commission does not have a threshold to measure B-BBEE transactions at the moment, the Commission is already engaging with MTN, AVANT and so forth to determine if the transactions follow B-BBEE transformation guides. They have found that most of the transactions that have been displayed all along have not really given equity ownership to black people even after ten years. However the Commission is proactively investigating ways for these transactions to be remedied before they are fully implemented. In her briefing, she had reported that insurance, pension and investment funds and asset managers were included in the Financial Services Sector and efforts were being made to use the Codes to favour black industrialists in these areas. In addition, incubation programs have been initiated to assist black industrialists to enter into mining and farming to ensure the sustainability of the transformation process. She emphasised that the B-BBEE Commission questioned the present FSSC because the interventions in the Codes did not encourage sustainability and the Commission did not see how it addressed sustainability of the transformation process.

Mr N Koornhof (ANC) stated that his questions had been covered and he left to attend another meeting.

Mr Williams expressed his disappointment in the response because he expected that the list of government entities not complying would be given to the Committee so that these entities would come to explain why they were not complying with B-BBEE regulations. He emphasised that as matter of urgency the top ten non-compliant government entities, in terms of value, should be engaged first by the Committee on why they are not complying before other entities so that the legislation would be enforced.

Adv Alberts observed that the B-BBEE team had stated that they did not have enough information on the effect of B-BBEE on the market presently and are just compiling the information now. He requested the DTI and the B-BBEE Commission to do research on the effect of B-BBEE on the market and report to the Committee so that Members would not make broad statements on the ownership of institutions in the financial sector. Such statements were wrong and should not be made without facts because the Committee worked on ways to address poverty.

Mr Macpherson remarked that the B-BBEE team had the challenge of implementing radical economic transformation by asking Government to do what it was asking others to do. He asked the B-BBEE Commission why it was not engaging DSD on why DSD was giving contracts to Central Paymaster Services (CPS) a company that had not implemented transformation guidelines and why the Commission continued to allow a contract that the Constitutional Court had judged did not meet the empowerment of black industrialists. Black entrepreneurs found it difficult to access empowerment capital in South Africa even though they had ideas for industrialisation because the challenge was taking the idea to the market. He wanted the Committee to be a strong advocate of capitalisation through the National Empowerment Fund (NEF) while the Commission should advocate releasing funds used to bail out government entities and give it to black industrialists.

Mr Esterhuizen asked about the relationship between black industrialists and the B-BBEE Commission.

Mr Shivambu observed that the basis for Black Economic Empowerment was problematic because the economy was owned by ‘white people’ therefore the legislation for ownership by black industrialists should be done properly to capture the context of control outside institutional investors in terms of the framework.

The Chairperson interrupted Mr Shivambu and stated that the meeting was convened in preparation for the Transformation of the Financial Sector hearings with the Finance Standing Committee the following week. This was as a result of issues raised last year. It was an opportunity to understand the issues especially those that Mr Shivambu was raising since some Committee members were new.

Mr Shivambu observed that the submissions at the hearings should include the need to legislate on economic inclusion particularly at ownership level which must be categorical for black empowerment. The submissions should include that when licences are issued in the Financial Services Sector a certain number of licences must be issued to black companies for a balance, not just in terms of equity but 100% ownership.

Adv Alberts remarked that he wanted to record his objection to the statement about ‘white people’ in general. He suggested that such statement could be captured as ‘certain white people’.

The Chairperson accepted Adv Alberts suggestion because she was aware of poverty amongst white people so the generalised form of the statement ‘the economy was owned by white people’ could not be accepted. The graphics presented by DTI on the slide were not legible and the percentages presented were disturbing. Both the Commission and DTI needed to get their figures clear rather than depending on surveys from certain people because legislation has empowered them to do so. Based on this, the Committee would need to engage the team again.

Mr Steto reported that ownership was a priority of B-BBEE. Therefore, DTI has tried to address voting powers in the companies, who receives benefits and ways of acquiring shares without accumulating debt. The evidence available so far shows that there is no transformation. This would be shared with the Committee as this was validated by the surveys from the Financial Services Sector.

Acting B-BBEE Commissioner Ntuli stated that the Commission had observed cases of manipulation of the Codes which the Commission was attempting to normalise. The Commission had a compliance and enforcement strategy. She agreed that South Africans were tired of transformation not happening and would appreciate it if people are prosecuted and held accountable. However, implementation started with the compliance strategy and prosecution would start later. From the investigations of the Commission, she agreed with Mr Shivambu’s concern that people could not understand the misnomer of companies being placed on higher BEE levels when the companies had low levels of black ownership. The revised Codes make ownership a priority element. However, because there was a lack of guidance, people took advantage and manipulated the implementation of the Codes.

Presently, the Commission is pleased to note that a lot of the companies are engaging with the B-BBEE Commission for advice in implementing the initiatives. She agreed to provide the list of top ten government entities in terms of value that were not complying with B-BBEE. Although there was no previous repository for information on the effect of B-BBEE on the market, the study has been commissioned based on legal empowerment to prepare reports and efforts are being made to collate the information so the Committee receives the report.

The Commission was investigating the transformation credentials of CPS and would address this issue. The position of B-BBEE is that when Government is issuing contracts there is a need to comply with BEE guidelines. During the brief presented to the Committee last year, there was a call to give more money to the NEF to ensure capital release to black industrialists to grow black enterprises. Hence enterprise development was introduced to extend the availability of investment finance to fund investments that were black owned. The Commission was looking at support in terms of funds given to black people to acquire shares in companies and enforce plans that would enhance new black suppliers to government entities.

The trends on fronting had been raised and the Commission is working on removing elements of fronting in black ownership of companies. Licences to insurance firms are supposed to be issued based on the implementation of B-BBEE guidelines. Some incentives has been introduced and she reported that clauses such as government would not deal with entities that do not favour B-BBEE have been introduced because the Commission has noted that some entities (mining sector) fire blacks after they have received their licences.

The Chairperson remarked that the Committee needed to engage more with the Commission so as to find out more about the situation.

Mr Williams requested a list of government department that were continually giving contracts to non-compliant organisations in addition to the top ten government entities in terms of value that were not complying with B-BBEE requirements.

Mr Alberts asked about the possibility of banking expansions to create value for poor black and white people by using the existing banks as leverage. He asked the Commission to look at the possibility of co-operative banking expansions that could be used to the advantage of local people.

Mr Shivambu asked the Commission to specify the exact component of black participation in ownership of companies and amend the procurement practices so that black ownership of companies can be favoured. For instance, Eskom tried to implement a new framework on the new coal suppliers to favour black industrialists that have control of companies. He suggested procurement policies could be changed with the aim of empowering black owned companies to assist the transformation of the Financial Services Sector.

The Chairperson remarked that one of the challenges referenced arises from the recent oversight of the Committee where black owned companies had being encouraged to get contracts. However, the Committee is concerned that DTI has not done enough because the Committee received some allegations that when the black owned companies have established themselves correctly, have capital and equipment and employed skilled people, the black owned companies are still not given contracts, although the Committee does not have any proof of such practices. Therefore in the Committee Oversight Report’s recommendations, the Committee draws the attention of Parliament to this kind of abuse and requests that this should be investigated since the perpetrators are state-owned enterprises. The Committee finds this challenge re-occurring and wants this taken into account because it nullifies the commitment made to B-BBEE. She asked the DTI to respond verbally or respond in writing afterwards

Mr Steto replied that DTI is playing its role concerning procurement opportunities as a market but Treasury is key because the licence terms and conditions of the banks and insurance companies are regulated through Treasury. There has been a recent review of the regulations of the Preferential Procurement Policy Framework Act (PPPFA) so as to align them with what is been addressed in the Codes. There has been an alignment of definitions within public procurement for black company procurement exemptions such as exemptions on company turnover and BEE credentials required. Also the DTI has secured that organs of state set special conditions within the law to target opportunities for black owned companies. The specific condition to sub-contract a percentage of the contract to black owned companies has been included. The biggest challenge is the review of the entire PPPFA. The Act is up for discussion and the DTI is playing its role. At this early stage DTI looks forward to direct interactions because the current Act does not allow the DTI to address the challenges. During DTI’s engagement with National Treasury on the PPPFA, the DTI got a commitment to amend some issues however the amendment could take longer based on Parliament’s preferences. The DTI takes the point on co-operative banking and would look at ways to facilitate the entry of co-operative banks into the sector.

The Chairperson remarked.that the Committee had not been able to exhaust all matters but it would try to cover this before the April recess and the Committee would engage the Commission and Mr Steto more. She proposed a further engagement and a final decision on a date would be reached before mid March.

Committee Report on Gauteng Oversight Visit (31 January-1 February 2017)
The Committee checked that the amended statements and conclusions agreed to on 8 March were captured correctly especially clauses 1.6, 1.11, 1.13 and 1.15.

The Chairperson asked if Members recalled that they had agreed that decisions taken during meeting should be carried through.

Mr Macpherson stated that the decisions had to do with the Auditor-General’s audit of three government entities.

The Chairperson said the decision had a lot to do with procurement localisation from all three spheres of government in which the Auditor-General had to assist the Committee. She asked the Committee Secretary to capture this in the Recommendations in clause 2.3.

Mr Mkongi proposed that clause 2.3 should be moved to 2.4 and vice versa.

The Chairperson accepted this and asked Members to adopt the report if there were no further amendments.

The Committee adopted the report.

The meeting was adjourned. 

Share this page: