Broad Based Black Economic Empowerment Bill: briefing; National Small Business Amendment Bill: adoption

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
28 May 2003
BROAD BASED BLACK ECONOMIC EMPOWERMENT BILL: BRIEFING; NATIONAL SMALL BUSINESS AMENDMENT BILL: ADOPTION
 

Chairperson: Dr R H Davies

Relevant Documents:

National Small Business Amendment Bill [B 20-2003]
Amendments to National Small Business Amendment Bill (see Appendix 1)
Broad Based Black Economic Empowerment Bill (Power Point Presentation)
Broad Based Black Economic Empowerment Bill - 28/05/03 as certified by state law advisors prior to tabling in Parliament
Black Economic Empowerment Strategy

SUMMARY
The Department presented some proposed amendments to the National Small Business Amendments Bill. The Bill was unanimously passed with these amendments.

The greater part of the meeting was dedicated to a briefing on the Broad Based Black Economic Empowerment Bill by the Department. There was a general feeling by the Committee that the Bill was largely insufficient in addressing the broader challenges surrounding black economic empowerment, as it mainly dealt with the processes of instituting an advisory body for small business.

MINUTES
National Small Business Amendment Bill
Mr L. October (Deputy Director-General: Enterprise Industry Development) presented the Committee with proposed amendments to the National Small Business Amendments Bill.

Prof. B. Turok (ANC) expressed thanks to Mr October for his efforts in producing the amendments document.

With that, the Bill was unanimously accepted and passed with these proposed amendments.

Broad Based Black Economic Empowerment Bill
Mr October pointed out that the Broad Based Economic Empowerment Bill was one of the 5 policy instruments of the Black Economic Empowerment Strategy:
(1) legislation, (2) regulation, (3) procurement, (4) sector/ enterprise charter, and (5) finance.

Mr October stated that the Bill must be seen in the context of the other strategies which the government will use for economic empowerment.

The purposes of the Bill are to:
- establish a legislative framework for the promotion of black economic empowerment.
- to empower the Minister to issue codes of practice and to publish transformation charters drawn up by major stakeholders
- to establish the Black Economic Empowerment Advisory Council

The Preamble to the Bill stated that the South African economy is under-performing, because of the low income level earned and generated by the majority of its people. Furthermore, neither micro- nor macro-economic stability will be achieved, unless the economy is de-racialised (see Power point presentation).

Discussion
Mr S. Rasmeni (ANC) commended the Department on the briefing of the Bill. He commented that the charters are sometimes referred to as "black economic empowerment charters", and at other times, as "transformation charters". What would be the proper name for these charters? He continued that much more care would have to be taken in implementing the provisions of the charters in rural areas, because of problems relating to a lack of infrastructure in those areas. People in rural areas would consequently be left out of the objectives of the Bill, unless there is a drastic move by Government to include them. How would black economic empowerment be ensured there?

On the Department's objective to "promote economic transformation in order to enable meaningful participation of black people in the economy", Ms M. Ntuli stated that in order for that to happen, black people will require access to finance, the lack of which is a major problem experienced by them. How would this issue be addressed?

Mr October informed Mr Rasmeni that the charters were to be called "transformation charters" to indicate that they were being used to deal with empowerment and growth issues.

He acknowledged the specific problems of rural people and small business, while agreeing that black economic empowerment should be broad-based. He stated that more and more companies were able to access finance in the market place. In assessing the role of Government, and in determining the use of the R10 billion set aside for small business development, rural projects would be specifically considered.

He conceded that access to finance was not mentioned in any detail in the Bill, but it should be looked at in the context of how the state will leverage finance for black economic empowerment.

Ms F. Mahomed (ANC) asked to see a copy of the Constitution of the Advisory Council, and wanted to know how the Council would be constituted.

With regard to Clause 8, Mr Turok felt that when an organ of state is told that it "must" do something, in reality, it often does not. He added that without an individual or group of individuals driving a process, nothing happens. He felt stronger provisions were necessary, in order to make the legislation more compelling. Mr October had mentioned a desire to improve people's qualifications through teaching skills. What about employment, and creating consumption demands in the economy? He felt that the Bill needed a high degree of "concreteness" in order to meet empowerment needs.

Mr Rasmeni drew attention to Clause 7, which states that the Minister may by notice in the gazette, issue codes of conduct. He felt this provision was not strong enough, since it seemed to suggest that it was up to the Minister to decide if he wanted to issue guidelines on codes of good practice.

Mr D. Lockey (ANC) stated that although the title of the Bill was broad, it only made provision for the creation of an advisory body. He had expected to see some definitions on what constitutes a black-owned company, and a black economic empowered company. This was necessary, since experience had proven that people who are not black, often become involved in black-owned companies, and the blacks are then squeezed out. He urged that the Bill provide some definitions.

Ms Mahomed lamented the fact that the Bill did not mention access to finance through banks. That was a major consideration for people "on the ground", which the Bill was not taking into account.

Mr October responded that this Bill should be seen in conjunction with other pieces of legislation which explain what the state will do to provide finance. The transformation charters will detail the provisional financial assistance, and what will be done in terms of economic empowerment. He felt it was not possible to spell out the details of those processes in legislation. The charters will be the key instruments to increase access to finance.

He replied to Mr Lockey that the Strategy document had the proposed codes of good practice, which includes definitions.

He continued that the Strategy document also contained references on the advisory council, including a draft constitution.

On creating employment and increasing domestic consumption, Mr October suggested taking a look at the definition for "economic empowerment". The BEE focuses on issues of ownership, skills development, and economic empowerment, which is more the focus of the Bill.

Mr October continued that it would be good if the Department of Trade and Industry would drive the principles laid out in the Bill, since voluntary legislation must be backed up with muscle. The President would chair the advisory body, along with four Cabinet ministers. This will ensure that the body would be a high-powered one.

Mr P. Nefolovhodwe (APO) stated there was a danger that, should the Bill be passed without the addenda that Mr October referred to, those addenda would never be forthcoming. He suggested the inclusion of a clause to stipulate that these addenda would be added.

He mentioned that in rural areas, people are generally ill-informed. For instance, they lack the know-how to register a company, and they are not aware of which banks are involved in the empowerment process. How would banks be helped to know which people qualify for empowerment assistance?

Mr C. Lowe stated that at their last meeting in April, the Committee had discussed access to finance, and issues of growth. He had therefore expected that the Department would return with a Bill that contained a lot more. He stressed that this particular Bill was not a broad-based Bill, because it was not going far enough to address empowerment. The important questions remain: how would small business be empowered? How would new businesses be started in new areas? How would black economic empowerment be financed? R10 billion was not enough. He made the point that the Bill had nothing in it which could be driven. A substantial document, with rules and regulations, was really required.

Ms Ntuli made the point that when the British were in control of the country, they were very clear about their objective: colonisation. When the Afrikaners were in control, they were also very clear about their objectives: to create an asset-less black population, and a cheap labour market. This regime, however, seemed to be apologetic about what it was attempting to create. She agreed that the Bill was not clear enough, and required a lot more specifics. She cautioned that it would take another ten years to achieve black economic empowerment if bills of this nature were passed.

Ms September agreed with these comments. She cautioned that the Bill could create the impression of promise without fulfilment. It must have a broader focus than just the creation of an advisory council. It should form part of South Africa's national economy, and be in line with national policy. She added that the Bill should speak of enforcement, and be unapologetic in expressing how it would enforce. She was not convinced that the codes and charters would truly assist to provide enforcement of objectives.

Ms Mahomed suggested that of the "Objectives" outlined in the slide presentation, points (a), (b) and (e) were important issues, and should receive further attention later on in the Bill. In (c), she asked him to increase the extent of ownership and management to "disadvantaged" communities, otherwise the scope of the provision would be too broad. In terms of the Transformation Charter, she asked if banks would be forced to comply with provisions to assist people.

Mr Rasmeni suggested that, should the Bill be passed, the Committee should call for public hearings. He also said that the issue of the Advisory Council was an important one. To whom would they give advice?

Mr Lockey commented that having the State President as head of the executive body, the Advisory Council, was a world first, adding that his advice would definitely not be overlooked. However, it should be clearly defined which "president" would head up the Advisory Council, as that was not provided, and could lead to confusion.

With regard to definitions, Mr Lockey continued that it could not be left to a minister to provide definitions. Ministerial discretion needs to be limited. He called attention to the definition for a black-owned company in Appendix B, saying that a watertight definition should be achieved, in order to avoid people from getting around the legislation.

Mr Turok felt that the driver of the objectives of the Bill should be more clearly spelt out, adding that he had a problem with naming the Department of Trade and Industry as driver.

He continued that there should be distinctions made between (1) participation by the unemployed, (2) ownership of existing companies participating in the economy (BEE), and (3) enterprise development. Points (2) and (3) are important, and each requires a different approach. Mr Turok stated that a prescriptive sector by sector document was not desired, but the Bill being tabled was too unspecific. He added that the use of "may" in the Bill was undesirable as it simply was not compelling enough.

Mr October stated that he had noted the various comments. As this was really an early stage for the Bill, he said that he would not respond to all the questions and comments. These were his comments:

- There definitely is a need to expedite growth and empowerment in the economy. No matter how important legislation is, one cannot legislate for black economic empowerment and growth. BEE will contribute to growth in the economy by having put the strategy clearly on the table.

- There should not be too much of a focus on enforcement and compliance, as black economic empowerment will only work if it is taken on by the private sector. If forced, they will not be eager to help at all. The state can help in the issuing of licences. The state could penalise companies who do not buy into black economic empowerment by denying them government contracts. Imposing too many penalties should probably be avoided.

- The proposal of good practice could be attached to the Act.

- The transformation charters will act as a guideline for the accessing of finance through banks. There is a process underway towards an agreement, where all the banks will be involved in black economic empowerment.

The Chairperson stated that the Bill would formally be published on Monday, 2 June 2003. A notice would be issued in the newspaper to invite members of the public to express their views on the Bill. The Committee would also contact various organisations in that regard.

With that, the meeting was adjourned.

Appendix 1:
AMENDMENTS AGREED TO NATIONAL SMALL BUSINESS AMENDMENT BILL

[B20-20031]

CLAUSE 2

Clause rejected.

1. That the following be a new Clause:

Substitution of Chapter 2 of Act 102 of 1996

Minister's power to facilitate and establish an Advisory Body


Minister's power to facilitate and establish an Advisory Body

2 The Minister must within a reasonable time facilitate a process aimed at the establishment of an Advisory Body to represent and promote the interests of small business as contemplated in the National Strategy for the Development and Promotion of Small Business in South Africa referred to in the definition of "National Small Business Support Strategy" in section 1.

Minister' s duty to determine Constitution of the Advisory Body


(2) The constitution of the Advisory Body must -

(a) in general provide for

. (i) the composition of the Advisory Body
. (ii) the quorum and meetings of the Advisory Body;
. (iii) the procedure for the functioning of the Advisory Body;
. (iv) interaction with Parliament, the Department of Trade and Industry and
statutory bodies; and
(v) any other matter that may be necessary to facilitate the proceedings activities
or business of the Advisory Body.

(b) specifically require the Advisory Body to advise the Minister on
(i) strategies to address identified market failures affecting the sector
(ii) the impact of current and new legislation on small business;
(iii) national standards pertaining to small business development and regulation;
. (iv) measures to ensure the creation of physical business infrastructure through
viable business sites;
(v) the development of skills in all aspects of running a business;
(vi) steps to be taken to create access for small business into value chains;
constraints affecting the viability of the small business community;
methods to liase with the small business community to identify their needs;
(ix) methods to monitor and influence the provision of support services to the
small business sector; and
(x) any other matter that the Minister may deem appropriate.

Clause 4

I. On page 3, in line 13, to omit '[the council]" and to substitute ", the [Council] Advisory Body".

Clause 6

1. On page 3, in line 40 and 41, to omit '[the Council and]" and to substitute "the [Council] Advisory Body and"'

2. On page 3, in line 41, to omit "[each]" and to substitute "each".

3. On page 3. in line 41 and 42, to omit "[their respective] its" and to substitute 'their respective".

4. On page 3, in line 44, to omit "[Council and the]" and to substitute "[Council] Advisory Body and the".

5. On page 3, in line 48. to omit "[and Council]" and to substitute "and [Council] Advisory Body".

Clause 8
1. On page 4, in line 5 and 6, to omit "[the National Small Business Council and]" and to substitute " the [National Small Business Council] Advisory Body and"

Long Title

1. On page 2, in the third line, to omit "consult persons representing" and to substitute "facilitate and establish an Advisory Body to represent".

 

3 (1 ) The Minister must through an open and transparent process of consultation determine a constitution for the Advisory; Body referred to in section 2.

2. The following Chapter is hereby substituted for Chapter 2 of the principal Act:

"CHAPTER 2