Broad-Based Black Economic Empowerment Bill: hearings

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
24 June 2003
BROAD-BASED BLACK ECONOMIC EMPOWERMENT BILL: HEARINGS

Chairperson:

Broad-Based Black Economic Empowerment Bill [B27-2003]
Black Economic Empowerment Strategy
Eskom submission
Black Management Forum submission
Patrick Parring submission (email [email protected])
Cape Regional Chamber of Commerce submission

SUMMARY
Submission were heard from Eskom, Black Management Forum, Mr Parring and the Cape Regional Chamber and it was a common cause among the presenters that there was a need for incorporation of uniform definitions into the proposed Bill for all terms relevant to Black Economic Empowerment.

MINUTES
Eskom Submission
Mr Mamorare (General Manager: Commercial Services) outlined two key areas of concern:
- the policy instruments to achieve Black Economic Empowerment; and
- the definitions relevant to Black Economic Empowerment.

Eskom was concerned that there was potential scope for manipulation with regards to score targets. Where no sectoral charters exist, it stated that the targets need to be set per sector by the state entities that do business with that sector.

Eskom proposed that there was a need for the practice of price matching so that black suppliers could be allowed to match the tender price given by lower-priced, non-black tenderers. The submission explained why this practice has played an important role in black empowerment. If instead, price preferences are granted, the problem is the funding of the additional expenditure on the price premium/subsidy.

Finally there was a need for uniform definitions in the Act and Eskom provided the definitions it uses for Black, BWO - Black Women-owned Enterprise, SME - Small and Medium Enterprise, BEE - Black Empowering Enterprise and Large Black Supplier.
 

Discussion
 

The Chair asked Eskom as a state-owned enterprise where it got its mandate to promote Black Economic Empowerment. He asked Mr Mamorare to explain the issue of the potential manipulation of the scorecards.

Professor Turok (ANC) asked what had happened to the criteria introduced by the former chief executive officer of Eskom, Mr Jeff Radebe.

Mr Rasmeni (ANC) asked the presenter to explain the meaning of the following terms: "price matching", "break-out procurement"; and "black empowering companies".

Mr Mamorare (Eskom) replying to these questions, pointed out that Eskom's mandate in respect of black economic empowerment came from the government through the Minister of Public Enterprises and Eskom was obliged to report on how much expenditure went towards the Black Economic Empowerment.

On the manipulation of the scorecards system, Mr Mamorare pointed out that if the system of score targets were to be left to the sectoral charters there would be lots of inconsistencies because not all sectors had charters and furthermore they would be some delays in the formulation of some of the charters. He added that there were still no clear guidelines on how the score targets were to be met.

The procurement criteria introduced by the former CEO of Eskom, Mr Jeff Radebe, had been disbanded because it was an expensive exercise, hence difficult to sustain it.

The term "break-out procurement" was referring to the process of unbundling procurement contracts in order to ensure that there were more opportunities for emerging black business. On the other hand "price matching" was aimed at ensuring that the emerging black business came in at a market-related price based on tenders received. "Black empowering companies" was referring to the companies in which Blacks had ownership to a minimum of 10% and 1% of the total staff had to be people with disabilities. Black empowering companies were also obliged to have programmes on social responsibility.

The Chair commenting on price matching versus price premium, noted that there were some black companies who were able to match the lowest tendering prices. However, for him the critical issue was how many black companies would be able to meet the proposed price matching. He asked if Eskom had mechanisms in place to ensure that there would be a gradual increment to the 10% minimum requirement for the black empowering companies, as it would defeat the objectives of the Bill if black representation remained at 10%.

Prof Turok (ANC) asked if Eskom had ever considered communities as part of Eskom's Black Economic Empowerment initiatives.

Mr Mamorare (ANC) on the issue of BEE companies remaining at 10%, pointed out that Eskom was very cautious about that. However, in South Africa there were huge suppliers and for black companies to get a 10% stake was going to be a daunting task. He further noted that the issue of the definition of black economic empowerment was the biggest concern for them. Hence There was a need for a uniform definition to be incorporated into the Bill to supersede all the existing definitions on what ought to be BEE. With regards to community involvement by Eskom on BEE initiatives, Mr Mamorare pointed out that Eskom was currently engaged with communities through Eskom's Development Community Foundation assisting in various community projects.

Black Management Forum submission
Mr Sibiya (National President) pointed out that BMF was in support of the principle underlying the Broad-Based BEE Bill save that they had the following concerns:
- there was a need to incorporate the definition of Broad-based Black Economic Empowerment in the Bill.
- the Advisory Council had to be given more powers
- the area of monitoring compliance and implementation needed to be strengthened.

BMF also proposed that there was a need for the incorporation of a reporting system in the Bill, through the establishment of an independent monitoring organ, constituted by reputable agencies. Equity and skills had to be extended in so far as they promote Black Economic Empowerment.

BMF was in support of the notion of voluntary sectoral charters for scorecards.

Mr Sibiya also pointed out that in South African BEE initiatives had been met with strong resistance by most of the South African companies, hence there was a need for heavier penalties for those companies who fail or refuse to comply with the proposed Bill. In conclusion BMF proposed that the issues that had been raised at the Growth and Development Summit such as equity and economic growth had to form part of the Black Economic Empowerment legislation.

Discussion
Professor Turok (ANC) commended the BMF for its useful proposal. However, he was concerned that the policing system they were proposing would create a huge bureaucracy.

Mr Louw (DA) asked who was going to do the policing and how that process was going to be funded. He further noted that the powers of the Minister granted in terms of the Bill were fundamental, because s/he had to intervene from time to time. Hence he was opposed to the proposition that that there was a need to transfer more powers to the Advisory Council.

Mr Nefolovhodwe (Azapo) asked if the policing system would not have negative impact on attracting foreign investors.

Mr Mwase (BMF Western Cape regional president) responding to the issue of the policing system, pointed out that agencies such as NGOs and academic institutions could play the role of monitoring the implementation of BEE. Hence there would be no bureaucratic impediments as that process would only involve collecting data and putting it under scrutiny.

With regard to the powers of the Minister, Mr Sibiya pointed out that BMF was not arguing for the elimination of such powers, instead they were proposing that there was a need to allocate more powers to the Advisory Council. As far as the impact of the policing system towards investment, all countries had their own peculiar issues and for South Africa as a transforming country it was pivotal to promote black economic citizenship.

The Chair asked if the BMF was proposing that every company had to meet the requirements of the BEE. Also was BMF in favour of the score system that was sectoral-flexible or was it in favour of standard rules for every sector?

Prof Turok commented that the term "broad-based black economic empowerment" clearly showed that the intention was not only to deal with black business but also with communities. He asked for BMF's position with regards to the promotion of a "broad-based black economic empowerment".

Mr Mwase (BMF) pointed out that for BMF, BEE had to filter down to the communities so that black people could play a role in the direction of the South African economy. Penalties for failing to comply with the BEE requirements should include being deterred from getting the procurement deals. Those companies refusing to provide the necessary information on BEE, drastic measures would have to be taken.

Ms Ntuli (ANC) was concerned that BMF did not mention anything about rural development and local communities in its submission.

Mr Sibiya (BMF) pointed out that BMF was supporting community development through its sister organisations such as NAFU (National African Farmers Union).

Cape Regional Chamber of Commerce submission
Mr Hellenberg (Chairperson) pointed out that the Chamber was in support of the principles outlined in the Broad-based BEE Bill as broadening the economy would have a multiplier effect in strengthening the market and achieve a higher growth rate. The Chamber was of the view that effective BEE was a complex process that had to go far beyond empowerment through ownership. It proposed that entrepreneurship and skills development had to be the forerunner to empowerment. According to the Chamber, success in business both for black and white was dependent on education, training, ability and experience - which requires time. It asked for pragmatic quotas and the regulations developed by the Minister should not be uniform in nature so as to apply to both large and small business. Also the Advisory Council should be a statutory body containing mainly private sector representatives. Their recommendations should be taken into account by the Minister when developing codes of practice.

Discussion
Mr Nefolovhodwe (ANC) pointed out that the emphasis of the Cape Regional Chamber presentation seemed to more on the empowerment of small entrepreneurs. He asked if the Chamber was against the notion of BEE as a mechanism to bring specific measures to advantage the previously disadvantaged groups.

Mr Boyce (Cape Regional Chamber of Commerce) replied to this question on specific measures to leverage empowerment by pointing out that the Chamber was in support of the contention that there was a need for specific intervention. However, what was key for them was that BEE and skills development had to take place hand in hand. He added that one of the vital factors for the success of BEE was sustained economic growth.

Submission by Mr Patrick Parring
Mr Parring was of the view that the focus had to be more on providing the necessary tools for BEE such as skills development. He also pointed out that the problem of "fronting" and access to finance for the BEE companies remained a major challenge - more specifically for the SMEs.

Discussion
Mr Lockey (ANC) stated that the issue of "fronting" was a difficult situation because if it was disallowed, that could prevent BEE companies from venturing into lucrative deals. He then asked for Mr Parring's position about that. He also asked if joint-ventures were not equivalent to "fronting".

Mr Parring stated that he was not arguing against "fronting", however there was a need to strike a good balance and have a sustainable diverse economy representative of the demographics of the country. He also noted that SMEs could be empowered through joint ventures and in return black shareholders could put much more pressure on the holding company to empower more small businesses.

The Chair thanked the presenters for their submissions and adjourned the meeting.