Equity Equivalent Investment Programme & B-BBEE Commission 2020/21 Activities, with Deputy Minister

Meeting report

Opening Remarks
Noting a full house in respect of committee members, the Acting Chairperson welcomed the Department of Trade, Industry and Competition (dtic) and the B-BBEE Commission as well as the Deputy Minister of Trade, Industry and Competition, Deputy Minister Nomalungelo Gina.
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Opening Remarks by the Deputy Minister
Deputy Minister Gina introduced the discussions on empowering black businesses which were very important as the ministry and the Department would benefit from the insights of the Members. The policy was at the centre of the transformation of the SA economy. The presentation on the Equity Equivalent Investment Programme would discuss how the policy assisted the country to develop the future economy and how the multinationals in the country were supporting the small, medium and micro enterprises (SMMEs) to participate in the economy. The presentation would get into the figures that would indicate where the country was when it came to the participation of multi-nationals in building the economy of the country.

The B-BBEE Commissioner would enlighten the Committee as to where the Commission was at the present time and what had been achieved in the past year in respect of taking the policy to the country. The ministry always encouraged people to go through the Annual Reports and to look at the trends making a dent on the transformation front in the country. The B-BBEE Annual Report showed a little movement but it was also a little disappointing. However, the Commissioner would show where the country stood at present. It was important, in respect of transformation, to bring everyone along so that all played a meaningful role. It was important to get the views of the Portfolio Committee Members.  

The Deputy Minister stated that the delegation would be led by Mr Shabeer Khan, Acting DG, dtic, and he would introduce the briefing on the Equity Equivalent Investment Programme which would be presented by the Chief Director for B-BBEE policy at the dtic. (Mr Khan did not join the platform.)

Presentation of the Equity Equivalent Investment Programme (EEIP)
Mr Jacob Maphutha, Chief Director: Broad-Based Black Economic Empowerment, dtic, informed Members that it was important for the economy to create opportunities for all South Africans. The majority of the population, that is black people, had been excluded from the economy, so the EEIP had been created to give advantages to black people.

More than 20 companies were involved in the Programme but the concept of “once empowered, always empowered” did not apply to the programme. The size of the contribution determined the period for which a B-BBEE certificate was awarded. Mr Maphutha listed the companies currently participating in the programme, indicating the contribution of each company to black empowerment. The greatest contribution, financially, by far, was from the Automotive sector, followed by the ICT sector and the manufacturing sector.

22 multinationals companies across different sectors had been granted final approval to participate in the EEIP. 32% was in the automotive industry, 27% in the ICT sector, 18% in manufacturing and 23% was split
between construction, health care, maritime, financial and agricultural sectors, with a total investment of more than R8 billion.  More than 2000 jobs, both direct and indirect, had been created since the inception of the programme and supported 87 emerging black-owned businesses, including businesses owned by black women and youth. ICT critical skills had been offered to youth and opportunities had been created
for students to access tertiary education to acquire ICT-related scarce skills.

Mr Maphutha provided specific details per company involved in the programme.

(See Presentation)

Discussion
Mr W Thring (ACDP) asked who oversaw the EEIP investment and what monitoring and evaluation processes were in place to ensure that there was transparency and accountability. How many SMMEs had been established from the investments in the EEIP? How many multi-national companies had withdrawn compared to those that had joined the programme in the past year or two? With the focus on multi-nationals, how had that assisted localisation and beneficiation? From the presentation, it appeared that benefits seemed to have focussed on localisation. What effect had the July 2021 looting had on multi-national investment, including that of Samsung that had had its offices in Durban burnt down and other multinationals that had seen their investments threatened or diminished?

Ms N Motaung (ANC) asked how many new EEIP applications would have a direct impact on township and rural areas.

Mr Z Burns-Ncamashe (ANC) asked whether there were any supporting measures in place to ensure the viability and sustainability of the black-owned businesses that had benefitted from the programme because he was looking at how the programme was indirectly addressing the issue of unemployment to narrow the gap between inequalities in the country that was widening instead of narrowing.

Ms R Moatshe (ANC) asked how many jobs would be created by the new applicant that the Department was looking at.

Mr S Mbuyane (ANC) asked how many students were benefitting from the ICT skills being taught. What were the demographics of the students?

Mr Maphutha responded that the dtic monitored the programme, including making site visits to check on the implementation of the binding agreement and the reports. He admitted that site visits had been restricted in the past two years by the Covid-19 pandemic. The dtic interacted with the beneficiaries to ensure that appropriate support was being given. The beneficiaries could also alert the Department to any issues of non-compliance. There had been no withdrawals from the programme. Four companies had not renewed their involvement in the programme once their participation had expired.

He agreed that beneficiation was not receiving the attention that had been anticipated. The Department would have to drive beneficiation more actively. Localisation was, however, highly successful. He was pleased to state that, to date, no company had withdrawn from the programme as a result of the July 2021 looting.

There were two new applications: they were from Johnson & Johnson in the health sector and CitiBank. Negotiations had not yet reached the stage of determining the activities that the multi-nationals would be involved in if they met the criteria for being accepted into the programme. He added that the dtic was applying lessons learnt in developing programmes. Targets would be set for each participant to ensure a wide range of benefits.

Some of the beneficiaries in the ICT programmes had graduated from the programme and had been supported to continue working in the field of ICT. The dtic was compiling a register of beneficiaries which would allow the dtic to track and support graduates of the programme. More than 500 students had benefitted, mostly in ICT. An audit report would be produced by June and would contain full details of the EEIP over the years, including demographics.

Mr Mbuyane asked about the critical skills per province. What methods had the EEIP used to avert any chance of fronting? To what extend did the multi-nationals procure goods from within the country.

Ms Moatshe repeated her question.

Mr Maphutha responded to the question on fronting. He stated that the multi-nationals had to provide extensive information, so it was impossible for them to engage in fronting. If there was a concern about fronting, the B-BBEE Commissioner would be requested to assist. Because it was a small programme in which dtic was closely involved, it was unlikely that there would be fronting. The dtic was building long-term relationships with the multi-national organisations. The dtic ensured that even transportation was given to local companies.

Presentation on B-BBEE Commission’s activities over the 2020/21 financial year
Ms Zodwa Ntuli, Commissioner, B-BBEE Commission, recognised that after nearly 30 years of democracy and 18 years after the implementation of the Black Economic Empowerment legislation, the ownership patterns in the country had not changed significantly. It was a fact that the Covid-19 pandemic and the looting in Durban and Gauteng had further exasperated the situation.

She explained how the Balanced Scorecard was used – it was also used in the EEIP. All public entities and organs of state had to utilise the Balanced Scorecard. There were ten sector codes for those types of businesses that did not fit into the Balanced Scorecard because of the unique features of those sectors. She also stressed the flexibility available for multi-nationals that were not permitted by their own country’s laws, shareholders or policies to follow B-BBEE policies. They could comply with black empowerment in different ways, such as an Equity Equivalent Investment Programme in lieu of ownership.

The Commissioner stressed that the Commission had not been provided with the funding required to perform its function, but emphasised that it had met the mandate, despite the lack of funding.

The position in respect of human resources, finances and overall performance was presented by Ms Nontokozo Nokhwali-Mboyi, COO of the B-BBEE Commission. The Commission had exceeded certain targets, having 54% female staff while 86% of the senior managers were female and 97% of the staff were African. However, the Commission did not meet the target for disabled employees. She pointed out that the Commission had an 82% vacancy rate, stressing the fact that senior staff were too busy to go on leave. As National Treasury had not yet approved the establishment of the Commission as a listed entity, it did not receive a budget beyond the funding made available by the dtic.

Ms Lindiwe Madonsela, Head for Compliance, B-BBEE Commission Complaints provided a briefing on the Commission’s handling of complaints and investigations. She cited an independent Impact Assessment Study by DNA Economics which had found that with only 45% of the required budget and 16% of the staff required, the entity had operated effectively with 74% of complaints finalised within 12 months, and 59%
of verification agencies confirming that the existence of the entity had brought the much-needed alignment in B-BBEE. She provided detailed statistics, noting that the Commission engaged in constant monitoring of the mining, construction, transport, information and communication technology, and manufacturing sectors which recorded the highest number of the 83% fronting complaints.

Commissioner Ntuli highlighted the challenges for the Commission. The year under review had been affected by the COVID-19 pandemic restrictions which had resulted in remote operations, with systems not ready, thus affecting delivery timelines. Employees of the entity had demonstrated commitment beyond the call of duty and performed their best to achieve above 80% performance. With increased concerns about Owner-Driver Schemes, the B-BBEE Commission would hold a formal hearing prior to finalising the investigations into the matter. A panel of investigating service providers had since been appointed to offer additional capacity to expedite cases referred for investigation. The impact of B-BBEE was evident from increased contributions towards B-BBEE targets and cases of fronting being quickly reported.                                                                                                                                                                                                          

Commissioner Ntuli pleaded with the Committee to look at the legislation affecting the Commission. The B-BBEE Act had to be amended to give more administrative powers to issue compliance notices, block non-compliant transactions and create a dedicated tribunal or court for prosecution of prohibited practices for effective consequence management, in addition to the current criminal process that was not fully effective. There had to be consequences for non-reporting.

Discussion
Mr M Cuthbert (DA) found it strange that the compliance agency did not comply with requirements regarding staffing. What formal interaction had the Commission had with the ministry to deal with enormous vacancy rates. He imagined some business owners were grateful that it did not operate optimally. He asked about the Commission’s position in cases such as that of the Grand Parade Holding Company which was prevented from selling non-performing businesses to a multi-national company. The Grand Parade Holding Company had been blocked because the sale would change the composition of the all-black board. Did the Commission prefer that a black company sat with a non-performing business just for the sake of bean counting? Were economic considerations taken into account? Other businesses had been impacted in such a manner and it was not beneficial to black business. What was Commission’s position in that regard?                                                                                                                                                                                                                                                                 
Mr Cuthbert asked the Deputy Minister about the many supply-side measures the country had, such as B-BBEE, Employment Equity (EE), preferential procurement, localisation, tariffs, market barriers, etc. How many more supply-side measures were needed before there was an understanding that there was a need for good education, simplification of regulations, a consistent supply of electricity and basic service delivery. Those are the things necessary to create an environment in which business could thrive. The supply-side needed to be corrected. As the President had said in the State of the Nation Address: governments did not create jobs; the private sector did. However, the focus of the government with all its regulations impeded the ability of the private sector to create jobs. The country had an unemployment rate north of 40%. The country was not able to reach the growth levels so desperately needed. When would that shift take place that would reduce the desperate measures of poverty prevalent in the country?                                                                                                                                                                                              
Mr J Mulder (FF+) said that the FF+ had a strong view on B-BBEE and he shared that view. He wanted to see the economic empowerment of all South Africans. However, he had nothing against black empowerment and he was involved in various organisations that were focussed on black empowerment. The problem was, and the Commissioner would probably disagree with him, that overall, B-BBEE had not worked and the SA economy had grown slower than all regions of the world and more than 60% of South Africans had become poorer. A lot had been said in the speeches the previous day in the National Assembly and Mr Cuthbert had said it all. The gap between rich and poor in SA was the highest in the world and inequality had grown since 1996. The Commissioner had acknowledged in 2018 that SA was not where it should be, but she had denied that B-BBEE was not working. Mr Cuthbert had expanded on the control on the supply-side, and he would not add to that.

He asked the Commissioner whether she acknowledged that B-BBEE had not lived up to expectations. Did she agree that the SA economy had not grown, as other economies had grown? Did she acknowledge that the gap between rich and poor had grown because B-BBEE had created a lot of millionaires to the disadvantage of the poorest of the poor? Did Commissioner Ntuli recognise that a lot of corruption and state capture had occurred because of B-BBEE? It would be a good day when B-BBEE was phased out. He was not going to comment on the contents of the report. He stated that his own son was not able to work in SA because of B-BBEE. Ironically, he was welcomed in Rwanda, but not in SA.

Mr Burns-Ncamashe noted that there might be challenges in the application of policy and the transformative instruments, but the reality was that the private sector exploited the opportunity, especially the fact that indigenous people were historically disadvantaged because they had been excluded from the economy and so had nothing. Black people were, therefore, prone to being exploited, especially in respect of fronting which was where white businesses used black people as the face but the black people did not participate in ownership, or management, nor did they have the resources to acquire ownership. They were black people who were exploited and used as bait to open opportunities in which they did not benefit, save for the crumbs of director’s fees which were meaningless compared with the value that they brought into the business.

He noted that the vast majority of complaints had been around the issue of fronting which suggested that consequences for the malpractice, the cruelty, were limited. What did the Commission intend to do about it? The key principles of B-BBEE remained a pipedream. The matter could not be left to continue unabated. A line had to be drawn; it had to come to a stop. Fronting was a crime but 83% of complaints had related to fronting. Had cases been referred to the prosecuting authority? He asked for an explanation for the disjuncture.

Ms Moatshe welcomed the absorption of the interns but it seemed that they had been absorbed into administrative posts. Had any interns been absorbed into strategic posts, such as legal support, operations or research. She noted that there was only one intern in the current financial year. Why was that the case when there was a challenge in filling posts? How many referrals, or what percentage of referrals, had resulted in successful prosecutions of contraventions of the B-BBEE Act?  

Ms N Motaung (ANC) noted that 100% black ownership on the Johannesburg Stock Exchange had regressed from 3.3% in 2017 to 0% in 2020. What could that be attributed to and what was the role of the Commission in that regard? Why were there so many vacant posts in the Commission, despite the high rate of unemployment, and what actions would be taken in that regard?

Mr F Jacobs (ANC) recognised the challenges experienced by the Commission. He believed that there was a need for B-BBEE and the Portfolio Committee should provide support to the Commission. The Commission was doing good work. If one looked at the history of Afrikanerdom and Apartheid, it showed that, for more than 50 years, Afrikaners had been affirmed as a state policy and it had been done very effectively, through state-owned enterprises and job reservation so Afrikaans people had a successful leg up in life. They had benefited from affirmation. It was the same white privileged people who had benefited and still maintained that benefit who wanted to scrap B-BBEE. It had to be improved, but it could not and would not be stopped.  In the Western Cape, Black and Coloured people were not given an opportunity by the Western Cape government. In 2019, the Commission had brought out some shocking findings about the Western Cape. Had the Western Cape improved in its B-BBEE status? What could be done about local government departments that did not have a localisation policy and did not invest in the local people?

Mr Mbuyane asked about the relationship between the Commission and the direct finance institutes (FDIs), especially the Land Bank. He asked that the Commission alerted the dtic to the issues that needed to be addressed to assist the Commission so that the Portfolio Committee could look into giving the Commission more teeth so that it could bite.

The Chairperson asked what benefit the Commission was drawing from the Memoranda of Understanding that it had signed with various other entities.

Commissioner Ntuli responded to the comment on the Employment Equity of the Commission. The Commission was not an entity, but in terms of compliance, it had implemented all targets in respect of an entity. The COO had explained why the EE targets were not met. She stressed that the Commission did not have its own office space which meant that it could not recruit more people. As it did not have its own budget, the Commission could not employ more people.

The Commission had intended to have ten interns as trainees each year to produce more professionals knowledgeable about B-BBEE compliance. They would enter the market, and also create a pool of potential recruits for the Commission.  The Commission could only do what dtic allowed it to do. All processes were fully compliant but some targets, especially around disabilities, could not be met because the Commission was unable to recruit staff, and would not be met in the coming year as there were no vacancies.
                                                                                                                                                            
The Commission did not receive a budget as it was not registered as a public or trading entity. The dtic was engaging with National Treasury in that regard as the submission for listing had been made in 2018, but the Commission was awaiting a decision. The non-entity status had had a negative impact and crippled some of its operations. It would help if the Commission had a sense of the possible timeframe for the resolution of the matter. She stressed that many members of the Commission had not taken the leave due to them and had forfeited those days. They had not been paid out as there were no funds for such pay-outs. She said that it was not worth taking leave as the work piled up and people continued to contact them about their issues. There were three vacancies where staff had left but those vacancies could not be addressed as the Commission was awaiting permission from dtic in respect of approval to appoint staff.

She added that the lack of resolution of the status of the Commission had a negative effect on the B-BBEE policy as the Commission was hampered in implementing solutions to B-BBEE problems and gaining the impact or benefits visualised in the policy.

Commissioner Ntuli stated that it was not in the remit of the Commission to determine how other structures, such as the Competition Commission, addressed the B-BBEE policy, but it was important to remember that the B-BBEE legislation was amended in 2013 in an attempt to bring alignment in terms of structures and to ensure that there was no disjuncture or conflict in terms of how B-BBEE was dealt with by institutions. The Competition Commission had its own guidelines for how to address mergers and acquisition and where there were public issues of concern, the legislation allowed them to raise those issues. Where parties were not happy with decisions, the framework allowed them to raise those issues with the Competition Tribunal. That process was not in conflict with the B-BBEE Act. One had to always check what the law said. The amendments confirmed that, where there was conflict in any matter, the B-BBEE Act came first, as had been confirmed in the high court case relating to ACSA.

She explained that, under the B-BBEE Code of Good Practice, the issue of localisation was incorporated under the “Empowering Suppliers” provision where the B-BBEE legislation encouraged and rewarded companies that were manufacturing locally. It was important to understand that B-BBEE was an integrated piece of legislation that looked at local procurement, proportional representation, the advancement of black people in terms of skilling  and the creation of new businesses – all aimed at achieving economic equality.

Data collected of B-BBEE since 2003, when the legislation was adopted, showed a number of black people had been empowered, various deals making black people stakeholders and giving them direct participation in decision-making structures, had been concluded. The Commissioner believed that was commendable, but the Commission was tasked to monitor progress on an annual basis. It was not doing as well as it should but that did not mean that there were no gains. The number of black executives currently in the private sector would not be there if the legislation had not been in place. The private and public sector had not been introducing black empowerment of their own free will; hence the legislation. The National Development Plan had targets for 2030 but the Commission was far from where it should be to attain those targets. Some gains had been made and she commended those, but the country was not even halfway to where it should be.

Regarding the gap between the rich and the poor, the Commissioner stated that the Constitution addressed the inequalities in section 9 and section 217. She could not say if parity was being achieved; data should be able to inform one. However, whatever initiatives were taking place, a few people were benefitting. There were pockets of success, but one was not seeing the overall impact. The Commission was not seeing a change in the lives of people. More and more black people were becoming unemployed and were not able to enter the markets because of the economic structure in SA. The reasons for the creation of the legislation continued to be evident. If the legislation were strengthened, the objectives might be attained.

Since the Commission had commenced work in 2016, she had seen many fronting practices that had elements of rent-seeking and which were driven by corruption and those needed to be isolated from the intentions of B-BBEE. The government was dealing with corruption and if corruption were dealt with, the Commission would be able to deal with the rent-seekers whose intention was to undermine the B-BBEE policies. Those who were fronting should also face consequences. The legislation stated that once an entity had been found guilty of fronting, the case had to be handed over to SAPS but, although the Commission provided all details, pursuit was minimal. However, the Commission could not force them to take action as those entities were not obliged to prosecute on the basis of the Commission’s findings. To date, there had been no prosecutions. She hoped some matters would be taken forward. Matters referred to SARS had met with more success as SARS had looked into matters referred to it. The Commission had to interact with agencies to ensure that cases went forward.

She advised that while over 80% of cases referred to the Commission had related to fronting, many had to be dismissed because of a lack of evidence. Recently, the quality of evidence had improved and cases were becoming more solid. If there were no prosecution, the complainant and the public remained in limbo.

Regarding the fishing licences, she said that organs of state and public entities were permitted to cancel licences and contracts where there had been misrepresentation. In one of the cases in the fishing industry, where the application had been made using false information, the Commission had applied for those fishing rights to be terminated. The Commission was relying on the relevant department to cancel the fishing licence. The Commission had also recommended the termination of the contract that Transnet had given to the joint venture between the Chinese Railway Company and local black people because there had been no empowerment or sharing of resources. The local black people had merely become employees. In such cases, the Commission could take the case to court for cancellation while awaiting criminal processes. Such consequences could be seen to be happening.

Commissioner Ntuli reminded the Mr Burns-Ncamashe that no state department or entity was allowed to do business with a company that did not have B-BBEE status. Section 10 had been amended to make it obligatory.

She explained that while awaiting permission to extend internships, the policy allowed an entity or department to absorb the interns into administrative clerk posts. The Commission had absorbed the interns in order to train them. They would be mentored by Commission staff. She was comforted by the fact that 19 black people had been given employment during Covid-19. Only two interns had found jobs elsewhere.

Commissioner Ntuli informed Ms Motaung that there had not been many 100% black-owned entities on the JSE. Regarding the regression of 100% black-owned businesses from 3% to 0%, she acknowledged that because of Covid, some businesses had not reported in 2020 and 2021 and she believed that those businesses might well include the 100% black-owned businesses. She had engaged with the JSE and been informed that a number of de-listings had taken place over the last two years. The Commission did not know if that was a result of the pandemic. She was awaiting the report for 2021.

The issues around posts in the Commission had been covered. The current capacity was not sustainable, although it had been the case for five years.

Commissioner Ntuli reported on the Commission’s relationships with the development finance institutions. They were public entities and had to submit reports on their progress in B-BBEE. They did participate in the Commission’s programme and had identified how the B-BBEE Act could allow them to ringfence support for supply development of black enterprises. The Commission was working with the Department of Small Business Development and the DFIs to enhance the procurement opportunities for women-owned businesses to reach the 40% target set by the President, and also to support those businesses to gain opportunities in the private sector.

She stated that the MoUs referred to in the presentation had been signed to enable the Commission to work closely with other entities. For example, many fronting disputes brought to the Commission were, in fact, shareholder disputes and not cases of fronting. The Companies Tribunal had the mandate to resolve such disputes. The MoU contained the protocol for referring cases to the Tribunal. The MoU with the Companies and Intellectual Property Commission (CIPC) enabled the B-BBEE Commission to obtain real-time access to company records from the CIPC. That information assisted the Commission and enhanced its performance. In most fronting cases, the financial statements had usually been manipulated and those matters had to be addressed by CIPC. The MoU enabled the Commission to refer such matters to the CIPC.

Commissioner Ntuli re-stated the relevance of B-BBEE and the need for consequences as well as the need for the state to do the right thing. The Commission had engaged with the DG of the Western Cape Government to ensure compliance from all Western Cape Government Departments.

Concluding remarks by Deputy Minister Gina
Deputy Minister Gina commented on the listing of the Commission which would allow the Commission to do its duties. The ministry was engaged with National Treasury and the Commission itself and that matter was being prioritised. She appreciated the hard work of the employees that were over-stretched. The main aim of the ministry was to make sure that National Treasury would permit the Commission to become an entity. The current state of financial constraints was the problem. In the meantime, she was considering how dtic could further assist the Commission.

The Deputy Minister assured the Committee that the ministry and the Department would engage with it in respect of the proposed legislative changes, especially in respect of penalties for non-compliance, as the Commission had opened doors for many people in SA.

The Deputy Minister told Mr Cuthbert that he had offered an opinion but had not asked a question. He was raising his views on economic policies. He was waiting to see when other legislation would be developed to contribute to the economy. However, evidence presented that day had shown that doors had been opened for black people who had not previously played a part in the economy and the policy was beneficial. Next time Mr Cuthbert needed to come with specific examples so that the matter could be debated in the Committee. She could not respond to his general comments about economic approaches.

She noted the Commission had done good work in asking how to open doors for women, black people and people with a disability. Whenever the Portfolio Committee asked for an account of the work done in terms of the B-BBEE legislation, she and the Commission would always be happy to account.

Regarding the work of the EEIP, Deputy Minister Gina stated that digital hubs were being opened in the Special Economic Zones and they were assisting people to run their businesses. She encouraged young people to come in as the digital hubs would open up further doors for them to get into the economy. When the new digital hub in Bojanala was opened, representatives from the Portfolio Committee would be invited to attend the opening to witness what was happening in those digital hubs.

The Acting Chairperson looked forward to her invitation to the opening of the Bojanala digital hub. She thanked Committee Members for the robust discussion. She knew that not all Members agreed with the B-BBEE policy but thanked all for submitting their opinions.

The Acting Chairperson recognised that deep poverty and unemployment was not sustainable in the country, as the President had said. She looked forward to the Commission becoming a listed entity.
                                                       
Closing Remarks
The Committee Secretary informed Members that the dtic would be reporting to the Committee on its performance in Quarters 2 and 3 of the 2021/22 financial year the following day.

The meeting was adjourned.