Transcript Broad-Based Black Economic Empowerment: Legislation and

Broad-Based Black
Economic Empowerment:
Legislation and Recent Changes
August 2007
What is BEE?
Black Economic Empowerment:
Furthering the economic interests of
Black people
Black = African, Coloured or Indian persons, born in
SA, a citizen by descent or became a citizen by
naturalisation before 27 April ’94
or can demonstrate that they were unable to obtain
citizenship by naturalisation under Apartheid
History of BEE
Black Political Empowerment
1990 – Mandela released
1994 – Elections
1995 – Labour Relations Act
1997 – Basic Conditions of Employment Act
1998 – Skills Development Act
1998 – Employment Equity Act
2000 – Preferential Procurement Framework Act
2003 – Black Economic Empowerment Act
History of BEE
Black Economic Empowerment
1990s – BEE Equity deals
1994 ~90% of
assets White owned
• Focus on ownership
• Creation of Black elite
1998 – BEE Commission appointed
2001 – BEE Commission report
2002 – First Charters
2003 – Broad Based BEE Strategy Document
2003 – BEE Act
2004 ~90% of
assets White owned
BEE Act
• Establish BEE Advisory Council
• Strategy for BEE
• Codes of Good Practice for BEE

Balanced Scorecard
• Transformation Charters

Section 12 – Sector Charters

Section 9 – Sector Codes
How is BEE Enforced?
BEE Scorecard
1.
Ownership
2.
Management
3.
Employment Equity
4.
Skills Development
5.
Preferential Procurement
6.
Enterprise Development
7.
Socio-economic Development
How is BEE Enforced?
Scorecard varies by entity size

Generic
• More than R35 million turnover per annum

Qualifying Small Enterprises (QSE)
• R5 million to R35 million per annum

Exempted Micro Enterprises (EME)
• Less than R5 million
• NO SCORECARD!
How is BEE Enforced?
Scorecard Weightings:
Element
Generic
QSE
Ownership
20 points
25
Management
10 points
25
Employment Equity
15 points
25
Skills Development
15 points
25
Preferential Procurement
20 points
25
Enterprise Development
15 points
25
Socio-economic Development 5 points
25
TOTAL
100*
100
*QSEs elect 4 of the 7 elements in which to score
How is BEE Enforced?
• Verification Agency
• BEE Verification – score

Score is broken into levels:
• Level One: 100 or higher
• Level Two: From 85 to 100
• Level……..
• Non compliant: <30
• National Empowerment Database (DTI)
• Measured every 12 months
How is BEE Enforced?
Public Sector:

BEE score incorporated in tender score

Minimum tender requirement

Concessions and Licences

Sale of state owned assets

Public Private Partnerships

Criteria for Rebates and Grants
How is BEE Enforced?
Private Sector:
 Your
score counts towards your
customer’s score
 Your
supplier’s score counts towards
your score
How is BEE Enforced?
Most likely choice
Supplier A Supplier B Supplier C
Price
R40/ream
Quality
Service
R35/ream
R35/ream
Same brand of paper
5 days
delivery
BEE Score Noncompliant
2 days
delivery
2 days
delivery
High
Low
Differentiating Factor
How is BEE Enforced?
BEE not a compliance issue……
……..it is a competitiveness issue.
The BEE Scorecard
Think of the scorecard as a test….

Question 1: Ownership
Counts 20 marks out of 100

Question 2: Management
Counts 10 marks out of 100
And so on………
1. Ownership
Generic Scorecard:
Indicator
Weight
(Points)
Target
Black voting rights
3
25%+1
Voting rights of Black women
2
10%
Black economic interest
4
25%
Economic interest of Black women
2
10%
Economic interest of Black
designated groups; participants in
Employee Ownership Schemes;
beneficiaries of Broad-based
Ownership Schemes; participants in
co-operatives
1
2.5%
1. Ownership
Generic Scorecard continued:
Indicator
Weight
(Points)
Target
Ownership fulfilment
1
Complete
Net Value
7
Increasing
TOTAL
20
Bonus Points
Black New Entrants
2
10%
Black participants in: Employee
Ownership Schemes; Broad-based
Ownership Schemes or Cooperatives
1
10%
TOTAL
23
1. Ownership
QSE Scorecard
Indicator
Weight
(Points)
Target
Black voting rights
6
25%+1
Black economic interest
9
25%
Ownership fulfillment
1
Complete
Net Value
9
Increasing
TOTAL
25
Bonus Points:
Ownership by Black Women
2
10%
Employee Ownership Schemes,
Co-operatives or Broad-based
Ownership Schemes
1
10%
1. Ownership
Net Value
Net Value Target
%
30
25
20
15
10
5
0
1
2
3&4
Year
5&6
7&8
9 & 10
1. Ownership
Flow-through Principle
Always trace back to a natural person.
Black Person
90%
Trust
(90%)
90%
Company A (81%)
65%
90%
x
90%
x
65%
Company B
x
(52.7%)
26%
Measured
Company
26%
=
13.7%
1. Ownership
Modified Flow-through Principle
One company in a chain may be considered 100% Black owned if
its ownership is measured >50% using the Flow-through Principle.
Black Person
90%
Trust
(90%)
90%
Company A (81%)
65%
90%
x
90%
x
100%
Company B
x
(52.7%)
26%
Measured
Company
26%
=
21.1%
1. Ownership
Exclusion Principle
Ownership by an Organ of State is excluded from the calculations
Black Person
90%
Trust
Organ of
State
(90%)
90%
65%
90%
x
90%
23%
Company A (81%)
x
Company B
100%
21.1% / (100% - 23%) =
27.4%
x
(52.7%)
26%
Measured
Company
26%
=
21.1%
1. Ownership
Ownership – Example:
• Bob sells 20% of his shares in Bob’s Farms to a
black consortium
• Zola(45) and Thandi(32) are the members of the
consortium each with a 50% share
• Consortium pays for half their shares up front
• Remainder to be paid from their share of future
dividends
• The shares have full voting rights
1. Ownership
Ownership – Example:
Black voting rights:
•
Target = 25% + 1 vote
•
Achieved = 20%
•
Weighting = 3 (marks)
•
Score = 20/25 x 3 = 2.4
1. Ownership
Ownership – Example:
Voting rights of Black women:
•
Target = 10%
•
Achieved = 10%
•
Weighting = 2 (marks)
•
Score = 10/10 x 2 = 2
1. Ownership
Ownership – Example:
Indicator
Weight
Score
Target
Achieved
Black voting rights
3
2.4
25%+1
20%
Voting rights of Black
women
2
2
10%
10%
Black economic interest
4
3.2
25%
20%
Economic interest of
Black women
2
2
10%
20%
Economic interest of
Black designated groups
1
1
2.5%
10%
Ownership fulfilment
1
0
Complete
No
Net Value
7
5.6
25%
20%
20
16.2
TOTAL
1. Ownership
Multinationals

Recognition of Equity Equivalents

Criteria:
• Own and control entire entity
• Ownership subject to global practice
• Can do either equity equivalent or equity sale,
but not both.
1. Ownership
Multinationals

Equity Equivalents include:
• Approved Public Programme
• Contribute 25% of value of local operation
• OR 4% or local turnover for 10 years
1. Ownership
Organs of State, Public Entities, Section 21
and Companies Limited by Guarantee

Ownership omitted

Score on an Adjusted Scorecard
1. Ownership
“Once empowered always empowered”

Exiting black shareholders

Hold shares for minimum of 3 years

Period for which points are allocated limited
to the length of time the shares were held

Cannot contribute more than 40% (8 points)
on the Ownership scorecard
2. Management
Generic Scorecard
Indicator
Weight
(Points)
Target
Black board member voting rights*
3
50%
Black Executive Directors*
2
50%
Black senior top management*
3
40%
Black other top management*
2
40%
TOTAL
Bonus point: Black independent nonexecutive board members
* Using adjusted recognition for gender
10
1
40%
2. Management
Adjusted Recognition for Gender:
Black %
2
+
Black Women %
Where the Black Women % is limited to
half of the target
2. Management
Adjusted Recognition for Gender

Say 2 out of 10 people in Other Top Management
are black men:
20% (black)
2

+
0% (black women) = 10%
Say 2 out of 10 people in Other Top Management
are black women:
20% (black)
2
+
20% (black women) = 30%
2. Management
QSE Scorecard
Indicator
Weight
(Points)
Target
Black representation at Top
Management Level
25
50.1%
TOTAL
25
Bonus points: Black women
representation at Top Manager level
2
25%
3. Employment Equity
Generic Scorecard
Indicator
Weight
(Points)
Target
Yr 0-5
Yr 6-10
Black people with disabilities*
2
2%
3%
Black Senior Management*
5
43%
60%
Black Middle Management*
4
63%
75%
Black Junior Management*
4
68%
80%
TOTAL
Bonus points for meeting or
exceeding the EAP targets in each
category above.
* Using adjusted recognition for gender
15
3
3. Employment Equity
QSE Scorecard
Indicator
Weight
(Points)
Target
Yr 0-5
Yr 6-10
Black representation in all
Management*
15
40%
60%
Black employees as a percentage of
all employees*
10
60%
70%
TOTAL
25
Bonus points for meeting or
exceeding the EAP targets in each
category above.
* Using adjusted recognition for gender
4. Skills Development
Generic Scorecard
Indicator
Weight
(Points)
Target
Adjusted* spend on Black skills
development as percentage of
Leviable Amount
6
3%
Adjusted* spend on skills
development for black disabled as
percentage of Leviable Amount
3
0.3%
Adjusted* number of black
employees participating in Learning
Programmes as a percentage of total
employees
6
5%
TOTAL
* Using adjusted recognition for gender
15
4. Skills Development
QSE Scorecard
Indicator
Weight
(Points)
Target
Adjusted* Skills Development Spend
on Learning Programmes for black
employees as a percentage of
Leviable Amount
25
2%
TOTAL
25
* Using adjusted recognition for gender
5. Preferential Procurement
Generic Scorecard
Indicator
Weight
(Points)
Target
Yr 0-5
Yr 6-10
BEE Procurement Spend from
suppliers as percentage TMPS*
12
50%
70%
BEE Procurement Spend from QSE or
EME suppliers as percentage TMPS*
3
10%
15%
BEE Procurement Spend from 50%
Black owned or 30% Black women
owned suppliers as percentage TMPS*
5
15%
20%
TOTAL
20
*TMPS – Total Measured Procurement Spend
5. Preferential Procurement
BEE Recognition Levels:
BEE Score
BEE Status
Recognition Level
100 +
Level 1
1.35
85 – 100
Level 2
1.25
75 – 85
Level 3
1.10
65 – 75
Level 4
1.0
55 – 65
Level 5
0.8
45 – 55
Level 6
0.6
40 – 45
Level 7
0.5
30 – 40
Level 8
0.1
< 30
Non-compliant
0
5. Preferential Procurement
Calculating a Preferential Procurement Score:
Supplier
Actual
Spend
BEE
Level
Recognition
Level
BEE Spend
A
R150
L4
1.0
R150
B
R250
L7
X
0.5
C
R550
L6
0.6
R330
D
R50
L8
0.1
R5
TOTAL
R1000
=
R125
R610
Overall BEE Procurement Spend: R610 / R1000 = 61%
5. Preferential Procurement
QSE Scorecard
Indicator
Weight
(Points)
BEE Procurement Spend from all
Suppliers based on the BEE
Procurement Recognition Levels as a
percentage of Total Measured
Procurement Spend
25
TOTAL
25
Target
Yr 0-5
Yr 6-10
40%
50%
5. Preferential Procurement
Inclusions





Operational expenses, cost of sales and capital
expenditure
Procurement from monopolistic suppliers
Third-party procurement recorded in your
books
Labour brokers and independent contractors
Pensions and medical aid – the admin related
fee, not the investment
5. Preferential Procurement
Inclusions





External commissions – ie. Not paid to
employees
Costs related to facilitating BEE contributions –
Enterprise & Socio-economic Development
Intra group expenses
Bodies listed in Schedules 2 & 3 of the PFMA
Imports (certain exclusions can be made)
5. Preferential Procurement
Exclusions






Taxes or levies
Organ of state or public entity with regulated
monopoly
Bodies listed in Schedule 1 of PFMA
Salaries and wages
Pass through third party procurement where it
is not recorded in your books
Investments in or loans to an Associated
Enterprise
5. Preferential Procurement
Exclusions


Investments, loans or donations made for
Enterprise Development and Socio-economic
Development
Imports:
• Capital goods or components for value-adding in
South Africa provided that there is no existing
local equivalent
• Or one can differentiate local from imported on
the basis of brand or technical specifications
6. Enterprise Development
Generic Scorecard
Indicator
Weight
(Points)
Target
Average annual value of all Enterprise
Development Contributions and Sector
Specific Programmes made by the
measured entity as a percentage of the
target.
15
3% of net
profit after
tax
TOTAL
15
NOTE: Contributions are measured cumulatively from the
Commencement Date (9 Feb 2007) or an Inception Date chosen
by the Measured Entity
6. Enterprise Development
QSE Scorecard
Indicator
Weight
(Points)
Target
Average annual value of all Enterprise
Development Contributions and Sector
Specific Programmes made by the
measured entity as a percentage of the
target.
25
2% of net
profit after
tax
TOTAL
25
NOTE: Contributions are measured cumulatively from the
Commencement Date (9 Feb 2007) or an Inception Date chosen
by the Measured Entity
6. Enterprise Development
What if I make a loss?

If a loss was made in last financial year or on
average for last 5 years

OR NPAT was less than ¼ industry norm in last
financial year

Then take last year when profit was greater than
¼ industry norm and multiply profit margin for
that year by turnover for last financial year to get
deemed net profit
6. Enterprise Development
What counts?



Grants, discounts and donations – 100%
Overhead costs – 80%
Loans:
•
•
•
•
•
Interest free, no security – 100%
Standard loan to QSE or EME – 70%
Standard loan to other beneficiaries – 60%
Guarantee – 3%
Lower interest rate: Prime - Actual
6. Enterprise Development
What counts?

Equity Investments
• Minority stake in EME or QSE – 100%
• Minority stake in other beneficiary – 80%
• Investment with lower interest to financier:
Ordinary dividend rate – Actual dividend rate

HR Capacity
• Free professional services – 80%
• Discounted professional services – 80%
• Employees time – Salary / 160 = hourly rate
6. Enterprise Development
What counts?

Shorter payment periods
• Percentage of invoice
• Percentage = 15 days less time from invoice to
payment
• Shorter period no longer than 10 days
7. Socio-economic Development
Generic Scorecard
Indicator
Weight
(Points)
Target
Average annual value of all Socioeconomic Contributions made by the
Measured Entity as a percentage of the
target
5
1% of net
profit after
tax
TOTAL
5
NOTE: Contributions are measured cumulatively from the
Commencement Date (9 Feb 2007) or an Inception Date chosen
by the Measured Entity
7. Socio-economic Development
QSE Scorecard
Indicator
Weight
(Marks)
Target
Average annual value of all Socioeconomic Contributions made by the
Measured Entity as a percentage of the
target
25
1% of net
profit after
tax
TOTAL
25
NOTE: Contributions are measured cumulatively from the
Commencement Date (9 Feb 2007) or an Inception Date chosen
by the Measured Entity
7. Socio-economic Development
Qualifying Beneficiaries:

Black people

Organisations where 75% of benefit flows to black
people

Where the benefit is less than 75% it counts prorata
7. Socio-economic Development
What counts?



Grants, discounts and donations – 100%
Overhead costs – 80%
HR Capacity
• Free professional services – 80%
• Discounted professional services – 80%
• Employees time – Salary / 160 = hourly rate
BEE Charters
Status of Charters

Development of Sector Charters

Not binding on the State

Generic Codes take precedence

Only Sector Codes have equal status

No gazetted Sector Codes yet
Accountancy Charter
Fundamental Principle:
Stick to the generic code and make slight
deviations to the interpretations so as to be
suitable to the accounting profession.

Inclusive process with diverse stakeholders

To be gazetted as Sector Charter & Code

Finalise process in July 2007
Financial Services Charter
Significant differences

Applies to banks, insurance companies,
pension funds, stock exchanges

Significant differences between FSC and
Generic Codes

FSC is a sector charter NOT a sector code
and Generic Codes take precedence
BEE and your clients
Consider this:

Consulting versus Rating

'Independence & impartiality' challenge

Reporting in financial statements

Financial record keeping
BEE & Financial Record Keeping

Ownership

Management

Skills development

Preferential procurement

Enterprise development
Verification

Need an official verification

Get verified every 12 months

BEE status recorded on National Empowerment
Database
Verification Agencies

Private companies

Accredited by SANAS

Approved by DTI

Member of ABVA

Fees – market related
Transitional Period
Transitional Score:

First 12 months after Commencement Date

Use full scorecard score
OR

GENERIC:
• Score = 1.92 x (Ownership + Management)

QSE:
• Score = 1.18 x (Ownership + Management)
Dynamics of BEE
Limit of your BEE capabilities
BEE Score
Your BEE score
Pressure from your competitors
30 (40)
Practical minimum score
Time
Future of BEE
Legislation

Codes updated / amended

Accreditation of Verification Agencies

National Empowerment Database

New Charters defined
Future of BEE
2 Years



Lots of change
Benefits to early birds
Failures and frustration
5 Years



Everybody’s doin’ it!
Benefits to those whose approach is sound
Take 2s!
10 Years


Stability to the process
Leveling of the playing field
Thank You
Guy Taylor can be contacted on
082 221-9893
011 454-5454
[email protected]
Murray Chabant can be contacted on
082 851-0230
031 208-7599
[email protected]