The Broad-Based Black Economic Empowerment Summit

1 Oct 2013

3-5 October 2013

The South African Broad-Based Black Economic Empowerment (B-BBEE) summit will take place from 3-5 October 2013 at Gallagher Estate, Midrand. This occasion marks a decade since the adoption of the B-BBEE Act No. 53 by the South African Government in 2003. The Act was assented to with the aim of establishing a legislative framework for the promotion of BEE to end the exclusion of black people from the mainstream of the economy and de-racialise business ownership through focused policies of BEE.

The early development of BEE in South Africa

In the early 1990s, the business sector in South Africa started realising that black people were to take their rightful place in a post-Apartheid South Africa, and started opening the doors to black-owned enterprises. In 1993, during the run-up to the first democratic elections in South Africa, the first BEE deal was concluded between Sanlam and Dr Nthato Motlana’s consortium of black business people, whereby Sanlam disposed of its controlling stake in Metropolitan Life.

In 1994, South Africa’s first democratic Government was elected, with a clear mandate to redress the inequalities of the past in every sphere: political, social and economic. In the same year, Anglo American sold its stake in Johnnic to the National Empowerment Consortium, led by Cyril Ramaphosa and NAIL. These early deals led to a number of other deals, which marked the first wave of BEE led by the private sector. At this stage, black empowerment focused on transferring ownership and shareholding, and could be described as “narrow-based” BEE.

In 1996, the new Constitution of South Africa was enacted, and contained clauses that provided for the passing of transformation legislation to address the imbalances created by the racial discriminatory laws and policies of the past. Both the Employment Equity and BEE Acts would give effect to the equality clause of the Constitution.

1997 was a watershed year for BEE in South Africa. Firstly, the Green Paper on public sector procurement reform was published; this would lead to the enactment by 2000 of the Preferential Procurement Framework Act for the public sector. Then, a resolution taken at a Black Management Forum conference in Stellenbosch in November 1997 set the wheels in motion for the formation of a Black Economic Empowerment Commission to plan the way forward in terms of BEE in South Africa.

The Commission was formally established in May 1998 under the auspices of the Black Business Council (BBC), an umbrella body representing 11 black business organisations. The Commission, led by Mr Cyril Ramaphosa, conducted extensive research and embarked on wide-ranging consultation, and its report in 2000 provided a framework for B-BBEE legislation and an integrated national BEE strategy.

Broad-Based Black Economic Empowerment

The B-BBEE Strategy was published in 2003, as a precursor to the B-BBEE Act No. 53 of 2003. Based on the right of all citizens to equality, equal opportunity and equal access to government services, the fundamental objective of the Act was to advance economic transformation and enhance the economic participation of black people in the South African economy.

It is noteworthy that the Act is binding on the state and its organs when engaging in any of the following activities: procurement, licensing and concessions, public=private partnerships (PPPs) and the sale of state-owned entities.

The Act provided a legislative framework for the promotion of BEE, empowering the Minister of Trade and Industry to issue Codes of Good Practice and publish transformation Charters; and also paved the way for the establishment of the B-BBEE Advisory Council.

The first of the Sector Codes, which have been developed to guide the implementation of BEE within specific sectors of the economy, was the Petroleum and Liquid Fuels Charter in 2000, followed by the Mining Charter in 2002 and the Financial Sector Charter in 2003. Subsequently, Sector Charters have been developed for the Tourism, Construction, Forestry, Transport, Chartered Accountancy, Property, ICT and Agricultural sectors.

The Codes of Good Practice, however, remains the overarching framework for the implementation of BEE policy and legislation in practice. Gazetted by the dti in February 2007, it provides a framework for the measuring of BEE in terms of seven elements: ownership; management control; employment equity; skills development; preferential procurement; enterprise development; and socio-economic development, and contains criteria for the exemption of qualifying small enterprises.

The measurement of BEE is based on these seven “pillars”, each with a relative weighting on a Balanced Scorecard, which is used to calculate the extent of BEE compliance or status; the scorecard being binding on industries operating within sectors that have no gazetted charters. Unlike narrow-based empowerment, ownership and management account for only 30% of the total contribution.

In terms of the BEE Act, the B-BBEE Advisory Council was appointed by President Jacob Zuma on 3 December 2009, with the mandate to provide guidance and overall monitoring on the state of B-BBEE performance in the economy, with a view to making policy recommendations to address challenges in the implementation of the transformation policy. Importantly, the Council was to facilitate partnerships between organs of state and the private sector to advance the objectives of the Act.

Following the recession caused by the global financial crisis in 2009, which led to a considerable decline in companies’ contributions to BEE, a review of the BEE Act commenced in 2011 to tighten up the Act and address certain challenges, including malpractices such as “fronting”. The Department of Trade and Industry (the dti), through its BEE Chief Directorate, undertook an immense exercise to implement the recommendations of the Advisory Council.

A Presidential Review Commission on State-Owned Enterprises (SOEs) was also established. These interventions resulted in the refinement of the Codes, and the amended B-BBEE Codes of Good Practice were gazetted by the Minister of Trade and Industry, Dr Rob Davies, on 5 October 2012.

The refined areas are aimed at:

  • Setting sub-minimums/thresholds for each element, except ownership;
  • All companies, except exempted micro enterprises, to be compliant with all elements of the B-BBEE scorecard;
  • Enterprise development (ED) and procurement to be elevated;
  • Alignment of the BEE Employment Equity element to the Employment Equity Act (targets, reporting periods and definitions); and
  • The Skills Development element to be aligned to the New Skills Development Strategy (NSDSIII) and to be outwardly focused.

Earlier this year, on 20 June 2013, long-awaited amendments to the BEE Act No. 53 of 2003 were passed by the National Assembly. Among the amendments, the new Act contains a clear statutory definition of “fronting” and criminalises this practice (which essentially entails misrepresentation and falsification of BEE status to benefit from public procurement) and provides a framework for and sets new standards for the BEE verification industry.

The BEE Amendment Bill also makes provision for a B-BBEE Commission, with the powers to oversee, supervise and promote adherence to the Act in the interest of the public; strengthen and foster collaboration between the public and private sector to promote and safeguard the objectives of B-BBEE; and investigate complaints relating to B-BBEE.

The BEE Summit and the future of BEE in South Africa

BEE has come a long way since the first empowerment deal back in 1993, and has moved on from a narrow-based approach, where the focus was entirely on black ownership and management, to encompass all the relevant spheres of economic activity. Even though the private sector need not comply from a legal perspective, there are sufficient economic reasons for large corporations to comply and ensure that their service providers and suppliers are as compliant as possible.

Thus, the private sector has an economic incentive to comply, in addition to the moral imperative. In the words of the Minister of Trade and Industry: “Black economic empowerment is not just a social and political imperative. We need to make sure that in the country’s economy, control, ownership and leadership are reflective of the demographics of the society in the same way the political space does.

That’s why we are saying BEE remains an economic imperative. We cannot expect to grow and develop as a country if the leadership of the economy is still in the hands of only a small minority of society.” – Dr Rob Davies, 2 October 2012.

The Director-General of the dti, Mr Lionel October, recently indicated that BEE is set to enter a new phase where black entrepreneurs will be assisted more rigorously to enter the mainstream economy, through incentivising companies to offer business support to black business owners and procure more from them. This will be achieved through increasing the number of points on the BEE Scorecard companies can obtain for these two measures. Expanding the country's entrepreneurial capacity would help create more jobs and spread South Africa's wealth more evenly.

The new trajectory for B-BBEE should include a focus on the following:

  • Changing the South African culture to be supportive of entrepreneurship and diversification of value chains;
  • A concerted effort to link B-BBEE with other government economic development strategies such as Industrial Policy, the Competitive Supplier Development Programme and the New Growth Path (the ”real economy”);
  • Empowerment efforts should result in the promotion of a culture of venturing into new territories, operational excellence and risk taking;
  • Focus on businesses and industries that result in significant job creation and addressing socio-economic challenges; and
  • A symbiotic relationship between the public and private sectors and among private sector players and large and small enterprises to unlock opportunities.

The summit is an opportunity to create dialogue on these and other key issues and questions relating to the B-BBEE policy and legislation.

Clement Manoko
Tel: 012 394 1712
Cell: 082 311 8931