Government’s strategy for Broad-based Black Economic Empowerment

Overview B-BBEE StrategyB-BBEE Strategy B-BBEE ActB-BBEE Act Review of StrategyReview of Strategy Old scorecar vs New scorecardOld scorecar vs New scorecard Concerns & Risk around BEEConcerns & Risk around BEE COGP as a BEE implementation frameworkCOGP as a BEE implementation framework COGP StructureCOGP Structure Debates around BEEDebates around BEE BEE SupportBEE Support NEFNEF Other SupportOther Support ConclusionConclusion

B-BBEE Strategy B-BBEE Strategy document released in March ’03;B-BBEE Strategy document released in March ’03; B-BBEE Act no. 53 of 2003;B-BBEE Act no. 53 of 2003; Codes of Good Practice;Codes of Good Practice;

B-BBEE Strategy (Cont.) A process that: directly contributes to the economic transformation of South Africa;directly contributes to the economic transformation of South Africa; brings about significant increases in the numbers of black people who manage, own and control the country’s economy; andbrings about significant increases in the numbers of black people who manage, own and control the country’s economy; and Results in significant decreases in income inequalitiesResults in significant decreases in income inequalities

B-BBEE Strategy (Cont.) The broad objectives of this initiative are Contribute towards economic transformation and growthContribute towards economic transformation and growth Ensuring an increased participation of Blacks in the economy.Ensuring an increased participation of Blacks in the economy. Ensure optimum intermediation of finance and capital from Black households and redirecting these towards productive investments that benefit the same communities.Ensure optimum intermediation of finance and capital from Black households and redirecting these towards productive investments that benefit the same communities. Ensuring state assets are allocated first to Black Entrepreneurs and as such remain in the hands of SA citizens.Ensuring state assets are allocated first to Black Entrepreneurs and as such remain in the hands of SA citizens.

B-BBEE Strategy (Cont.) Core elementsWeightings Ownership20 % Management10 % Skills Development20 % Employment Equity10 % Preferential Procurement20 % Enterprise Development10 % Residual10 %

THE B-BBEE ACT KEY ELEMENTS Setting clear objectives for broad based empowerment Setting clear objectives for broad based empowerment Enabling framework for Codes of Good Practise Enabling framework for Codes of Good Practise Creation of a BEE Advisory Council Creation of a BEE Advisory Council Legislative endorsement for sector Charters Legislative endorsement for sector Charters

Review of Strategy Public hearings held in 2003 where inputs into draft strategy were made Such changes have been incorporated into new revised strategy Revised strategy to be issued together with the codes of good practice Revised strategy to include new scorecard

Old scorecard vs New scorecard OldNew No targets included Targets included No points allocated for women Points allocated for women Preferential procurement based on black ownership Preferential procurement based on BEE contribution No bonus points for over- performance Bonus points given for over- performance Indicators limited More options for indicators No sub-minimum score required for consideration Sub-minimum score required for consideration

Current Concerns and Risks around Broad-based BEE Process 1.Inconsistent application of BEE – by private sector and different state organs resulting in confusion in the market 2.Lack of full understanding and appreciation of the principles of broad-based BEE – People interpret and apply BEE principle to meet their own requirement 3.Extensive debates and delays due to differences in interpretation - Market participants debate specific BEE issues 4. Disparity in Charter Definitions and Targets – Results in dilution/negation of potential B-BBEEE impact 5. Lack of Implementation Guidelines can result in ‘Fronting’ or ‘Sham’ transactions promoted

Code of Good Practice as the BEE Implementation Framework Broad-based BEE Act No. 53 of 2003 Broad-based BEE Strategy Codes of Good Practice Legislative Enabling Framework Strategic Framework Implementation Framework and Guidelines Interpret BEE Definitions Set BEE Indicators, Weightings and Targets Guidelines to draw up BEE charters Guidelines to maintain Institutional Framework (BEE Council /Accreditation Agencies) Generic or Sector-specific BEE Scorecards

Code of Good Practice (Structure) Code 000: Framework Statement 000: Conceptual Framework Code 100: Ownership Code 200: Management Code 300: Employment Equity Code 400: Skills Development Code 500: Affirmative Procurement Code 600: Enterprise Development Code 700: CSI and Industry Specific Code 800: BEE Practice Notes Code of Good Practice Phase 1 Phase 2 Statement 020: Charter Guidelines Statement 030: BEE Council Statement 070: Broad-based BEE Implementation Statement 090: Glossary Statement 100: Ownership Statement 140: Government Ownership Statement 200: Management Each Code explains all issues pertaining to a key BEE element and can consist of one or more statements A Statement include a related set of principles that guides the implementation of one BEE issue

Preferential Procurement Policy Framework Act Changes made to the PPPFA regulations in order to align them with the B-BBEE strategy Changes made to the PPPFA regulations in order to align them with the B-BBEE strategy Use of balanced scorecard in determining preference points Use of balanced scorecard in determining preference points Minimum BEE points required for preference points to be given Minimum BEE points required for preference points to be given Move from narrow-based to broad- based BEE in determining preference points Move from narrow-based to broad- based BEE in determining preference points Next to review the PPPF Act to align it with the B-BBEE Act Next to review the PPPF Act to align it with the B-BBEE Act

BEE Support Relaunch of the NEF on 31 May 2004Relaunch of the NEF on 31 May 2004 Products with focus on addressing market failuresProducts with focus on addressing market failures R2bn capitalisation from National TreasuryR2bn capitalisation from National Treasury Leadership problems experiencedLeadership problems experienced Fraud allegations quickly and decisively dealt withFraud allegations quickly and decisively dealt with Reconstitution and strengthening of management structuresReconstitution and strengthening of management structures

National Empowerment Fund Group and entrepreneurial schemes -Black SMME sector -Community and rural development projects Start-ups, expansion and buy-ins/outs Debt and/or equity funding Funding of R250k –R10m

National Empowerment Fund Contact details - (011) Group and entrepreneurial schemes -SMME sector -Community and rural development projects -Start-ups, expansion and buy-ins/outs -Development projects Debt and/or equity funding Funding of R250k –R10m

Khula Enterprise FinanceKhula Enterprise Finance Industrial Development CorporationIndustrial Development Corporation Small and Medium Enterprise Development ProgrammeSmall and Medium Enterprise Development Programme Black Business Supplier Development ProgrammeBlack Business Supplier Development Programme Other Support

Transformation charter process the dti coordinates and provides strategic input and leadership in the drafting process of the transformation charters for seven priority sectors for BEE: Financial service charter; Transport and maritime charter; Agriculture charter; Auto and Aerospace Industry Charter; ICT charter; Construction Services; Engineering Services;

Transformation Charter Process, cont. Phase 3: almost complete stage of negotiation and drafting 7 Sub-Sectors Public -proclamation of charter Phase 1: consultation and early negotiation and draftting Phase 2: advanced stage of negotiation and drafting Agriculture sector charter ICT charter Automobile charter Transport Services charter Engineering service charter Financial Service charter Construction sector charter Transport service charter: All 8 sub-sectors have completed negotiation on balanced score card. 80% of work is done and with 20% remaining. Automobile sector charter: Task team established Negotiations are at the early stage Seven OEMs are drafting their enterprise charters with scorecards Components & Retail drafting sub-sector charters Last Phase: Submission of draft to Advisory Council for comments and ratification – dti to publish charter after ratification FSC-Negotiations and drafting of the charter almost completed. Still working on targets. Charter council appointed ICT- Negotiations and drafting almost completed. Still to appoint charter council. Ready to submit the draft to the line dept. Agriculture- Negotiations and drafting still continuing. Consultation process being undertaken with stakeholders to ensure inclusivity. Engineering Services Charter-??? June 2005 is a deadline date for the formulation of all charters. Submission of drafts to the Advisory Council for comments and ratification. dti to publish charters after ratification. Dti to gazzette all charters Implementation, Monitoring & Evaluation process Construction sector charter-negotiations and drafting almost completed. Still to appoint charter council.

Transformation charter process, cont. Additional Sectors developing charters - dti providing technical advice and leadership as well: –Property sector charter; (consultation process completed, negotiation and drafting started) –Cosmetics and toiletry sector charter; (consulting with all stakeholders and starting negotiation and drafting) –Clothing and Textile Footwear Manufacturing charter; (consulting with all stakeholders and starting negotiation and drafting) –Pharmaceutical Manufacturing; (consultation process completed, negotiation and drafting is at advanced stage) –Advertising, Marketing and Communication charter; (drafting of the charter is completed-to be presented to parliament, dti and charter council for ratification) –The South African Institute of Chartered Accountants charter (consultation process completed, negotiation and drafting is at advanced stage) – Health sector charter process; ( consultation process still to take place, task team appointed, develop framework-early phase of negotiation and drafting of charter)

 The benefits of empowerment should be shared across society and impact as widely as possible  The Strategy aims to mobilize all South Africans to support BEE as an integral component of economic stability and of efforts to increase South Africa and the regions productive capacity.  Partnership initiatives are thus critical. Since the adoption of the broad-based BEE strategy much has been achieved:Since the adoption of the broad-based BEE strategy much has been achieved: Sixty two BEE deals in 2003, R 21.2 bSixty two BEE deals in 2003, R 21.2 bConclusion