Enterprise development from a BEE perspective Badian Maasdorp

Introduction and Background  High level overview of enterprise development in BEE context  BEE not a simple black/white issue  Has also become highly technical Significant grey areas Still being developed

BEE Framework  Various statutory enactments govern BEE generally  B-BBEE Act and Codes most important With various sector charters  Balanced scorecard / generic scorecard Seven elements of BEE listed in the generic scorecard Each element given a specific weighting

BEE Framework (continued)  Seven elements of BBBEE Ownership Management control Employment equity Skills development Preferential procurement Enterprise development Residual (e.g. corporate social investment)  Focus is shifting away from mere ownership and control

Enterprise Development  Direct empowerment Ownership Control  Indirect empowerment Preferential procurement Enterprise development  Code / Statement 600 Recognition of Enterprise Development Contributions

Enterprise Development: Key Definitions  Measured Entity The entity whose Enterprise Development contributions are being measured  Beneficiary Entity Exempted micro enterprise - <R5 Million turnover per annum Level 1-6 contributor enterprise and > 50% owned by Black people Level 1-3 contributor regardless of Black ownership

Enterprise Development: Key Definitions (continued)  Non Recoverable Contributions Monetary value of contributions In form of grants, donations, discounts and other quantifiable benefits Which are not recoverable by Measured Entity  Recoverable Contribution Contributions that must be repaid to Measured Entity e.g. loans etc.

Enterprise Development: Key Definitions (continued)  Qualifying Enterprise Development Contributions Monetary or non-monetary Recoverable or non recoverable contributions Initiated and implemented in favour of Beneficiary Entities Objective of assisting/accelerating the development, sustainability, capacity etc of Beneficiary Entities  NPAT Net Profit After Tax

Enterprise Development Scorecard  Points/weighting allocated to contribution by Measured Entity as a % of NPAT  Bonus point allocation for contributions which directly contribute to increased employment levels in preceding year  Benefit Factor Matrix Different “benefit factor” given to contribution type Direct costs in supporting enterprise development – 100% benefit Loan provided to Beneficiary Entity – 60%-70% depending on type of entity

Qualifying Enterprise Development Contributions  Recoverable contributions and value of Investments in Beneficiary Entities Loans granted to Beneficiary Entities Guarantees given to Beneficiary Entities Credit facilities made available to Beneficiary Entities  Non recoverable contribution and Direct costs in assisting with development of Beneficiary Entities Overhead costs attributable to Qualifying Entities Development Contribution Provision of seed/development capital Preferential credit terms Preferential terms in respect of supply of goods /services

Qualifying Enterprise Development Contributions (continued)  Certain contributions calculated at a specified multiple e.g. creation of employment in rural communities receives recognition at a multiple of 1.5 to Rand value of contributions  Both monetary and non-monetary contributions are considered

Qualifying Enterprise Development Contributions (continued)  Payment to third parties to perform enterprise development on behalf of a Measured Entity  Provision of training/mentoring to Beneficiary Entities to assist with developing operational/financial capacity Measured by e.g. cost of time spent by staff or management in such activities

What can the industry do?  ISPA/Uniforum launched initiative to provide mechanism to industry for Enterprise Development spend/activities  Similar to other initiative in respect of socio-economic development obligations (Code 700) e.g. Business for Empowerment Trust  Trust/foundation structure Also registered as a public benefit organisation for tax purposes

Possible Structure Trust / Trustees Measured Entities Contribute funds/time/resources - funding - training - mentorship Beneficiary Entities Enterprise Development

Advantages of proposed structure  Vehicle for entities/business that do not have capacity to act by themselves  Initiatives will potentially be more meaningful/effective  Driven by industry players With understanding of industry requirements, will build industry for benefit of all  With greater capacity – industry will be more sustainable

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