BROAD BASED BLACK ECONOMIC EMPOWERMENT AND THE CODES OF GOOD PRACTICE PHASE 1 & 2 VENUE: CAPE TOWN -PARLIAMENT DATE: 07 March 2006.

BROAD BASED BLACK ECONOMIC EMPOWERMENT AND THE CODES OF GOOD PRACTICE PHASE 1 & 2 VENUE: CAPE TOWN -PARLIAMENT DATE: 07 March 2006

Agenda Background and Context Codes of Good Practice on B-BBEE Phase 2 Dispensation for QSE’s and Micro’s (Code 1000 -1700 : Statement 1000 -1700) Ownership Additional Clarification Codes of Good Practice on B-BBEE Phase 1

The Transformation Imperative Colonisation & Apartheid systematically disempowered black people Result: significant imbalances in SA economy –90% of population owns less than 5% of JSE –40% of black South Africans unemployed vs. 10% of white South Africans –Majority of SA population excluded from SA economy

Economic Prerogative of Broad- Based BEE Increase the level of participation by black people in mainstream economy Increase income through resultant economic growth Increase the real market in the SA economy Second Economy BEE Upliftment Second Economy Mainstream Economy More economic participants Higher Economic Growth A Bigger Market for All

The Poverty Barrier The Skills Barrier The Business Barrier The Opportunity Barrier Employment Equity/Job creation Corporate Social Investment Skills Development Preferential Procurement Ownership And Management Equitable Economic Opportunities Enterprise Development Broad-based BEE must be inclusive Result in economic growth Accounted for with substance over form Emerging black middle class & investors Black entrepreneurs Black workers, professionals, graduates, school-leavers Black unemployed & rural poor Broad-Based Beneficiary Base

BEE Legislative Framework 2004 - Broad-Based BEE Act Enabling framework for the promotion of BEE Empowers minister to issue codes of good practice on BEE Establishes the BEE Advisory Council 2003 - Broad-Based BEE Strategy and Scorecard Defines Government’s Broad-Based Strategy Provide the generic balanced scorecard 2005 – 2006 The Codes of Good Practice (partially complete) Provide certainty on B-BBEE implementation in the economy Further interpretation of the BEE Act Determine qualification criteria for licensing Criteria for entering into PPP’s with private sector Industry Transformation Charters (To be negotiated) Outline industry-specific BEE weightings and targets Establish the residual elements of the scorecard Standardise industry BEE initiatives and reporting

Broad-Based Black Economic Empowerment Strategy Implementation Levers to promote B-BBEE 2005-2006 Codes of Good Practice on B-BBEE Sector Transformation Charter Use of Balanced Scorecard in: Granting of Licences, Concessions to Private Enterprises, Sale of State Assets, Public Private Partnerships (PPP) and Procurement. Funding to promote B-BBEE

3 Lack of full understanding and appreciation of the principles of broad- based BEE Inconsistent application of BEE Extensive debates could result in delays – biggest is slow or no progress on BEE Disparity in Charter Definitions and Targets Lack of Implementation Guidelines can result in ‘Fronting’ or ‘Sham’ transactions promoted Codes of Good Practice aims to address these Concerns and Risks around the B-BBEE Process

Codes of Good Practice  (1) In order to promote the purposes of the Act, the Minister by notice in the Gazette has issued the codes of good practice on black economic empowerment that include—  (a) the further interpretation and definition of broad-based BEE and the interpretation and definition of different categories of black empowerment entities;  (b) qualification criteria for preferential purposes for procurement and other economic activities;  (c) indicators to measure broad-based BEE ;  (d) the weighting to be attached to broad-based BEE indicators referred to in paragraph (c);  (e) guidelines for stakeholders in the relevant sectors of the economy to draw up transformation charters for their sector; and  (f) any other matter necessary to achieve the objectives of this Act.

Codes of Good Practice  10. Every organ of state and public entity must take into account and, as far as reasonably possible, apply any relevant code of good practice issued in terms of this Act in:  (a) determining qualification criteria for the issuing of licences, concessions or other authorizations in terms of any law;  (b) developing and implementing a preferential procurement policy;  (c) determining qualification criteria for the sale of state-owned enterprises; and  (d) developing criteria for entering into partnerships with the private sector.

Key Principles DescriptionImplication Substance over Form Broad-based BEE must be measured and reported according to economic reality rather than legal form Penalize the use and reporting of ‘fronting’ or ‘sham’ BEE structures and entities Broad-based BEE Scorecard BEE is measured based on seven core elements: ownership, management, employment equity, skills development, affirmative procurement, enterprise development and residual Facilitate changes in business behaviour (in all key elements) Extend BEE benefits to as many beneficiaries as possible Systematic and quantifiable approach BEE Recognition Tiers and Multiplier Effect All companies measure BEE based on a score system, and receive higher recognition for higher BEE compliance Foster competition among companies and industries Encourage all companies to implement and monitor BEE compliance in all its economic interactions Framework for Broad-Based BEE KEY PRINCIPLES

BEE RECOGNITION LEVEL

Ownership (Code 100 : Statement 100)  Entrench a key objective of the Act, i.e. to increase the number of black people that manage, own and control enterprises and productive assets.  Provide recognition and measurement criteria for black ownership  Provide financial sustainability through the use of the model of net economic interest  Provide for the empowerment of black women, black designated groups, new entrants and broad based ownership schemes

Key PrinciplesDescriptionImplication Women Empowerment Specific targets for black women to ensure participation of black women on ownership Encourage companies to actively involve women in organisation. Broad-based BEE Schemes Specific qualification criteria for broad-based schemes to ensure participation by beneficiaries. Extensive recognition for companies involving qualified broad-based schemes Encourage companies to involve broad-based and employee share schemes in organization Allows for the inclusion of Trade Union or other special interest investments for black people Ownership recognition through the disposal of asset Provides a mechanism for enterprises to score ownership points by disposing of assets rather than shares Provide further ownership opportunities to black people Allow companies to sell assets instead of shares which both achieve the same objective Ownership OTHER PRINCIPLES

Ownership Scorecard

 Scorecard encourage participation by women and broad- based schemes and new entrants  Companies entering into transaction with broad-based schemes and new entrants rewarded with bonus points

The Code:  Significantly increases the participation by black women, broad-based schemes and black employees  spreads the BEE ownership base, reduces the number of deals involving the top six (6) BEE consortiums  results in more than half of the companies providing forms of vendor financing to facilitate entry by broad-based BEE shareholders Behavioral Impact of the Codes

Key Principles DescriptionImplication Setting Targets for Board Representation and Executive Involvement Setting specific targets for Board representation and executive involvement Prescribe the ideal representation level for participation by black people on the board of directors and by black women Specific Target for Black Women Management Specific target set for black women management participation Companies will not be able to achieve the full score for management without the participation by black women in top management Specific Measurement of Executive Representation Specific allocation for black representation in executive committees and top executive management Prevent enterprise from achieving quota by only appointing black non-executives Counters market trend in appointing black non-executives rather than executives Management Control (Code 200 : Statement 200) KEY PRINCIPLES

Management Control Scorecard (continues)

Employment Equity KEY PRINCIPLES Key PrinciplesDescriptionImplication Alignment with the Employment Equity Act Measurement of occupational levels based on schedule EEA9 of the EE Act Prevents contradiction in terminology and efforts in the implementation of EE initiatives in both the EE Act and the B-BBEE Act No score allocation for Black Representation at Semi-skilled & Unskilled Levels Measurement based occupational levels on schedule EEA9 ito EE Act, measures senior, middle and junior management (including professionals and skilled) but excludes semi-skilled and unskilled Prevents companies achieving high scores for EE when there is little or no black representation at skilled supervisory, management and senior levels Specific Targets for Black people with Disabilities Specific target dedicated to overall representation of Black People with Disabilities Meaningful incentive (20% of weighting) for the employment of black people with disabilities Specific Targets for Black Women across the top two Measured Occupation Levels Specific targets for women set for two of the more senior occupational which are measured for employment equity Specific incentive to employ black women at senior levels (30% of the weighting)

Employment Equity Scorecard CriteriaWeighting points Compliance targets Black people with disabilities employed by the Measured Entity as a percentage of all full-time employees 24% Black people employed by the Measured Entity at Senior Management level as a percentage of employees at Senior Management level 260% Black women employed by the Measured Entity at Senior Management level as a percentage of employees at Senior Management level 230% Black people employed by the Measured Entity at Professionally Qualified, Experienced Specialists and Mid-management level as a percentage of employees at Professionally Qualified, Experienced Specialists and Mid-management level 275% Black women employed by the Measured Entity at Professionally Qualified, Experienced Specialists and Mid-management level as a percentage of employees at Professionally Qualified, Experienced Specialists and Mid-management level 140% Black people employed by the Measured Entity at Skilled Technical and Academically Qualified Workers, Junior Management, Supervisors, Foremen, and Superintendents as a percentage of employees at Skilled Technical and Academically Qualified Workers, Junior Management, Supervisors, Foremen, and Superintendents level 180%

Skills Development KEY PRINCIPLES Key PrinciplesDescriptionImplication Alignment with Skills Development Act Encourage Skills development initiatives to be in line with the skills development strategy Alignment of skills development initiatives for both the SD Act and the B-BBEE Act. Additional Recognition for contribution to Core and Critical Skills These include skills that are related to value adding activities in line with the core business and in areas that the Measured Entity cannot outsource. Focus skills development spend on skills which are core or critical to the business Specific Skills Spend for Black Women and people with disabilities Additional 3 points allocated to skills spend towards black women employees and to black employee with disabilities Specific allocation of skills development spend to those employees who were most disadvantaged in the past LearnershipsSkills development programs approved by the relevant SETA which are fully certified in terms of South African Qualifications Authority Act The allocation encourage registration and participation in learnerships programs Organisational Transformation Index Organisational Transformation index measures the extent of enterprise commitment transformation This allocation encourages the adoption of plans, policies and strategies to promote transformation Qualitative Measure of transformation

Skills Development Scorecard CategorySkills Development ElementWeighting points Compliance Target Skills Development Skills Development Spend on black employees43% Skills Development Spend on Critical Skills and/or Core Skills for black employees 22.6% Skills Development Spend on Critical Skills and/or Core Skills for black women employees 21.4% Skills Development Spend on black employees with disabilities 10.3% Learnerships Number of black employees on SETA-accredited Learnerships 25% Number of black women employees on Learnerships22.5% Number of formerly black unemployed people and/or black people formerly residing in rural areas on Learnerships 11%

Skills Development Scorecard (continues) CategorySkills Development ElementWeighting points Compliance Target Organisational Transformational Index Existence of a comprehensive Black Economic Empowerment strategy and which is being implemented Yes1 Employment of a Skills Development FacilitatorYes1 Existence of a policy on non-discrimination widely published within the Enterprise Yes1 Compliance with all relevant employment related legislation Yes1 Implementation of an effective human resource management plan Yes1 Existence of a program designed to give practical effect to the stated policies and programs Yes1 TOTAL6

CriteriaWeighting points Compliance target BEE Procurement Spend from all suppliers based on the BEE Procurement Recognition Levels, QSE Recognition Levels or the Deemed Micro Enterprise Recognition Levels (as the case may be) as a percentage of Total Measured Procurement Spend 1570% BEE Procurement Spend from Qualifying Small Enterprises based on the QSE Recognition Levels as a percentage of Total Measured Procurement Spend 415% BEE Procurement Spend from Exempted Micro Enterprises based on the Deemed Micro Enterprise Recognition Level as a percentage of Total Measured Procurement Spend 15% Preferential Procurement Scorecard

Cost of Sales Operational Expenditure Capital Expenditure Total Spend TOTAL MEASURED PROCUREMENT SPEND Allowable Exclusions: -Salaries -Third party costs -Loans and Donations -Certain imports -Rates & Taxes, levy and - post retirement funding and -Medical aid contributions,etc. -Imports accepted to a maximum of 25% of the total procurement BEE SpendNon-BEE spend Statement 500 – Preferential Procurement

Enterprise Development KEY PRINCIPLES Key PrinciplesDescriptionImplication Recognition of Monetary & Non-Monetary Contributions Proviso: non-monetary contributions must be quantifiable Insistence on quantifying contributions allows for fair measurement of non-monetary contributions in relation to monetary contributions Recoverable vs. Non- Recoverable Spend 6 weighting points given to non- recoverable contributions, whilst 4 points allocated to recoverable contributions such as loans. Indicator contributions are summed but no more than 4% allocated to recoverable even if no other contributions made Heavy emphasis place on non- recoverable contributions Adjustment of 6 weighting points for non-recoverable to 10% if only non- recoverable contributions made No adjustment of 4% weighting for recoverable to disincentives recoverable loans as only means of ED contribution

Key PrinciplesDescriptionImplication Contributions Measured Cumulatively Choice of Initiation Date ED contributions measured cumulatively as a percentage of cumulative EBITDA. Choose of starting point for cumulative measurement to begin from: commencement of Codes OR any chosen date which may not be earlier than 5 years prior to commencement of Codes Large corporations which contributed prior to Codes can enjoy ongoing recognition for these contributions Entities which did not previously contribute will not be penalized and will start on a “clean slate” Enhanced Recognition Enhanced recognition for: Initiatives which ensure job creation (150%) Initiatives which develop micro’s (125%) Initiatives which develop enterprises which produce goods not previously available in SA (150%) Incentives focus on initiatives which directly lead to job creation Incentivises development of micro’s which would otherwise be largely overlooked Incentivises investment in/ creation on companies which focus on local production Enterprise Development KEY PRINCIPLES (continues)

Enterprise Development Scorecard CriteriaWeighting Points Compliance Target Cumulative Non-Recoverable Contributions made by the Measured Entity as a percentage of cumulative EBITDA measured from the commencement/Inception Date to the date of measurement. 62% Cumulative Recoverable Contributions made by the Measured Entity as a percentage of cumulative EBITDA measured from the commencement/Inception Date to the date of measurement. 43%

Residual Element KEY PRINCIPLES Key PrinciplesDescriptionImplication Recognition of Monetary & Non-Monetary Contributions Proviso: non-monetary contributions must be quantifiable Facilitates access to the economy for the beneficiaries Insistence on quantifying contributions allows for fair measurement of non-monetary contributions in relation to monetary contributions Contribution Beneficiaries Communities, Natural Persons and / or groups of natural persons where at least 75% are black people Provides socio-economic improvements Job creation Contributions Measured Cumulatively Choice of Initiation Date RD contributions measured cumulatively as a percentage of cumulative net profit after tax. Choose of starting point for cumulative measurement to begin from: commencement of Codes OR any chosen date which may not be earlier than 5 years prior to commencement of Codes Large corporations which contributed prior to Codes can enjoy ongoing recognition for these contributions Entities which did not previously contribute will not be penalized and will start on a “clean slate”

Residual Element Scorecard CriteriaWeighting Points Compliance Target Cumulative Rand value of Non-recoverable Qualifying Corporate Social Investment Contributions made by a Measured Entity to Contribution Beneficiaries measured as a percentage of cumulative net profit after tax measured from the commencement date of this statement or the Inception Date until the date of measurement. 51.5% Cumulative Rand value of Qualifying Industry Specific Contributions made by a Measured Entity to Contribution Beneficiaries measured as a percentage of cumulative net profit after tax measured from the commencement date of this statement or the Inception Date until the date of measurement. 51.5% BONUS POINT:Qualifying Residual Contributions which benefit natural persons living in rural communities 1

Micro Enterprises Qualifying Small Enterprises (As per Statement 1000) Other Companies (Exceed Revenue or Employee limits) Generic Scorecard, with all seven elements (Statement 000~900) QSEs can elect to implement the entire QSE scorecard (with enhanced recognition) QSE Scorecard, Select five of the seven elements (Statement 1000~1700) All elements weigh 20% Indicators adapted to QSEs Micro Exemption, Automatic Level 4 Recognition Framework for Measuring BEE in QSEs

QSE Identification and Classification Table

BEE ElementsCode Ref. WeightingIndicatorsIndicator Weighting Compliance target OwnershipBEE 1100 20%Exercisable Voting Rights by black people 5%25.% + 1 vote Economic Interest in the Enterprise to which Black people are entitled 7%25% Ownership Fulfillment1%No restrictions Net Equity Value7%10% - 100% staggered over a 10 year period Bonus Points: Involvement in the ownership of the Enterprise of: -Black Women and/or -Broad-based Ownership Schemes 3%15% Management Control BEE 1200 20%Black representation at Owner- Manager level; 20% 25,1% Owner- Manager Representation, Bonus Points: Black Women representation at Owner- Manager 2%10% QSE Scorecard – Ownership & Management Control

BEE ElementsCode Ref. WeightingIndicatorsIndicator Weighting Compliance target Employment EquityBEE 1300 20%Black representation at Manager-Controller level 6%40% Black women representation at Manager-Controller level 6%20% Black employees as a percentage of total employees 4%70% Black women as a percentage of total employees 4%35% Skills DevelopmentBEE 1400 20%Application submitted to the National Skills Fund 5%Yes Quantifiable skills development spend on black employees in addition to Skills Development Levy as a percentage of the Leviable Amount (including amount spent on learnerships) 15%2% QSE Scorecard – Employment Equity & Skills Dev.

BEE ElementsCode Ref. WeightingIndicatorsIndicator Weighting Compliance target Preferential Procurement BEE 1500 20%BEE Procurement Spend from Suppliers based on the BEE Procurement Recognition Levels or Deemed Micro Enterprise Recognition Levels as a percentage of Total Measured Procurement Spend 20%50% Enterprise Development BEE 1600 20%Enterprise development contributions made by the Qualifying Small Enterprise as a percentage of EBITDA 20%2% Residual ElementBEE 1700 20%Qualifying Residual Contributions made by the Enterprise measured as a percentage of net profit after tax 20%2% QSE Scorecard – Preferential Procurement, Enterprise Development and Residual

Ownership – Additional Clarification  Four (4) additional Codes statement have been released during Phase 2 to provide further guidance on the measurement of ownership, these statements include: Statement 102 Statement 102: Warehousing Funds Statement 103 Statement 103: Multinational Companies Statement 104 Statement 104: Public Entities and other Organs of State Statement 105 Statement 105: s21 Companies

Statement 102 – Warehousing Fund Warehousing Funds Minister approved fund Established to hold an Equity Interest in an Enterprise purchased from exiting black Participants Fixed duration Obligation ultimately transferring ownership to Intended Black Participants Create exit mechanism for black investors Ensure companies do not lose BEE status when negotiating a BEE transaction with new black participants Identification of Intended Black Participants Tri-partite agreement Between vendor, warehousing fund and intended black participants Ultimate black participants need to be identified Final purchase price agreed before warehousing arrangement recognised as black ownership Black ownership only recognised based on specified principles of ownership in Statement 100

PRINCIPLE: An Enterprise may be awarded ownership points for notional black participation arising from the ownership by a Warehousing Fund. Providing liquidity and exit mechanism for black investors Exiting Black InvestorsNew Black Investors Measured Entity Warehousing Fund Ownership – Warehousing Fund - (Code 100 : Statement 102) the recognition of ownership Contributions Arising from Investments by BEE Targeted Warehousing Funds

Multinationals SA Multinationals Equity Equivalent = 25% Sale of international interest Sale of assets and operations Ownership – Option for Multinational Companies (Code 100 : Statement 103) Sale of Shares  Companies have an option of either doing one of the following Options or they can apportion it using a combination of the options provided

Statement 104 / 105 – Public Entities, Organs of State and Section 21 Co. Broad-Based Scorecard All Public Entities Organs of State s21 Measured in terms of B-BBEE scorecard No business entity excluded from B-BBEE Except exempted micro-enterprise Notional Ownership Points B-BBEE score of Public Entities, State Organs and s21 allocated notional ownership points Based on contributions to other 6 scorecard elements Public entities and s21 allocated notional ownership points based on converted score from remaining 6 BEE elements Formula: A = B / 80 * 20

Key PrinciplesDescriptionImplication Broad-based Scorecard All Public Entities, Organs of State and s21 can and will be measured in terms of the Broad- based scorecard No business entity will be excluded from Broad-based BEE (unless it is an exempted micro- enterprise) Notional Ownership Points The Broad-based BEE score of Public Entities, State Organs and s21 will be allocated a notional ownership points based on its contribution to the other 6 elements of the scorecard Public entities and s21 will be allocated with notional ownership points based on the converted score from the remaining 6 BEE Elements, the formula is as follows: A = B/80 * 20 Ownership – Public Entities, Organs of State and Section 21 Co’s (Code 100 : Statement 104 / 105)

THANK YOU Contact Details BEE Unit: The Director Attention : Mr. Jeffrey Ndumo The Department of Trade and Industry Private Bag X84, Pretoria 0001 Tel No. : (012) 394 – 1631/4 Fax No. : (012) 394 – 2631/4 e-mail address : bee-cgp@thedti.gov.zabee-cgp@thedti.gov.za Jndumo@thedti.gov.za

BROAD BASED BLACK ECONOMIC EMPOWERMENT AND THE CODES OF GOOD PRACTICE PHASE 1 & 2 VENUE: CAPE TOWN -PARLIAMENT DATE: 07 March 2006.

Similar presentations

Presentation on theme: "BROAD BASED BLACK ECONOMIC EMPOWERMENT AND THE CODES OF GOOD PRACTICE PHASE 1 & 2 VENUE: CAPE TOWN -PARLIAMENT DATE: 07 March 2006."— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

BROAD BASED BLACK ECONOMIC EMPOWERMENT AND THE CODES OF GOOD PRACTICE PHASE 1 & 2 VENUE: CAPE TOWN -PARLIAMENT DATE: 07 March 2006.

Similar presentations

Presentation on theme: "BROAD BASED BLACK ECONOMIC EMPOWERMENT AND THE CODES OF GOOD PRACTICE PHASE 1 & 2 VENUE: CAPE TOWN -PARLIAMENT DATE: 07 March 2006."— Presentation transcript:

Similar presentations

About project

Feedback