Reviving the spirit of BEEOn the eve of the application of the revised Broad-Based Black Economic Empowerment legislation on 1 May and its far reaching changes expected to speed up transformation, industry players look at whether BEE achieves what it set out to, and what needs to shift to facilitate true growth and participation in the SA economy.
It has been criticised for benefitting the rich and well connected, and for excluding the previously advantaged from employment opportunities, this ultimately led to the 2007 Broad-Based Black Economic Empowerment legislation, and the revised legislation scheduled to come into effect next month. But is Black Economic Empowerment working?
“The challenge with BEE in general is that it was designed as a compliance instrument rather than an enforcement of economic transformation, and as a result there have been many unintended consequences,” says Xolani Qubeka, secretary general of the Black Business Council.
Speaking ahead of the annual Oliver Empowerment Awards, where he is a judge, Qubeka says the major beneficiaries of BEE, to a large extent, have been established big businesses.
“The majority of small black owned companies could not afford to fulfil the various elements contained in the old codes because of a weak balance sheet, whereas large corporations could comply without even fulfilling most of the elements,” says Qubeka, a former director of MTN and the Gauteng Economic Development Agency, chairman of Pambi Trust and Small Business Council Working Group and owner of Qubelisa Enterprise Empowerment and Training.
Qubeka says while many black owned companies have benefitted from BEE, albeit on a small scale, there are those who have been highly successful and have become wealthy.
“And yes, BEE has the capacity to correct the inequalities of the past if the provisions were more stringent and applied correctly.”
According to Qubeka, the Revised Codes of Good Practice on B-BBEE have much better prospects for success because it focuses on enterprise and supplier development.
The revised codes prioritise ownership, skills development and enterprise and supplier development. These days it’s important that your work, or that of your customers involves the government or JSE listed businesses.
In addition, annual revenue turnover thresholds have been raised between R10 million to R50 million, exempting micro enterprises with an annual total revenue of under R10 million.
With government and the private sector urged to promote small to medium enterprises, the codes are aimed at boosting small business participation in the mainstream economy.
“These codes provide a much better framework to ensure a focus on the entrepreneur rather than on a broad-based transformation of an entity. This includes a symbiotic relationship between SMMEs and larger corporations, where the large established company contributes towards bridging the capability gap of the smaller enterprise, and in the process, provides access to its supply chain on a sustainable basis,” Qubeka says.
Ralf Fletcher, chief executive officer at Topco Media, the firm responsible for the Oliver Empowerment Awards, says when considering BEE, it’s important to consider the challenges South Africa faces.
“The pressing issues remain poverty, a lack of skills and unemployment - which sits at 40%. A large percentage of the country’s youth are unemployed. It is vital that vigorous moves are made to address these issues, and to not redistribute wealth so much but to create more wealth through skills development and opportunity.”
Fletcher says recognising and championing excellence in empowerment is a vital part of this process. The Oliver Empowerment Awards, an annual event for the past 13 years, aims to recognise leaders and organisations geared towards empowerment and transformation through vision and innovation.
“Through awards such as the Olivers we have the opportunity to spotlight these needs and those individuals and organisations who are making such remarkable strides in helping to uplift and upskill ordinary South Africans through opportunity and education so that they can act as role models to others,” he says.
And according to Nhlanhla Sigasa, director at SizweNtsalubaGobodo, this is what’s at the heart of BEE. Sigasa also heads up BEE at the pioneering black-owned accounting firm, considered one of SA’s top five accounting firms, with an annual revenue of more than R500 million.
“You need to look at the spirit of the codes. There are some good stories to come out of BEE. It succeeds when a company looks at BEE as a tool to build our country, instead of simply as a license to trade with anyone,” Sigasa says.
Sigasa says to succeed in embracing the codes, companies need to be “very considered” and embed employment equity and skills development into the heart of its strategy.
“To succeed, everyone from the CEO, to shareholders and employees need to buy into their business strategy, to be involved in it and to link it to BEE.”
“One of the shortcomings is that there have been companies that have avoided certain principles of the codes, and maximised their scorecard to outdo competitors without vesting in the spirit of the codes. But if one truly thinks about its spirit, and the benefits it can bring if approached in a different manner, one might reach a different conclusion on how to deal with it.”
The new codes are expected to cast a fresh eye on black ownership, skills development and enterprise supplier development. It also counters low black ownership of businesses on the stock exchange in a bid to transform the broader economy.
Previously white-owned Qualifying Small Enterprise (QSE) companies could work around BEE by being effective in four of the code’s seven elements. These included ratings on employment equity, preferential procurement, enterprise development and socio economic development; and excluding themselves from ratings on the other three critical elements - ownership, management control and skills development.
These seven elements have since been consolidated to five elements, with ownership, skills development and enterprise supplier development flagged as critical elements.
Sigasa says the new codes will help to address unemployment more effectively, rather than to favour an elite few and plans to be more inclusive in its benefits to SA’s unemployed youth in particular over the next few years. He welcomed the R10-million threshold, which exempts small businesses.
Under the new codes a black-controlled Exempted Micro Enterprise (EME) and a QSE with 51% or more direct black ownership will automatically receive a level two broad-based BEE status, and any EME a 100% black ownership will receive a level one status.
Lynette Magasa, CEO of Boniswa Corporate Solutions and winner of the 2014 Oliver Awards Top Black Female Leader of the Year Award, says black people are yet to make a dent in real terms of ownership, which she attributes to a poor culture of entrepreneurship and non-expansionary BBE deals, which she says eroded value and contributed to capital destruction.
“There has been a narrow focus on changing the racial composition of existing companies by facilitating the transfer of company shares to blacks. It has not focused sufficiently on building entrepreneurial prowess of black people in general, but has instead facilitated the rise of a small black business elite at expense of broad-base, enterprising entrepreneurs.
“Furthermore, BEE should not be about transferring equity. It should be about expansion. Funding structures of BEE are not designed for this purpose and this has resulted in massive failures at equity level. Most BEE deals are done for compliance reasons, rather than value creation and building a business that could compete meaningfully,” she says.
Magasa says when looking at the seven pillars of the current BEE code there it indicates that there has been some success in employment equity, procurement and complaint ownership, and that has helped to create a black middle class.
“But the fact remains that the need for skills development and training has become critical to ensure a sustainable and educated labour force, which can help drive the economy to be globally competitive. This is a huge implication for employers.”
To address such challenges, expansion and growth is critical to broad-based black economic empowerment. This would ensure that deals are done in order to contribute to the growth of the South African economy, not just to transfer capital and equity from one hand to the other.
“South Africans are known for their ingenuity and entrepreneurship. The innovative ideas and new inventions that remain dormant but would be unleashed if and when all South Africans participate in the economy, is an exciting possibility that could see South Africa becoming rapidly more competitive internationally, then BEE will have succeeded in trying to facilitate growth and participation,” Magasa says.