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The Murky Waters of BEE

Is B-BBEE really benefiting its intended target market?

Deon Oberholzer

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Diving

The term Black Economic Empowerment conjures up many positive and negative feelings for various reasons. South Africa’s government initiated Broad-Based Black Economic Empowerment (B-BBEE) in a bid to redress the inequalities of the past and empower the South African people. The programme has evolved significantly over the years and, while positive in many respects, has not been without failure or controversy.

While B-BBEE is envisaged to benefit those that suffered through the apartheid regime, it is not necessarily reaching those that it was intended for and who are most in need of help. The first part of the problem lies within the definition and classification of ‘Black’.

The BEE Amendment bill makes it clear that the term only applies to those citizens that were, or were entitled to be, South African citizens before 27 April 2004 and their descendents. If a person is Black and was in the country, or arrived later but does not fall into that very clear definition, such a person may be a South African citizen or have a valid work permit, but is not supposed to be recognised as Black or benefit from BEE. Neither are their children, unless the other parent is Black by definition.

Who really qualifies for BEE?

According to Stats SA’s Quarterly Labour Force Survey (2nd Quarter 2012), South Africa’s population between the ages of 15 and 64 years currently stands at around 33 million people. Of this, about 88.5% are Black, consisting of 74.7% African, 10.8% Coloured and 3% Indian people.

What Stats SA does not publish and probably does not count, are the sections of these population groups that are not included in the BEE definition of Black.

Minister of Home Affairs, Nkosazana Dlamini-Zuma, confirms that Home Affairs has no idea how many illegal immigrants are in South Africa, but it is estimated to be somewhere between five and ten million legal and illegal immigrants.

A recently published article entitled ‘Refugees overwhelming South Africa’, by parliamentary correspondent Denise Williams, states that South Africa has the highest number of ‘asylum’ seekers in the world, and that many more people enter South Africa illegally through our notoriously porous borders.

The main problem is therefore that the Black population contains a large percentage of people that are classified as Black by Stats SA and make up the demographics of the South African population, but they are supposed to be excluded from BEE.

As a result, there is a substantial category of the population that are ‘Non-BEE Black people’. If the estimates are even remotely accurate, this could be a larger group than the Coloured, White or Indian population groups.

Verification agencies can pick up from identity documents when a person is not born in South Africa and then insist on proof that the person is indeed BEE Black, but a major new challenge is arising. All of the children of the Non-BEE Black segment of the population that are born in South Africa, whether their parents are legally in South Africa or not, automatically become South Africans.

It has now been 18 years since 1994, these children are entering the job market and for all intents and purposes they are indistinguishable from the children of BEE Black people. What makes this somewhat absurd is that the children of a recently immigrated Nigerian or German couple will enjoy equal benefit from BEE as their South African counterparts.

Verification agencies will not be able to determine who is supposed to be classified as BEE Black to reap the benefits and who should not.

Local dilemma

A case in point; when visiting a popular South African coffee shop, I asked my waiter how many people were employed at the restaurant. It transpired that all 50 employees were Black, but only two were South African. When I asked if they planned to ‘go back home’ the answer was ‘never’.

The new draft BEE Codes that were released in October 2012 envisage that companies will be measured on targets based on the demographic profile of the population. This demographic profile does not differentiate between BEE Black and Non-BEE Black. Verification agencies will have to accept Non-BEE people born in South Africa unless government sets up some government authority on race classification.

As South Africa remains a welcome utopia for many people suffering in other parts of Africa, more and more will flock to South Africa and take their place ahead of our own BEE Black population fighting for jobs and survival.

According to eHow.com and jobsearch.about.com, it is a well-accepted norm that many teenagers in the US get their first job in restaurants and fast food chains. This employment gives them a start in their careers and offers the opportunity for permanent employment.

If the coffee shop I visited is anything to go by, that opportunity has already been lost in the South African hospitality industry.

Deon Oberholzer is the co-founder and CEO of Veri-Com, a SANAS Accredited BEE Verification Agency. He has been involved with Black Economic Empowerment at various levels since 2004.

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BEE

BBBEE Share Schemes – A Ticking Time Bomb?

At the forefront of these mechanisms are employee share schemes.

Nicolene Schoeman-Louw

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BBBEE Share Schemes

Since the promulgation of the amended codes of good practice under the Broad Based Black Economic Empowerment Act 53 of 2003, as amended (“BBBEE” or “the Act”), compliance with the ownership element has become a compulsory compliance element for both Qualifying Small Enterprises (“QSE” having between R10 and 50 million annual turnover) and generic enterprises (over R50 million annual turnover). As a result, businesses have found themselves considering mechanisms which aim to address this element. At the forefront of these mechanisms are employee share schemes.

The first of these structures were constructed in the early 2000’s by JSE listed companies. The aim of these structures were essentially two-fold:

  1. An employee retention strategy similarly constructed as executive share schemes in many ways, and
  2. Compliance with BBBEE.

These structures have recently been under the spotlight again . Mainly because of the questions it raises in terms of whether it is true empowerment or not.

Related: Corporate BBBEE Compliance Turned Into BBBEE Investment

For businesses wanting to utilise these structures, a number of aspects are to be considered:

  1. Employers and employees stand in a vertical relationship with one another. This is because the employer directs the expectations and the standards of the services exchanged between them. Shareholders, on the other hand, are in a horizontal relationship as they are equally entitled to regulate and direct matters which may affect their shareholding or investment. So, to shift from a vertical to a horizontal relationship requires the necessary professional inputs, management and attention.
  2. These share schemes are separate entities that require the necessary attention and inputs. As such, it is not just a case of setting it up and it simply running itself.
  3. These structures need to have a shelf life in my view. In this regard, I mean that a clear commercially feasible strategy needs to be devised and implemented in regards to the trust. This would include a structured plan whereby employees would not only be entitled to dividends but would also have the opportunity to up-skill and to improve themselves in various ways. The financial benefits should aim to facilitate direct ownership.

It is important to remember that inviting partners to sit at the table, needs to fully embrace the concept. If it does not, it not only negatively impacts the relationship, but disempowers the people involved. The human aspect thereof is as devastating as the legal non-compliance which may even go as far as constituting fronting.

Related: The 5 Elements Of BBBEE

In order to avoid this, these structures need to be setup correctly and managed correctly, which means:

  1. The trust deed must clearly define the beneficiaries and the proportion of their right to receive distributions;
  2. The trustees must actively take part in managing the trust at a level similar to the management role of shareholders in a company having a shareholding;
  3. Based on the aforesaid, in my view, the trustees should be appointed by the beneficiaries;
  4. A written record must be kept identifying the beneficiaries as well as prove that they fall within the designated groups as defined in the Act. The trustees must have no discretion in this regard;
  5. A written record must be kept of fixed percentages of claims or outlining formulas for calculating claims. The trustees must have no discretion in this regard;
  6. The trustees must present the financial reports of the trust to the beneficiaries yearly at an annual general meeting of the Trust;
  7. The trust deed or other relevant statutory documents of the trust must be made available, or on request, to any beneficiary in an official language in which that person is familiar;
  8. On winding up or termination of the trust, all accumulated interest must be transferred to the beneficiaries or to an entity representing the interests of the participants or class of beneficiaries.

Expert professional guidance is therefore crucial in order to avoid these structures becoming your own ticking time bomb.

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BEE

How Incubator Project National Gives Your Enterprise a One-Stop-B-BBEE Shop

Turn your B-BBEE compliance spend into investment spend in 2017.

The Investment House

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b-bbee-compliance

Vital Stats

B-BBEE does not have to be a one-sided redistribution of wealth and power. “There certainly is a way to turn your compliance spend into investment spend. This year we are giving corporates the one-time opportunity to be part of our unparalleled Project National,” says Jack Janse van Rensburg, director of The Investment House.

“Project National is a complex incubation model that provides a one-stop-solution to empower, develop and skill South African entrepreneurs.”

Related: How To Get Your B-BBEE Money Back

The Investment House’s incubator concept, Business Mastery Program, is designed for “strategic accelerated business serendipity,” according to Janse van Rensburg.

Project National is realised nationwide in multi-industrial hubs, which create a strategic accelerated business serendipity through establishing a complete supply chain, or ‘one-stop shop’ for the public, for large scale tenders and corporates.

The unique benefits for participating enterprises include:

  • Increased opportunities to be part of complex tenders and contracts
  • Immediate market access through internal hub usage of each other’s services and products
  • Increased marketing and sales opportunities through beneficial location strategy (at convenient, easily accessible and visible shopping malls/office parks)
  • The greater chance of interactions that give birth to new ideas and collaborations
  • Increased learning and development opportunities through small, medium and corporate business partnership (business skills transfer, mentoring, industry-specific training).

business-investment-advice

Investing wisely

Project National is an unparalleled incubator concept in South Africa that brings a wide array of business advantages and B-BBEE-ROI opportunities to corporates, who can choose to make either monetary or non-monetary contributions within their B-BBEE spend.

Related: To B-BBEE Or Not To B-BBEE

How your B-BBEE compliance spend turns into investment spend with Project National:

1Create a consistent supply chain

Through your involvement in Project National, your struggle with inconsistent and unreliable supply chains can be over. Project National provides you with suppliers who can supply on demand, in the right quantity, to the right quality and the right price. More control and insight into your supply chain creates better competitiveness for your business.

2Extend your sales arm into new markets

Project National entrepreneurs provide you with an extended and widened sales arm into various different markets and distribution chains through the development of entrepreneurs acting as resellers of your product.

3Diversify your product range

Buying and financing assets can be a difficult task, therefore it’s often not possible for companies to diversify their range. Project National’s black owned start-up enterprises are more likely to obtain funding for assets and equipment and can therefore be a great asset to you when becoming a supplier to your company, allowing you to diversify your product range by outsourcing production of new components.

Related: Sustainable Growth For Future Prosperity

4Allow for lower imports

It can be hard to compete with Chinese imports on a price and now even a quantity level. While the demand for low quantities and tailor-made products is high, it’s hardly profitable for many big corporates. Project National’s entrepreneurs leave the doors open for you as they are smaller and organisational overheads are lower; making it profitable to manufacture lower quantities.

Be part of The Investment House’s unique incubator concept and see your ROI on your B-BBEE spend flowing.

 

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BEE

How To Get Your B-BBEE Money Back

B-BBEE does not have to be a one-sided redistribution of wealth and power. In fact, B-BBEE done properly can offer a highly valuable return on investment — especially within the Enterprise and Supplier Development (ESD) element.

The Investment House

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b-bbee-money-back

Vital Stats

“There certainly is a way to turn your compliance spend into investment spend. And this year we are giving corporates the one-time opportunity to be part of our unparalleled ‘Project National’,” says Jack Janse van Rensburg, director of The Investment House.

“‘Project National’ is a complex incubation model, providing a one-stop-solution to empower, develop and skill South African entrepreneurs,” he explains.

The Investment House’s incubator programme, Business Mastery Program, is designed to display fundamental insights into business environments and requirements as well as social and educational challenges in South Africa. It provides a sustainable and integrated solution for long-term entrepreneurial development.

Related: To B-BBEE Or Not To B-BBEE

The advantage it has over other incubation centres is the strategic concept of ‘Project National’, which combines different industries in one hub. All these industries make use of each other’s services and products and are able to provide combined services to their clients — especially complex contracts and tenders.

Unique incubator concept of ‘Project National’

One-Stop Shop

‘Project National’ incubator hubs offer a one-stop-shop and therefore a convenient solution for any corporate or government institution looking for a comprehensive and wide array of services or products.

Business Ripple Effect

Through this supply chain model every additional large business contract for one enterprise automatically benefits  other enterprises in the hubs due to the multiplication of services required.

Immediate Market

Entrepreneurs in the hubs use each other’s services immediately and therefore create immediate markets for each other.

Fostering Entrepreneurial Culture

Our multi-industry incubation hubs foster an entrepreneurial culture of innovation, networking and technology transfer. Multi-industrial hubs increase the prospect of interactions that give birth to new ideas and collaborations.

‘Project National’ is an unparalleled incubator concept in South Africa that brings a wide array of business advantages and B-BBEE ROI opportunities to corporates that can decide to make either momentary or non-monetary B-BBEE contributions as part of their B-BBEE spend.

Related: B-BBEE: Moving Beyond Compliance Into Investment

How your B-BBEE compliance spend turns into investment spend with ‘Project National’

Create a consistent supply chain

Involvement in ‘Project National’, can end your struggle with inconsistent and unreliable supply chains. ‘Project National’ provides you with suppliers who can supply on demand, in the right quantity, to the right quality and at the right price. More control and insight into your supply chain creates better competitiveness for your business.

Extend your sales reach into new markets

‘Project National’ entrepreneurs provide you with an extended and widened sales reach into various markets and distribution chains through the development of entrepreneurs acting as resellers of your product.

Diversify your product range

Buying and financing assets can be a difficult task and it is often not possible for companies to diversify their range. ‘Project National’s’ black-owned start-up enterprises are more likely to obtain funding for assets and equipment and can therefore be a great asset to you when becoming a supplier to your company, allowing you to diversify your product range by outsourcing production of new components.

Related: Corporate BBBEE Compliance Turned Into BBBEE Investment

Allow for lower imports

It can be hard to compete with Chinese imports on price and quantity. While the demand for low quantities and tailor-made products is high, it is hardly profitable for many big corporates. ‘Project National’ entrepreneurs leave the doors open for you as they are smaller and organisational overheads are lower, making it profitable to manufacture lower quantities.

Be part of The Investment House’s unique Incubator Concept and see your ROI on your B-BBEE spend flowing.

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