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Preferential Procurement is Set to Reinforce BBBEE Codes

New legislation effective 7 December will change the BBEEE landscape.

Deon Oberholzer

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Legislation is like a rowboat. The boat is provided for you to get to the other side, but you have to row it in the right direction in order to get there. This is the thinking behind the new regulations on Preferential Procurement that come into effect on 7 December 2011. For the supplier, the rowboat is the means to securing a contract; for government the rowboat will facilitate the equitable spread of economic empowerment.

The loopholes that have allowed the prevalence of fronting and the enrichment of individuals at the expense of wider capacity building and skills transfer have been a worrying factor for the architects of Black Economic Empowerment (BEE). Many are asking the question: after 17 years of BEE, where are the black industrialists?

President Zuma asked this question at the Black Business Summit in September 2011. “The economy must produce authentic black entrepreneurs, who own factories and manufacture textiles, furniture, metal products or whatever the market requires,” he said.

The answer to this concern may well be provided by the new Preferential Procurement regulations which aim at closing the door to fronting and black intermediaries that act as order mail boxes. The intention is to encourage black suppliers to develop their own capacity to deliver while recognising companies that engage in real transformation. Both the weighting of procurement points and the new restraints on outsourcing should result in a more equitable outcome.

Evaluation of points

Come December, tenders must first be evaluated on functionality, with scores allocated for each candidate’s capacity to meet the terms of reference. These may include criteria stipulated by National Treasury or the relevant government body to meet certain transformational objectives.

Applicants who meet the minimum criteria for functionality must then be evaluated on price and Broad-Based Black Economic Empowerment (BBBEE) status, according to an 80/20 or 90/10 formula. So the message is; your tender application must first meet all the technical criteria, second it must be competitively priced and third, you should have a high BBBEE rating.

For contract values under R1 million, the 80/20 weighting applies. This means that 80 points are allocated for the price and the balance of twenty points are allocated for BBBEE rating, with L1 scoring the full 20 points and lower ratings scoring a sliding scale of lower points – 18, 16, 12 and 8 points scored for L2, L3, L4, L5 respectively, and so on.  This weighting gives proportionately greater favour to the BBBEE status of the applicants, making it a little easier for small black suppliers to compete.

The balance shifts to 90/10 for contract values above R1 million, which places greater pressure on applications for multi-million rand contracts to be competitively priced. 90 points are allocated to price, while a maximum of 10 points count towards BBBEE status, with L1 scoring the full 10 points, followed by 9, 8, 5 and 4 points for L2, L3, L4 and L5 respectively down to non-compliant bids that get zero.

In both cases, the contract must be awarded to the tenderer who scores the highest number of points out of 100. If this does not happen, the other candidates may challenge the procurement decision.

A high BBBEE rating could be a tangible benefit for companies that want to charge a bit more for a project. In other words, a L1 or L2 candidate may still win on points even if his price is higher than that of his competitors. This is certainly an incentive for companies to clear the Level 3 barrier and get into the top end of the tender evaluation.

Conditions of outsourcing

One significant condition is that contracts can no longer be awarded to black intermediaries who then simply pass on the actual work to a non-compliant company. If the tenderer intends sub-contracting more than 25% of the value of the contract to any other enterprise, that sub-contractor must have a BBBEE status equal to or greater than that of the tenderer, or the work must go to an exempt micro enterprise (EME); otherwise the BBBEE points of the tenderer will not be counted in the total score. This should also put a lid on corrupt tendering practices and encourage the development of capacity within black-owned companies.

A second significant condition is the Local Content Clause: the contractor may not renege on contract terms that stipulate a minimum threshold of local production and local content. This means, for example, that you cannot, after being awarded a contract, decide to source cheaper materials from the east rather than use local materials; you are obliged to meet the contract requirements for local manufacture and services. Government has already started to identify designated sectors, such as the automotive industry, where local content rules will be applied diligently.

If you are found to be in breach of these conditions, the penalties may be disqualification, having to pay for costs and damages incurred, cancellation of the contract, being barred from doing business with government (any organ of state) for ten years, or criminal prosecution.

When the Preferential Procurement regulations come into force the result will be a more level playing field for tender applications and an emphasis on using compliant suppliers who can do the work themselves. Regulations are always onerous, but these are designed to drive transformation more effectively, opening the way for real participation of black and BEE compliant suppliers in the economy.

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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Africa’s Top 10 Tech Start-Ups Selected For #Africa4Future Accelerator Programme

Airbus and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) have announced the top 10 African tech start-ups that will take part in the latest Airbus Bizlab #Africa4Future accelerator programme. They were selected after an open public pitch event in front of experts, potential investors, the media and other stakeholders in Kenya’s capital city.

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#Africa4Future is a joint business accelerator initiative of Airbus and GIZ’s Make-IT in Africa initiative together with the Meltwater Entrepreneurial School of Technology (MEST), a non-profit seed fund and pan-African organisation that brings together startups, entrepreneurs and the tech community, and Innocircle, the South African-based innovation consultancy.

The top 10 start-ups were selected from 314 entries representing 19 African countries that were received when the challenge was opened last October. These were assessed by a panel of Airbus and other independent experts.

The programme aims to encourage and support entrepreneurship in Africa. The continent’s young and increasingly techno-savvy population is likely to be the driving force behind Africa’s socio-economic development. The competition identifies Africa’s own pool of talented entrepreneurs using innovative aerospace based solutions to tackle the continent’s most pressing challenges such as transportation, agriculture and healthcare.

As a global aerospace accelerator, Airbus BizLab is ideally suited to help African startups transform innovative ideas into viable and valuable businesses. In doing so, it increases the aerospace industry’s engagement with hardware and software innovators and entrepreneurs in Africa while helping to nurture the establishment of competitive entrepreneurial ecosystems on the continent.

The Nairobi event kicks off an intensive 6-month business incubation and accelerator programme involving technical, commercial and mentorship activities in France, Germany and South Africa. This includes workshops and coaching sessions with Airbus experts, GIZ’s Make-IT in Africa, MEST and Innocircle coaches.

The programme will culminate with Demo Day events at the biennial Paris International Airshow and a special event in Germany from 19-26 June, when finalists will launch their products, define their collaboration with Airbus and announce their investment commitments in front of representatives from across the aerospace industry.

Related: How To Start A Business With No Money

Finalists:

1. Astral Aerial (Kenya) – using drones for humanitarian cargo transport, surveillance and emergency response.

2. Cote d’Ivoire drone (Ivory Coast) – locally-manufactured drones for various applications.

3. Elemental Numerics (South Africa) – applies computational fluid dynamics techniques to the design of machines and components, ranging from aircraft to heart valves.

4. Lentera Limited (Kenya) – applying remote sensors to monitor and transmit environmental data to enable more efficient and smarter farming.

5. Maisha ICT Tech PLC (Ethiopia) – deploying locally built drones for delivering medicines, blood and healthcare items to remote and rural areas.

6. MamaBird (Malawi) – provides a platform to help Governments, NGOs and other organisations deliver vital life-saving supplies to remote communities.

7. Map Action (Mali) – a solution offering real-time online urban mapping to identify problems affecting water supplies, hygiene and sanitation.

8. MobiTech Water Solutions (Kenya) – an online real-time water monitoring solution that allows businesses, homes and water-service providers to manage their available water using an app-based dashboard and instant messaging.

9. Track Your Build (Nigeria) – a novel infrastructure management tool for construction and operations.

10.WiPo Wireless Power (South Africa) – offers reliable and convenient wireless power chargers for businesses, conference centres, airports, restaurants and other venues for the charging of mobile devices, laptops and drones.

Related: 21 Steps To Start-Up Success

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Top Sectors For SMEs In 2019

“As such, SMEs in the construction, communications and electrical fields are all likely to benefit from supply and sub-contracting agreements over the coming years.”

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While the South African economy has been underperforming for a number of years, the first positive signs of turnaround started to become visible by the second quarter of 2018, and by the end of the third quarter, data supplied by Statistics South Africa showed that the economy had indeed grown by 2.2 percent, compared to the previous quarter. This uptick is expected to have a positive effect on business confidence in 2019.

This is according to Jeremy Lang, regional general manager at Business Partners Limited (BUSINESS/PARTNERS), who says that certain business sectors have already seen an increase in opportunities for small businesses and start-ups.

“While these sectors will not be without challenges, the following four industries are likely to offer the best opportunities for small and medium enterprise (SME) owners to grow their enterprises in the coming year.”

Tourism

The World Travel and Tourism report 2018, revealed that the direct contribution of the travel and tourism sector to South Africa’s GDP has been projected to rise from R136bn in 2016 to R197.9bn by 2028 – set to make up a total of 3.3 percent of the country’s total GDP, says Lang.

“Although this sector experienced some setbacks in 2018, such as the drought in the Western Cape and stricter visa regulations for children entering the country, both the water restrictions and visa regulations  have been relaxed and the sector is once again poised for growth,” he says.

Related: Government Funding And Grants For Small Businesses

Manufacturing

Statistics South Africa has credited this industry with being the biggest driver of growth in the country’s GDP, having expanded by 7.5 percent in September 2018, says Lang. “To bolster this, Government has made a concerted effort to stimulate small business growth in this area with initiatives such as the Black Industrialist Programme and the SA Automotive Masterplan.”

He adds that businesses in the manufacturing sphere could therefore likely see significant opportunities in the form of outsourcing contracts and new partnerships with large corporates.

Agriculture

“The debate around land expropriation has occupied most of the discussions surrounding the agricultural sector in 2018, with some questioning growth prospects of this sector. However, this industry has a lot of growth ahead of it, as demonstrated by its 6.5 percent growth over the last three months of 2018,” explains Lang.

“Further to this, the industry is also already taking significant advantage of seven climatic regions in South Africa, with the export of a wide variety of high quality fruit and vegetables increasing substantially,” he points out. The recent outbreak of foot and mouth disease that has resulted in the suspension of the country’s FMD-free status will however significantly impact meat exporters.

In terms of opportunities for SMEs, he says that these may most likely be found in the rural and underdeveloped regions, where the need for resources like efficient transport, state-of-the-art cold storage, better irrigation and private power generation will be key to making agriculture projects more productive and competitive in the export market.

Data and information technology

Connectivity and information technology infrastructure are both crucial to business and employment growth in South Africa, says Lang.

“With many municipalities and the Western Cape government committing to providing all of its residents with free data as part of a plan to expand public Wi-Fi network access, it is clear that this is also becoming a high priority on a state level.” 

Related: 9 Ways To Elevate Your Small Business To The Next Level

It has also been reported that South Africa is awaiting the arrival of three international data centres, and large players in the communications sphere, including Vodacom, Telkom and Vumatel, are making huge strides in drastically growing the country’s fibre optic backbone, he adds. “As such, SMEs in the construction, communications and electrical fields are all likely to benefit from supply and sub-contracting agreements over the coming years.”

In conclusion, Lang says that as South Africa’s economic growth has started to turn around, business owners should keep their ears to the ground as 2019 is highly likely to be a year of opportunity.

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Herman Mashaba To Talk On City Of Jo’burg Job Creation Initiative

Herman Mashaba to talk on City of Jo’burg job creation initiative at 2019 Business Day TV SME Summit.

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Mayor of the City of Johannesburg, and one of South Africa’s most successful entrepreneurs, Herman Mashaba, will be one of the presenters at the 2019 Business Day TV SME Summit which will be taking place at The Empire Venue in Parktown on 7 March 2019.
Now in its third year, the Business Day TV SME Summit provides an opportunity for small business owners, entrepreneurs, incubators, franchisors, investors, as well as suppliers to the SME sector to come together and engage with experts in the business, technology, marketing and investment fields.
Having founded the now iconic hair-care brand, Black Like Me, more than thirty years ago during the apartheid era and on the back of a R30,000 loan from a friend, Mashaba’s experience in establishing an entrepreneurial enterprise holds great value for small and medium-sized business owners in South Africa. Mashaba will also be highlighting the City of Johannesburg’s innovative drive to stimulate inner city opportunities and job creation.
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Managing finances and obtaining funding and expansion capital are challenges many entrepreneurial businesses face as they look to grow their footprint in the market. Darren Segal, Personal and Business Banking Innovation executive at Standard Bank – one of the partners of the SME Summit – will present advice on negotiating funding and finance, to ensure effective cash flow management.
Complex tax issues will also be covered by a representative from the office of the Tax Ombudsman.
Taryn Westoby, Head of Tiso Blackstar Events which manages the SME Summit and curates the speaker line-up says: “We work alongside Business Day TV to meet the requirements of those engaged in the SME sector, so that the content of the Summit aligns to some of their most pressing concerns and needs. The line-up of speakers includes experts in the fields of business scaling, marketing strategy, intellectual property (IP) rights, and risk mitigation.”
As such, Graham Mitchell from GROW has been engaged to share insights into the leadership required to scale a winning management team.  Vishen Pillay, partner at Adams & Adams and an authority on copyright, patents, and trademarks, will provide guidance on protecting IP. Therusha Bhagarette of Credit Guarantee Insurance Corporation of Africa Ltd will expound further on the do’s and don’ts of risk management. The full line-up of expert speakers and topics will be published on www.smesummit.co.za.

International perspective

An international perspective to entrepreneurship will also be provided through Business Day TV’s The Big Small Business Show and a pre-recorded session with Uri Levine: renowned serial entrepreneur and founder of Waze.  Levine was recently in South Africa as a guest of Tiso Blackstar to deliver the keynote presentation at the prestigious Sunday Times Top 100 Companies Awards to an audience of CEOs from the top-performing companies on the JSE.

Leading organisations at the SME Summit

Once again, leading organisations have committed their participation at the Business Day TV SME Summit, recognising it as one of the most effective platforms for SMEs to engage professional insights and facilitate knowledge-sharing in support of much needed entrepreneurial development in SA.
This year’s headline partners are Credit Guarantee Insurance Corporation of Africa Limited, SAICA, and Standard Bank. Other partners include BDO, Adams & Adams, Liberty, Payfast, GROW, The Tax Ombudsman, W&R Seta, Telkom, Santam and The Little Green Number.
For sponsorship and exhibition opportunities:  Stephen Horszowski – stephen@tisoblackstar.co.za
Delegates who wish to purchase tickets for the full day event (07h00 – 15h00) at R995:  Lucy Johnson – johnsonl@tisoblackstar.co.za or visit  www.smesummit.co.za

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