In the wake of the global economic turbulence, South Africa has become a more attractive investment destination to foreign enterprises. However, South Africa has not been immune to the aftershocks from the global credit crunch. As opportunities in the private sector have continued to diminish, enterprises have increasingly looked to the public sector to secure new business and ensure sustainability.
Whether it is foreign enterprises seeking new markets in South Africa or local companies seeking new opportunities in existing markets, Broad-Based Black Economic Empowerment (B-BBEE) compliance has become a key differentiator between entities in the private sector. It is also most often a pre-requisite when doing business with public sector enterprises.
What many enterprises fail to realise is that a knee-jerk approach to BEE in an attempt to improve the BEE contributor level status can often have adverse effects, that is if the desired outcome is achieved at all. The result is often a plenitude of paperwork to support sub-standard equity ownership structures, skills development programmes without sufficient substance to ensure a steady flow of black talent into senior, middle and junior management and enterprise and socio-economic development initiatives that do not meet the criteria detailed in the BEE Codes of Good Practice.
Most executives nod their heads knowingly at the mention of the importance of ensuring enterprise scalability. This is just as crucial when it comes to building a B-BBEE platform that facilitates organisational growth and capitalisation on opportunities from which non-compliant enterprises are increasingly being precluded.
The promulgation of the dti Codes of Good Practice in February 2007, (Codes) introduced seven black economic empowerment elements:
- Management control
- Employment equity
- Skills development
- Preferential procurement
- Enterprise development and
- Socio-economic development.
These are collectively referred to as Broad-Based Black Economic Empowerment. The public sector is still, to a large extent, focussed on its predecessor, narrow-based BEE, which focuses on only the Ownership element.
Alignment of the Codes and narrow-based BEE is imminent. The Preferential Procurement Policy Framework Act (PPPFA) used by the public sector to award BEE Points to competitive tenders, is in the process of adopting the B-BBEE criteria defined in the Codes to evaluate competitive tenders.
However, enterprises that focus their attention on procuring business from the public sector should be aware that compliance with the narrow based BEE elements still attracts more attention in this sector than otherwise indicated in the weighting attributed to them by the Codes.
The introduction of the Codes affords organisations the opportunity to capitalise on the synergies between the seven elements to enhance their overall BEE contributor level status. Many organisations fail to realise the complimentary pairing between the seven B-BBEE elements. Proper planning and implementation of B-BBEE at an enterprise can ensure enhanced BEE recognition with no additional effort.
Conversely, organisations that embark on 'quick fix' approaches to secure scorecard points may thwart organisations from achieving their desired goals and incur substantial costs which could have been avoided. The cost of winding up unwieldy and often non-compliant ownership structures, skills development programmes and enterprise development initiatives can be prohibitive. With proper planning and implementation these costs could often have been avoided altogether.
The ownership element, when properly implemented to compliment an organisation’s strategic objectives, structure and culture can not only empower employees and surrounding black communities, but also ensure that bonus points are scored under the ownership element, thereby enhancing an organisation’s overall B-BBEE contributor level status.
Furthermore, finding a BEE partner that shares organisational strategies and objectives takes time. Cash investors facilitate unencumbered deals which in turn afford organisations more initial points recognition under the ownership element. Seeking a long term BEE partner may require organisations to forego initial points recognition but avoid costly exits and ultimately realise full BEE points under the ownership element in the long term.
Appropriate skills development programmes can alleviate the dearth of expertise often found in senior, middle and junior management categories. However, organisations need to give these programmes time to succeed. There are not many quick fixes in skills development. What is apparent, is that many organisations fail to claim for all the skills development expenditure provided for in the Codes. There are many skills development initiatives the Codes provide for which may not incur an actual cost reflected in organisational expenses, but which may be quantified and claimed to enhance BEE contributor level status.
Furthermore, the employment equity element applies a number of thresholds, all of which have to be met before an organisation can begin to score points under this element. Many organisations fail to meet these threshold criteria. Well planned and implemented skills development programmes will assist organisations to achieve thresholds without having to rely entirely on 'quick fixes'.
Procurement from BEE compliant suppliers can greatly assist enterprises to maximise their score under the preferential procurement element. In today’s competitive environment, suppliers would prefer not to risk losing valuable customers as a result of their own failure to transform.
Furthermore, enterprise development, when properly linked to an enterprise’s preferential procurement policy, can ensure a sustainable pool of suppliers whilst also affording organisations recognition in excess of actual spend.
The threshold criteria applied to the employment equity and preferential procurement elements are set to increase in 2013. Organisations who currently meet the current threshold criteria may not necessarily be cognisant of, or equipped to meet, the new thresholds. The question they need to ask themselves is: How much will non compliance really cost us?