South Africa

Details

  • Service: Advisory, Transactions & Restructuring
  • Type: Business and industry issue
  • Date: 2010/06/21

Leveraging Black Economic Empowerment 

“South Africa has become a more attractive investment destination to foreign enterprises in the wake of global turbulence.”

South Africa has not been immune to the aftershocks of the global credit crunch. Local enterprises have increasingly looked to the public sector to secure new business and ensure sustainability as opportunities in the private sector constricted.

 

Whether it is foreign enterprises seeking new markets 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 and is 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 can often tie businesses up in substandard equity ownership structures, poor enterprise development initiatives, socio-economic development initiatives that do not meet criteria, skills development programmes without sufficient substance to ensure a steady flow of black talent into senior, middle and junior management, and a plenitude of paperwork in an attempt to gain a good score on the BEE scorecard.

 

Most executives will 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: Ownership, Management Control, Employment Equity, Skills Development, Preferential Procurement, Enterprise Development and Socio-Economic Development. These became known as Broad-Based Black Economic Empowerment. The public sector is still bound to its predecessor, known as narrowbased BEE, which focused on only three elements, namely Ownership, Management Control and Preferential Procurement.

 

While alignment of the Codes and narrow-based BEE is imminent, 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 than otherwise indicated in the weighting attributed to them by the Codes.

 

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: Non discretionary as opposed to discretionary trusts, when properly implemented, can not only empower employees and surrounding black communities but also ensure that bonus points are scored under the ownership element, which adds to the overall B-BBEE score.

 

Many organisations are unaware that the codes penalise enterprises that allocate ownership to black individuals or enterprises. This may thwart organisations from achieving their desired goals. The costs of enterprise reorganisation after the implementation of an ineffective ownership structure can be prohibitive.

 

Furthermore, Enterprise Development, when properly linked to an enterprise’s Preferential Procurement Policy can ensure a sustainable pool of suppliers while also affording organisations recognition in excess of actual spend. Appropriate skills development programmes can alleviate the dearth of expertise often found in senior, middle and junior management categories.

 

Organisations that fail to capitalise on the synergies afforded them through proper, planned implementation of the Codes, are ultimately handing out competitive advantage to their proactive counterparts.