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B-BBEE Amendment Bill 2011 in South Africa: For better or for worse?

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B-BBEE Amendment Bill 2011 in South Africa: For better or for worse?

3rd April 2012

By: In On Africa IOA

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Black Economic Empowerment (BEE) has become a reality that businesses in South Africa have to live with; given the on-going debate on the proposed amendments to the Broad-Based Black Economic Empowerment Act No. 53 of 2003, it has recently become a topical issue. This bill aligns the various laws relating to black economic empowerment in South Africa on 9 December 2011.(2) The Amendment Bill comes on the counsel of the Presidential B-BBEE Advisory Council. The question is, are these amendments really necessary?

The proposal

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On one hand the B-BBEE Amendment Bill develops matters presently in the BEE Act in order to elucidate any ambiguities and confusion over certain aspects. On the other hand it introduces new add-ons believed to improve the application of the existing Act.

Noteworthy highlights of the Bill(3) include:

  • Emphasis on sustainable empowerment of all black people in the definition of Broad-Based Black Economic Empowerment;
  • Organs of the state and public enterprises are also now required to comply with the B-BBEE Act thus reconciling the BEE Act and Preferential Procurement Policy Framework Act (PPPFA) which came into effect on 7December 2011;
  • Fronting has been distinctively defined and is now legally enforceable with a sentence of up to 10 years imprisonment or up to 10% of the organisation’s annual turnover or both;
  • The establishment of a BEE Commission to play a compliancy role in enforcing the BEE Act;
  • Verification agencies will be regulated by the Independent Regulatory Board of Auditors (IRBA).

What’s in it for the businesses and for the government?

The Minister insists, ‘the proposed amendments […] are intended to achieve key strategic objectives.’(3) Should the Bill be passed there will be some impact on business.

Fronting being declared a criminal offence is a welcome development as it discourages the practice. Business enterprises will have to give a true reflection of their contribution to BEE and genuinely take steps to improve their BEE score.

Currently all private sector BEE initiatives are voluntary, with no reporting obligations required. (4) However, the Bill proposes that an enterprise in a sector in which the DTI has issued sector codes must account for their BBBEE compliance annually to the sector council. At the moment these sectors are Tourism, Construction, Transport and Forestry. All public companies listed on the Johannesburg Stock exchange are also required to surrender information on their compliance to the BEE Commission. By and large, the proposed Bill implies enterprises, especially those that had not already been rated, will have to make sufficient plans to comply with the BBBEE Codes of Good Practice. To get a good score they will have to invest both time and money in the various elements of a BBBEE scorecard.

Having all levels of government observing the BEE Act is also a positive move. It is about time the government practices what it preaches. Organisations interacting with the state will also rely on their BEE scorecards to do the talking for them as the BEE Act and PPPF Act are aligned. Moreover, all spheres of government, public entities and organs of the state are obliged to report on their BBBEE compliance in their audited financial statements and annual reports under the Public Finance Management Act.

BEE verification agencies will have to work in stricter conditions under the watchful eye of the Independent Board of Auditors. On a more positive note, they are likely to have more clients seeking BEE certificates.

To have or not to have?

There are conflicting views on whether the BEE Amendment Bill should be passed or not. It is important that these comments should be made in light of South Africa’s unique circumstances. It is certainly no secret that South Africa has one of the highest inequality rates in the world. Apartheid widened the gap between the rich and the poor by systematically excluding black people from participating in the economy. To rectify this discrepancy, that poses a threat to the country’s young democracy, BEE is a necessary intervention. The Amendment Bill is a proposal to substantiate the existing BEE Act so as to achieve the objectives of a more equal distribution of wealth, income, skills and employment.

Webbel Wentzel’s partner, Ana Milovanovic, has welcomed the proposed legislation saying the BEE landscape needs to be protected from abuse.(5) The stiff penalties for fronting are essential to stamp down the rampant fronting, involving lawyers and accountants; for instance, low level employees such as the gardener or receptionist being misrepresented as a board member without them knowing and enjoying the benefits of such positions. Fronting ‘subverts the attainment of its aim to change the ownership structure of the economy, promote local industry and stimulate job creation.’(6) Nonetheless, some opinions have advocated for incentives rather than penalties to encourage BEE initiatives.

Afriforum on the contrary claims that the BBBEE Amendment Bill is ‘a step in the wrong direction.’ Afriforum deputy director Ernst Roets said that BEE legislation focused on ‘outcomes’ and not ‘inputs’ such as education and training, which would address inequalities.(7) Although this is a valid point, it is not necessarily true. The Codes of Good Practice outlines key dimensions of transformation that, to some extent, indirectly promote the education and training of black people. For instance, under the Skills Development element, enterprises earn points for training and developing black people. Mentoring and supporting black businesses also contributes towards training in the Enterprise Development element. Furthermore, the Socio-Economic Development initiatives such as donations to predominantly black schools advance the education cause. The only drawback for business enterprises is that all these are done at their own cost.

White-owned businesses have a bigger challenge when seeking tenders. There are only two options for white-owned businesses wanting to win a government contract — accept the rules on black economic empowerment and transform, or cheat. Although this may sound harsh, the regulations brought about by the Bill are necessary to accelerate economic transformation and empowerment. Economic growth can only be truly meaningful by bringing in previously disadvantaged people into the mainstream of the economy.

Another school of thought suggests that these amendments are actually counterproductive. South Africa’s global competitiveness might diminish, thus scaring away investors. Consequently unemployment will rise, increasing poverty. It thus becomes imperative that business organisations understand that BEE is not about black people taking over white-or foreign- owned businesses but is about sharing a piece of the pie for mutual benefit.

Concluding remarks

Generally, the BBBEE Amendment Bill has been applauded by businesses at large. The proposal is largely to ensure that BEE is not misused and that there is increased efficiency in implementing and monitoring it. It also clarifies ambiguities in the current BEE Act that some organisations have been abusing. It remains to be seen whether parliament passes the Bill or not.

NOTES:

(1) ContactRutendoDhliwayo through Consultancy Africa Intelligence’s Industry and Business unit (industry.business@consultancyafrica.com).
(2) ‘Amended Empowerment Bill gazetted’, South Africa Info, 13 December 2011, http://www.southafrica.info.
(3) ‘Broad-Based Black Economic Empowerment Amendment Bill’, Department of Trade and Industry, 9 December 2011, http://www.dti.gov.za.
(4) ‘Clarification on the objectives and intent of B-BBBEE Amendment Bill’, Department of Trade and Industry, 22 December 2011, http://www.thedti.gov.za.
(5) Schnehage, M., ‘BBBEE Amendment Bill up for scrutiny’, 14 December 2011, http://www.moneyweb.co.za.
(6) Ensor, L., ‘State seeks to criminalise ‘fronting’ with new empowerment bill’, 5 December 2011, http://www.beenews.co.za.
(7) ‘Afriforum slates BBBEE bill’, 21 December 2011, http://www.citypress.co.za.

Written by Rutendo Dhliwayo (1)

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