Date: 26/03/2003
Source: Department of Trade and Industry
Title: Hendricks: BEE Framework
BEE FRAMEWORK PRESENTED BY THE DEPUTY MINISTER OF TRADE AND INDUSTRY, REPUBLIC OF SOUTH AFRICA, MRS LINDIWE HENDRICKS, South Africa House, London, 26 March 2003
Ladies and Gentlemen, I would like to thank you for this opportunity to present the Black Economic Empowerment (BEE) Framework that the South African government released on Monday. It is indeed fortunate that this conference was scheduled so close to the public release of the BEE strategy so that you are one of the first public audiences to be addressed on this important subject. Today I will focus my presentation on the BEE strategy so that you have a clear idea of the framework in which the South African government will be operating over the next few years in the implementation of BEE policies and programmes.
The starting point of the South African government in developing the BEE strategy is that state intervention is required over the next few years in order to correct the imbalances that were created by the Apartheid government and colonial rule. Many people and businesses in the developed and industrialised countries would be wary of state intervention but the realities of the situation in South Africa and the history of the country, whereby economic opportunities for black people were severely curtailed, requires the state to take this interventionist path in order to correct the situation. This is so, so that the country can move forward on an equitable basis both politically and economically. If leadership is not provided by the state in a responsible and well thought out manner then it is inevitable that the majority of the population will become discontented over time. Through the BEE strategy the South African government seeks to provide such leadership.
There are four underlying principles to the BEE strategy; firstly, that Black Economic Empowerment is part of the broader economic growth strategy, secondly that BEE should be broad based and thirdly that BEE is an inclusive process and fourthly, that BEE is associated with good governance. The first principle that Black Economic Empowerment is part of the broader economic growth strategy underlies our commitment to ensuring that economic growth in our country continues on a sustainable path. South Africa has been able to achieve a moderate economic growth rate of approximately 3% over the past few years as well as average growth of 7% p.a. in the volume of manufactured exports and it is important that this growth continues.
The BEE strategy will ensure that more people are brought into the economic mainstream. This will be done in part by ensuring that BEE is not about a few people fighting over a small pot of money by just shifting a few assets from whites to blacks, we will be looking at growing the size of the economy by continuing on our export orientation, growth of the domestic market and large scale infrastructure development programmes. To achieve this we will have a strong focus on the creation of new black enterprises and we will support these enterprises through Supplier Development Programmes. These programmes will include government funded business development support services, government incentives and reforming the mechanisms by which small businesses are able to access finance. Due to our historical circumstances we have a very low ratio of entrepreneurs in our population, which has been estimated to be as low as six out of every 100 people.
For a country of our size and developing economy status it should be and could be more than double that.
The South African government will also look at supporting these new black enterprises by changing the procurement policies of the state to increase our procurement from these enterprises and by setting appropriate targets. Already a lot of progress has been made on this through the Preferential Procurement Bill (Act, 5 of 2000) and Treasury regulations as well as existing practices in the public sector particularly through our Public Works Department and the State Owned Enterprises.
The second principle that BEE should be broad based is to ensure that the policy does not benefit only a small elite of black business people. The key to South Africa's future success in the global economy and the essence behind our BEE policy is to ensure that through our policies and programmes there is greater participation by more people, particularly black people, in our economy. South Africa is a young democracy and the essence behind our democratic principles is to ensure that all people have access to opportunities in the country. It is therefore essential that more people benefit from black economic empowerment.
To achieve this increased participation by black people in the economy we will be focusing on empowering people through human resource development and employment equity. We will also be looking at increasing the levels of investment into the country, as well as how ownership and control of enterprises are changed so that more people benefit from BEE and not just a few who have already been in a position to accumulate capital. The enterprise development programmes and preferential procurement policies that I have already mentioned will also help to broaden the BEE participation.
Therefore over the next few years we will see a shift from a small minority of people driving the economy to the economy being significantly larger and accommodating a broader range of people.
The third principle that I mentioned earlier is that the BEE strategy will be an inclusive process. A more equitable economy will benefit all South Africans, individuals and enterprises. The process of BEE is an inclusive one, and all enterprises operating within South Africa can, and indeed should, participate in this process. This strategy will be implemented throughout all sectors of the economy and is not limited only to those enterprises that derive income from government procurement or those where the sector is regulated by government.
Fourthly, BEE is associated with good governance. A fundamental part of our economic reform and transformation is improving the quality and transparency of all economic activity. Accordingly, BEE must be associated with and ensure the highest standards of corporate governance. Concerted efforts will be made to ensure that the quality of corporate boards and governance is improved.
The main driver of this change will be the sector transformation charter. In essence these charters will see the key players in a particular industry coming together and negotiating with government to outline the extent of BEE that will take place in the industry.
The targets for BEE in that sector will be negotiated (not imposed, as some earlier critics of this approach would have people believe) and will look at targets being set in the areas of ownership, management, employment equity, skills development, affirmative procurement, and enterprise development. In some industries targets for downstream beneficiation might also be included. The agreements will be outlined using a balanced scorecard in which the agreed targets will be documented and progress can be measured.
The sectors that will be affected by the transformation charters will be those in which government issues licences, those that government regulates, and the sectors and industries from which government procures substantial amounts. It is therefore not expected that the transformation charters cover every sector of the economy. However, those sectors or even companies not covered will be strongly encouraged to develop their own transformation charters so that there is voluntary compliance with the strategy. We believe that equity in South Africa is a moral requirement and voluntary compliance by those sectors or firms not covered will be in the best interests of the country.
Ladies and gentlemen, these four principles that I have discussed are encapsulated in the 'Broad Based Black Economic Empowerment Draft Bill'. This Bill will be tabled in Parliament for public discussion and comment within the next few weeks.
The Bill will among other things; allow the Minister of Trade and Industry to issue guidelines and codes of good practice on BEE and it will provide for the establishment of a BEE advisory council, and provide a definition of blacks.
These guidelines and codes of good practice for BEE are important as they will provide guidelines for the sector transformation charters, publish the indicators and weighting of BEE as covered by the balanced scorecard in the sector transformation charters, and allow for a system of reporting on the implementation of BEE. This last point would cover the reporting by Government, State Owned Enterprises and the private sector. It is important to note that within the Bill it will be a requirement that all guidelines issued by the Minister of Trade and Industry must be published in draft for public comment for at least 30 days.
The other area of the 'Broad Based Black Economic Empowerment Bill' will see the establishment of a BEE advisory council to advise the President on the implementation of BEE. The aim of the council will be to review progress, provide advice on the different aspects of BEE and find ways to enhance the implementation of BEE. The composition of the council is currently being determined and will include key stakeholders from the government, business sector, organised labour, academics and community based organisations.
As you can hear from my presentation today the BEE policy and strategies of the South African government are clear and well thought out. Even though it has taken us a number of years to come forward with the clear policy guidelines.
We believe that by releasing this strategy now it will be a stimulus for further transformation of our economy and economic growth. This is because it is a well-focused and coherent policy that is clear on what our intentions with regard to BEE are; this will create certainty in the market and investors can now have an idea of how they can incorporate these policies into their investment decisions.
The one concern that you will no doubt have is how the BEE strategy will affect investors to South Africa.
The South African government will continue with its approach of making South Africa an attractive place for international investors and the effective implementation of the BEE policies will see substantial growth taking place in South Africa. As I have mentioned we already are a growing economy and have huge potential for further economic growth and development; the normalisation of economic relationships and increase in the skills base and income of ordinary citizens will therefore see greater opportunities for investors to the country. In addition, the existing government incentives that are available to foreign investors will continue and will be supplemented by incentives for firms that incorporate black economic empowerment.
Furthermore, the South Africa government will continue with its policies of macro-economic stability and will not be financing the BEE strategy through taking on any extraordinary debt.
Ladies and gentlemen, to conclude I believe that the BEE policy that we have released is sound and is a good building block from which to grow and transform our economy. In order to ensure that we have the best policies that are acceptable to the people of South Africa we have consulted widely with organised structures, and we have opened up the strategy document and the proposed Bill to public comment. I am sure that I don't need to remind those in the audience today that South Africa is a well functioning democracy with an entrenched constitution and there is not going to be a situation where the government compromises the rule of law for quick fix solutions to BEE that will damage economic growth in the long term.
I hope that my presentation today has enabled you to get a clear sense of the way forward for South Africa and that you will join us in our efforts to grow our economy and promote economic equality in South Africa.
I thank you.
Issued by Department of Trade and Industry
26 March 2003
Source: Department of Trade and Industry
Title: Hendricks: BEE Framework
BEE FRAMEWORK PRESENTED BY THE DEPUTY MINISTER OF TRADE AND INDUSTRY, REPUBLIC OF SOUTH AFRICA, MRS LINDIWE HENDRICKS, South Africa House, London, 26 March 2003
Ladies and Gentlemen, I would like to thank you for this opportunity to present the Black Economic Empowerment (BEE) Framework that the South African government released on Monday. It is indeed fortunate that this conference was scheduled so close to the public release of the BEE strategy so that you are one of the first public audiences to be addressed on this important subject. Today I will focus my presentation on the BEE strategy so that you have a clear idea of the framework in which the South African government will be operating over the next few years in the implementation of BEE policies and programmes.
The starting point of the South African government in developing the BEE strategy is that state intervention is required over the next few years in order to correct the imbalances that were created by the Apartheid government and colonial rule. Many people and businesses in the developed and industrialised countries would be wary of state intervention but the realities of the situation in South Africa and the history of the country, whereby economic opportunities for black people were severely curtailed, requires the state to take this interventionist path in order to correct the situation. This is so, so that the country can move forward on an equitable basis both politically and economically. If leadership is not provided by the state in a responsible and well thought out manner then it is inevitable that the majority of the population will become discontented over time. Through the BEE strategy the South African government seeks to provide such leadership.
There are four underlying principles to the BEE strategy; firstly, that Black Economic Empowerment is part of the broader economic growth strategy, secondly that BEE should be broad based and thirdly that BEE is an inclusive process and fourthly, that BEE is associated with good governance. The first principle that Black Economic Empowerment is part of the broader economic growth strategy underlies our commitment to ensuring that economic growth in our country continues on a sustainable path. South Africa has been able to achieve a moderate economic growth rate of approximately 3% over the past few years as well as average growth of 7% p.a. in the volume of manufactured exports and it is important that this growth continues.
The BEE strategy will ensure that more people are brought into the economic mainstream. This will be done in part by ensuring that BEE is not about a few people fighting over a small pot of money by just shifting a few assets from whites to blacks, we will be looking at growing the size of the economy by continuing on our export orientation, growth of the domestic market and large scale infrastructure development programmes. To achieve this we will have a strong focus on the creation of new black enterprises and we will support these enterprises through Supplier Development Programmes. These programmes will include government funded business development support services, government incentives and reforming the mechanisms by which small businesses are able to access finance. Due to our historical circumstances we have a very low ratio of entrepreneurs in our population, which has been estimated to be as low as six out of every 100 people.
For a country of our size and developing economy status it should be and could be more than double that.
The South African government will also look at supporting these new black enterprises by changing the procurement policies of the state to increase our procurement from these enterprises and by setting appropriate targets. Already a lot of progress has been made on this through the Preferential Procurement Bill (Act, 5 of 2000) and Treasury regulations as well as existing practices in the public sector particularly through our Public Works Department and the State Owned Enterprises.
The second principle that BEE should be broad based is to ensure that the policy does not benefit only a small elite of black business people. The key to South Africa's future success in the global economy and the essence behind our BEE policy is to ensure that through our policies and programmes there is greater participation by more people, particularly black people, in our economy. South Africa is a young democracy and the essence behind our democratic principles is to ensure that all people have access to opportunities in the country. It is therefore essential that more people benefit from black economic empowerment.
To achieve this increased participation by black people in the economy we will be focusing on empowering people through human resource development and employment equity. We will also be looking at increasing the levels of investment into the country, as well as how ownership and control of enterprises are changed so that more people benefit from BEE and not just a few who have already been in a position to accumulate capital. The enterprise development programmes and preferential procurement policies that I have already mentioned will also help to broaden the BEE participation.
Therefore over the next few years we will see a shift from a small minority of people driving the economy to the economy being significantly larger and accommodating a broader range of people.
The third principle that I mentioned earlier is that the BEE strategy will be an inclusive process. A more equitable economy will benefit all South Africans, individuals and enterprises. The process of BEE is an inclusive one, and all enterprises operating within South Africa can, and indeed should, participate in this process. This strategy will be implemented throughout all sectors of the economy and is not limited only to those enterprises that derive income from government procurement or those where the sector is regulated by government.
Fourthly, BEE is associated with good governance. A fundamental part of our economic reform and transformation is improving the quality and transparency of all economic activity. Accordingly, BEE must be associated with and ensure the highest standards of corporate governance. Concerted efforts will be made to ensure that the quality of corporate boards and governance is improved.
The main driver of this change will be the sector transformation charter. In essence these charters will see the key players in a particular industry coming together and negotiating with government to outline the extent of BEE that will take place in the industry.
The targets for BEE in that sector will be negotiated (not imposed, as some earlier critics of this approach would have people believe) and will look at targets being set in the areas of ownership, management, employment equity, skills development, affirmative procurement, and enterprise development. In some industries targets for downstream beneficiation might also be included. The agreements will be outlined using a balanced scorecard in which the agreed targets will be documented and progress can be measured.
The sectors that will be affected by the transformation charters will be those in which government issues licences, those that government regulates, and the sectors and industries from which government procures substantial amounts. It is therefore not expected that the transformation charters cover every sector of the economy. However, those sectors or even companies not covered will be strongly encouraged to develop their own transformation charters so that there is voluntary compliance with the strategy. We believe that equity in South Africa is a moral requirement and voluntary compliance by those sectors or firms not covered will be in the best interests of the country.
Ladies and gentlemen, these four principles that I have discussed are encapsulated in the 'Broad Based Black Economic Empowerment Draft Bill'. This Bill will be tabled in Parliament for public discussion and comment within the next few weeks.
The Bill will among other things; allow the Minister of Trade and Industry to issue guidelines and codes of good practice on BEE and it will provide for the establishment of a BEE advisory council, and provide a definition of blacks.
These guidelines and codes of good practice for BEE are important as they will provide guidelines for the sector transformation charters, publish the indicators and weighting of BEE as covered by the balanced scorecard in the sector transformation charters, and allow for a system of reporting on the implementation of BEE. This last point would cover the reporting by Government, State Owned Enterprises and the private sector. It is important to note that within the Bill it will be a requirement that all guidelines issued by the Minister of Trade and Industry must be published in draft for public comment for at least 30 days.
The other area of the 'Broad Based Black Economic Empowerment Bill' will see the establishment of a BEE advisory council to advise the President on the implementation of BEE. The aim of the council will be to review progress, provide advice on the different aspects of BEE and find ways to enhance the implementation of BEE. The composition of the council is currently being determined and will include key stakeholders from the government, business sector, organised labour, academics and community based organisations.
As you can hear from my presentation today the BEE policy and strategies of the South African government are clear and well thought out. Even though it has taken us a number of years to come forward with the clear policy guidelines.
We believe that by releasing this strategy now it will be a stimulus for further transformation of our economy and economic growth. This is because it is a well-focused and coherent policy that is clear on what our intentions with regard to BEE are; this will create certainty in the market and investors can now have an idea of how they can incorporate these policies into their investment decisions.
The one concern that you will no doubt have is how the BEE strategy will affect investors to South Africa.
The South African government will continue with its approach of making South Africa an attractive place for international investors and the effective implementation of the BEE policies will see substantial growth taking place in South Africa. As I have mentioned we already are a growing economy and have huge potential for further economic growth and development; the normalisation of economic relationships and increase in the skills base and income of ordinary citizens will therefore see greater opportunities for investors to the country. In addition, the existing government incentives that are available to foreign investors will continue and will be supplemented by incentives for firms that incorporate black economic empowerment.
Furthermore, the South Africa government will continue with its policies of macro-economic stability and will not be financing the BEE strategy through taking on any extraordinary debt.
Ladies and gentlemen, to conclude I believe that the BEE policy that we have released is sound and is a good building block from which to grow and transform our economy. In order to ensure that we have the best policies that are acceptable to the people of South Africa we have consulted widely with organised structures, and we have opened up the strategy document and the proposed Bill to public comment. I am sure that I don't need to remind those in the audience today that South Africa is a well functioning democracy with an entrenched constitution and there is not going to be a situation where the government compromises the rule of law for quick fix solutions to BEE that will damage economic growth in the long term.
I hope that my presentation today has enabled you to get a clear sense of the way forward for South Africa and that you will join us in our efforts to grow our economy and promote economic equality in South Africa.
I thank you.
Issued by Department of Trade and Industry
26 March 2003
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