Tag Archive | fronting

BEE comes under media scrutiny

New BEE Codes & Bill to fill gaps…

rob daviesMinister of Trade and Industry, Dr Rob Davies, says the new BEE Amendment Bill and the revision of the Codes would go a long way in plugging the gaps that, in his view, businesses had taken advantage of with such moves such as fronting. The amendments would also avoid the “tick-box” manner of BEE compliance that seemed to be developing in the country, he said.

When asked about a time limit on BEE, he was clear in his reply.  “The eventual idea is to create a non-racial society in which these kinds of racial categories will no longer be considered. We are nowhere near putting a time limit on this happening”.

Now five code elements

He said that the new legislation and Codes would reduce the exorbitant amounts of money that small enterprises had to pay to consultants to prove BEE compliance. “The current generic scorecard contains seven elements and these have been reduced to five in order to align the elements more closely with the trajectory of the economic growth and development in the country.”

Minister Davies pointed out that in terms of the new Bill, about to be assented to by the President, had a total of 105 points assigned to the five elements.

Social imperatives

“Black economic empowerment is not just a social and political imperative”, he said. “We need to make sure that in the country’s economy, control, ownership and leadership are reflective of the demographics of the society in the same way the political space does. That’s why we are saying Black Economic Empowerment (BEE) remains an economic imperative.”

Minister Davies said the tandem launch of the Codes signalled the opening of a sixty-day period in which business and all other members of the public can submit their comments on the Codes for consideration before all the changes are finalised.

He concluded, when addressing a media conference on the subject, “We cannot expect to grow and develop as a country if the leadership of the economy is still in the hands of only a small minority of the society.”

BMF comes in

At the same meeting, Black Management Form’s Xolani Qhubeka, endorsed the amended Codes on BEE but warned “that whilst they area a step in the right direction, still more has to be done.”

The media asked whether, in stating that the new Bill had lightened the regulatory requirement for small business, whether this was because of the Bill or the new Codes.

Minister Davies indicated that the Codes were still under debate and this is “where reform would take place”. One of the areas being looked at was where bigger companies had to go through a lengthy verification process when dealing with smaller companies, he said.

“ Much of the comments are about the numbers, targets and the time to reach the targets but some of the fundamental principles will continue whilst the parameters and the timeframes are being discussed.”

All about fronting

When asked about the idea of incentivising plans for ownership as he perceived it, Minister Davies said this came back to the fronting question and what the problem with BEE, as it stood, was all about.

There was ownership as a proper and wholesome economic concept and there were also simple formal contract of some sort of shareholding, he said. “What has happened is that most of BEE is some kind of share transaction”.

He said his department was “weary” of empowerment of plans and new companies where  a kind of ownership had been established that was a share transaction deal. He said that BEE in its proper form had to deal with such subjects as procurement and skills training and added, “What we want to see is the entering into real ownership relationships with people who are empowered and can exercise the economic powers of ownership.”

BEE not a failure

On being asked whether, in introducing criminalisation to BEE legislation, he thought BEE had failed, Davies said “ We cannot conclude that BEE is a complete failure. I think that some aspects of it so far have showed some progress. We have seen the emergence of business people from historically disadvantaged communities playing leadership roles in business, state-owned enterprises, and government.”

“ What is lacking is the impact that was desired by the legislation originally. With any kind of legislation there will always be a need to tweak it. The fundamental difference between SA and other emerging economies is that people were subjected to racial categorisation. This had to do with social definitions. People were classified by the apartheid regime as white, black, coloured and Indian.”

“Depending on how one was classified through the Population Registration Act,” he went on, “ this defined your life chances; your education; your skills development and even for small business development. Apartheid neglected black small businesses until about ‘five minutes’ before the democratic transition.”

How long will it last

Questions then arose from the floor on the “sunset clause” issue, with one person saying that all this was 20 years ago, and people entering the economy had come through a new education system. Why could there not be term limits on this and why were there no deadlines, they asked on such legislation.

Minister Davies again referred to the past and brought up the 1913 Land Act and “the history of disempowerment of peasant farmers in the Transkei, who competed with white commercial farmers. One could clearly see how these farmers were disempowered and prevented from being commercial farmers so that they could be available to go work in the mines. Small black shop owners were not allowed to operate in the city centre and compete with the white shop owners.”

He acknowledged that it was twenty years since this had all had completely changed but the life span of disfranchisement effects has continued. “White people still have the best chances that other people do not have and this is the fact of the matter and is what have had to deal with.

Fronting penalties

When asked about the penalties on fronting, Minister Davies said at the moment as the law stood the only remedy was the common law offence of fraud; and, he added, fraud is criminally punished. “The only remedy at this point in time is the criminal one. And a maximum ten year sentence, subject to court process, is the legal process for cheating.”

Get rich quick

When it was pointed out by a questioner “that some people got richer through BEE regulations whilst a number of others stayed far behind”, Minister Davies responded by saying that BEE had to be got onto a “broader base” and this is why a Commission for BEE had been established.

He said, “You put somebody in a certain position so that you could pretend that the enterprise is something other than it is in terms of empowerment.” The Commission would look at this, he said, and in the worst case scenarios it would recommend that such cases go through the criminal justice system.

When asked when the Commission likely to be established the Minister explained the parliamentary process of legislation, the advertising of posts for a Commission and the setting up of procedures, all of which took considerable time.

More background articles on subject
http://parlyreportsa.co.za//bee/rumblings-in-labour-circles-on-bee/
http://parlyreportsa.co.za//bee/new-b-bbee-bill-avoids-circumvention-of-the-law/
http://parlyreportsa.co.za//bee/bee-bill-to-stop-fronting-tabled-in-parliament/

Posted in BEE, Cabinet,Presidential, Facebook and Twitter, Finance, economic, Labour, LinkedIn, Trade & Industry0 Comments

New B-BBEE Bill avoids circumvention of the law

lionel octoberB-BBEE legislation needs overhaul…

Director General Lionel October led the department of trade and industry’s (DTI) presentation on the new B-BBEE Amendment Bill  to the portfolio committee on trade and industry, stating that the anchor BEE legislation in place for some ten years badly needed a “proper mechanism to support the actual implementation of black empowerment and methods to deal with non-compliance and circumvention”.

He said the new changes resulted mainly from the work of the President’s Special Advisory Council charged with investigation into the areas where monitoring, evaluation and reporting were clearly ineffective, resulting in a need and to introduce penalties and criminalise those who purposely made false declarations.

Maximum penalty only set by Bill

The Bill, he said, set the maximum penalty but it was up to the courts to set penalties according to circumstances’.

The purposes of the new Bill was to give further effect to the aims and objects of black empowerment legislation, said October, and especially to improve monitoring and evaluation of SA business and industry on the subject; strengthen access to procurement opportunities for black business with focus on opportunities; and funding to improve the technical capacity of the verification industry.

NEDLAC, BUSA, Black Business Council and government departments had been consulted, including all departments in the economic and employment “cluster”, he said.

Most agree changes needed

October said that public hearings had also been conducted. On the whole, these  submissions in broad principle had supported the necessity for amending legislation with a certain number of changes being acknowledged as badly needed, mainly because of misunderstandings particularly in the area of verification and scoring and to clear up a number of unintended consequences of the original Act.

Nomande Mesatywa, chief director of B-BBEE at DTI, told parliamentarians that the objectives of the Bill were to line up other legislation impacting on B-BBEE and also to line up with the Codes of Good Practice.

The Bill established a B-BBEE Commission to monitor and evaluate black empowerment as practised; to deal with non-compliance issues and circumvention and give effect to government policy on the issue of black business empowerment.

Material amendments included a whole number of key definitions and re-definitions and matters regarding the establishment of the B-BBEE commission office.

MPs complain of racial bias

A number of MPs complained that definitions included that of black persons, defining them as black, coloured and Indian, which was simply re-introducing racially based legislation based on skin colour.

October said DG had no option but to follow procurement legislation where the scorecard used such determinations. He said that South Africa was not returning to such levels as had been practiced “in the bad years” but it was now the option or choice of business in terms of a scorecard system whether to do business with government or not.

He said that South Africa was not like Malaysia or Zimbabwe where only nationals of a certain skin colour or nationality could do business with government.

MPs still disagreed with DTI and said not only was the legislation racially based but it disenfranchised white persons from an opportunity that was their constitutional right.

Furthermore, there was a differential between national and foreign business where one’s nationality was prejudicial in dealing with government on tenders and this was bad for investors to see and contributed to the idea that South Africa was unfriendly to foreign investors.

Fronting the main problem

Again, DTI rejected such notions stated by opposition MPs, October defending the proposals in that the B-BBEE legislation before them was mainly aimed at those attempted to defeat the regulations on “fronting” and by supplying false information when submitting scorecard facts. It also remained purely an option for business whether it wished to comply or not with the scorecard system when applying for government business, which he confirmed amounted to some 45% of GDP.

He concluded that it was important for government to have a B-BBEE commissioner as a party to investigate, regulate and impose penalties on those who wished to defeat the purpose of the legislation and who wished to counter government policy on the necessity to empower middle class black development; black small business development and therefore improve the black contribution to GDP.

Posted in BEE, Earlier Stories, Finance, economic, Labour, Mining, beneficiation, Public utilities, Trade & Industry0 Comments

BEE Bill to stop fronting tabled in Parliament

Fronting control not passive participation is aim…..

Department of Trade and Industry (DTI) has published a notice stating that it has tabled a Broad-Based Black Economic Empowerment Amendment Bill before Parliament, the eradication of “fronting” being perceived as one of the main objectives of the proposals.

In a statement released at the time, the amendments seek amongst other things to establish a B-BBEE commission “to deal with compliance” in respect of B-BBEE-related legislation and  strengthen compliance-related monitoring and evaluation and providing for offences and a maximum penalty.

On the issue of fronting, DTI have referred to in a number of documents issued by the department, although by now suggesting criminalization of the issue a clearer legal definition is going to have to be found, commentators have noted. DTI in the past has said that any process of black participation in business must result in an increase in the ownership and control of the economy by black persons.

The BEE  scorecard currently being used by business gives points for direct empowerment which focuses on black ownership of enterprises and assets through shares and other instruments that provide the holder thereof with voting rights and economic benefits, such as dividends or interest payments.

Control means, according to DTI in their BEE statements, the right or the ability to direct or otherwise control the majority of the votes attaching to the shareholder’s issued shares; to appoint or remove directors holding a majority of voting rights at meetings of the board of directors of that shareholder and the right to control the management of that shareholder.

DTI has been particularly vocal on the subject that passive ownership by black people is in itself not sufficient to bring about “transformation” or where investors have very little control over the direction of investment decisions made by fund managers. Such passive ownership of enterprises can also lead to a form of ‘fronting’ “and this needs to be guarded against”, says DTI.

Minister of trade and industry, Dr Rob Davies, has referred to this matter and further consequences of the new Bill in a number of DTI press statements recently and conferences he has addressed.

The Bill also contains more regulations to control B-BBEE verification agencies involving an independent regulatory board of auditors is also part of the minister’s proposals contained in the Bill and the provision or creation of incentive schemes to support black-owned business. The Bill is notable in that it follows the BEE scorecard principle of specifically defining a “black person” as Africa, Coloured or Indian.

A draft bill was published for comment and no doubt the portfolio committee on trade and industry will announce public hearings before the committee in the new parliamentary session of 2013. The Bill as tabled is available on the DTI website.

Posted in BEE, Cabinet,Presidential, Land,Agriculture, Mining, beneficiation, Trade & Industry0 Comments

Davies hammers industry, commerce on BEE participation

Currently, the department of trade and industry (DTI) has in place a 60-day period for comment on the revised broad-based black economic-empowerment (B-BBEE) codes of good practice, i.e. until 5 December 2012. He has also tabled a new Bill on B-BEE in Parliament immediatelt before the Christmas recess.

With this in mind, Minister Davies said in a conference recently that BEE remained a vital cog in the development of South Africa, stating, “It is not just a social or political imperative . . . but an economic imperative as well”, he said.

Davies said it was the belief of his ministry that South Africa “could not expect to grow if business leadership remained in the hands of the small minority.”

The current generic scorecard in the new proposals for comment is reduced from seven to five essential elements with a total of 105 points assigned to these five elements.   All companies, except exempted micro enterprises, have to comply with all the elements of the scorecard as revised.

The introduction of sub-minimum targets for the priority elements is contained in the proposals with the proviso that if such minimum compliance is not achieved, large companies will have their status reduced by two levels and smaller companies by one level.

Davies said that issues surrounding fronting have been amended and added that DTI was investigating possibility of appointing a commission or body to investigate abuses and added, “We are also looking into penalties attached to those kinds of practices.”

This was something that was considered as last resort when BEE charters were first envisaged.

Despite having announced in a separate statement that DTI had been in meetings with vehicle manufacturers and that a target of 1.2m vehicles made in South Africa per year was the objective, he drew attention to the fact that the manufacturing sector as a whole was not “transformed”, by which it must be assumed he meant it had no B-BEEE charter.

However, he saw great development in the automotive industry as far as small business was concerned. “We need to look at how we can make localisation a tool and once that happens, we need to look at how we can get black-owned companies much more active in this space,” Davies noted.

DTI recently announced “an incubation support programme for small businesses to encourage private sector partnerships with government, whereby large companies assisted SMMEs, and even medium-sized undertakings, with skills and technology transfer.

Posted in BEE, Finance, economic, Fuel,oil,renewables, Justice, constitutional, Land,Agriculture, Mining, beneficiation, Public utilities, Trade & Industry, Transport0 Comments

Control of fronting one of objectives of new BEE Bill

As part of a media presentation held by department and trade of industry (DTI) and in a cabinet statement issued a few days before. it was re-affirmed that a Broad-Based Black Economic Empowerment Amendment Bill, 2012, was about to be tabled Parliament.  The Bill has at one of its main aims the objective of controlling what is termed as “fronting”.

The Bill was published by DTI in November last year for public comment and fulfils a specific stated wish of DTI minister Rob Davies to criminalise  fronting as a statutory offence.

The new Bill will establish a Broad-Based Black Economic Empowerment (B-BBEE) commission to strengthen compliance-related monitoring and evaluation, and also the regulation of B-BBEE verification agencies, by the independent regulatory board of auditors.

The B-BBEE functional body will also, the statement said, provide for “the creation of incentive schemes to support black-owned businesses as part of DTI’s national B-BBEE plan.”

Posted in BEE, Cabinet,Presidential, Justice, constitutional, Trade & Industry0 Comments


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