B-BBEE Commission calls for non-compliance penalties

……  article dated 2 February 2022  …..

Commission says transformation too slow…

A delegation from the B-BBEE Commission has told Parliament that far from satisfactory transformation results are being achieved by business and industry in terms of the targets for B-BBEE set under the National Development Plan (NDP). They said an amendment to the Act would be sought to bring in penalties fro non compliance

The Commission’s main theme in their annual report-back to MPs of the Trade and Industry portfolio committee was that the concept of applying compliance with B-BBEE programmes through the application of charters was, in broad terms, becoming impractical and in some cases not working at all.

Other issues

Fronting was also constant problem to be dealt with and growing at an alarming rate, it was said, although not in the major area of corporate business. In a lot of cases fronting had more to do with criminal intent than BEE compliance, to which there had been no response whatsoever from SAPS on cases reported by the Commission. This was becoming another major problem facing the Commission.  No outcome at all from SAPS in the cases of fronting reported to them had to be dealt with.

However, they reported to Parliament that their Equity Equivalent Investment Programme (EEIP) for 2020/21 has been doing remarkably well as far as support from SA multinationals is concerned.  The party was represented by Commissioner Zodwa Ntuli – Operations Head and Lindiwe Madonsela, Head of Compliance.

No money

They complained that, from an operations viewpoint, not only is the B-BBEE Commission under-funded and understaffed to the extent that its work is limited, but in addition, the Commission is not recognised by National Treasury as an entity but remains part of DTI.    It therefore has to rely on what the delegation called “limited funds for its existence from the DTIC general fund, they complained.  Some staff were not taking leave to avoid accumulated work since they were so short staffed, a Commission official explained

Present at the meeting also  was Trade and Industry Deputy Minister, DTIC, Nomalungelo Gina, who supported the generalised outcome of the Commission’s report, re-confirming that the B-BBEE Act had to be amended to give more administrative powers to issue compliance notices, block non-compliant transactions and create a dedicated tribunal or court for prosecution of prohibited practices for effective consequence management, plus an ability to deal with other criminal processes that were not effective. 

More calls for powers

She also said that was also the Minister’s view that there had to be consequences for non-reporting and the fact that Commission’s work was vastly underfunded had to addressed.   The deputy minister told MPs at the end of the debate that the ministry and DTIC “would shortly be engaging with Parliament regarding proposed legislative changes to the B-BBEE Act, especially in respect of penalties for non-compliance”.

In reporting on activities throughout the year, the Commission dealt with equity investments held by the state for multi-nationals that were not permitted by their own country’s laws, shareholders or policies to follow B-BBEE policies.

Apart

On the EEIP programme, which is an integral part of the Commission’s mandate for black empowerment it was reported, this was created by DTIC for multinationals whose global practices or policies prevent them from complying with the ownership element of B-BBEE rules on empowerment achievements through the traditional sale of equity or shares to black South Africans.

Jacob Maphutha, a chief director at DTIC reporting on the contributions of SA companies to black empowerment, told parliamentarians that as far as EEIP was concerned, the greatest financial contribution by was from the automotive sector.  This was followed by the ICT sector and then the manufacturing sector.

He said, “To date twenty-two SA multinational companies across different sectors have been granted final approval to participate in the EEIP representing 32% of the total in automotive, 27% in ICT,18% general manufacturing and 23% spread over construction, health care, maritime, financial and agricultural sectors. In all, they represented investments totaling 8bn.”

Job creation

Maphutha said that 2000 jobs had been created directly and indirectly since the inception of the programme including the setting up of businesses owned by black women and youth with training in critical skills for over 2,500 students, and creating access to tertiary education in ICT-related areas.  R11million is being spent on two digital hubs being developed in the Limpopo area.

He said the benefit for multinationals is 25 B-BBEE points for the duration of the programme but must not displace other B-BBEE initiatives to be undertaken as per the standard scorecard. He told MPs that participants in the EEIPP since 2019 had been Amazon, Hewlett Packard, Liebherr, Hansen, Microsoft, ICT, IBM, Dell, Caterpillar, Novus, Pharma Dynamics, MSC, J.P. Morgan and 7 OEMs in auto.  

Jacob Maphutha said there were applications from Johnson & Johnson and CitiBank with negotiations in progress.

Making the point

As far as progress with B-BBEE generally and line with the views of Ministers Ebrahim Patel and Thulas Nxesi on compliance issues, deputy Minister Gina also repeated that targets that had been set for transformation were falling behind and achievement targets not met. The B-BBEE Act had to be amended, she said, to provide the B-BBEE Commission administrative powers to issue compliance notices and there had to be consequences for under achievement or, at least, for non reporting by companies.

The B-BBEE Commission presented an extensive overview of its activities in the 2020/21 financial year but made the point that after nearly 30 years of democracy and 18 years after the implementation of Black Economic Empowerment legislation, business ownership patterns in the country in their view had not changed significantly.

Background

Zodwa Ntuli, explained to MPs how the balanced scorecard was used by all public sector entities and organs of state  and, then, how the ten sector codes for private sector businesses and industry that did not fit into the scorecard because of their unique features, were slotted in.

The Commissioner explained that B-BBEE was an integrated piece of legislation that looked at local procurement, proportional representation, the advancement of black people in terms of skilling  and the creation of new businesses – all aimed at achieving economic equality

“Data collected since 2003 showed a number of black people had been empowered in business and had indeed gained direct participation in decision-making structures but in terms of progress on an annual basis the B-BBEE programme was not doing as well as it should, she re-affirmed to parliamentarians.

Rent seekers

Since the Commission had commenced work in 2016, Ms Ntuli said that she had seen many fronting practices that had elements of in them of rent-seeking (the practice of manipulating public policy or economic conditions as a strategy for increasing profits…  ed) and which were driven by corruption, she said.   These were to be isolated away from the intentions of B-BBEE.

Zodwa Ntuli commented on “positive aspects”, stating that there were “a number of black executives currently in the private sector would not be there if the legislation had not been in place”. However, she said, that the National Development Plan had BEE targets set right up until 2030 but the Commission had to report the SA was far from where it should be to attain those targets.

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