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Publication

BUSINESS DAY - EMPOWERMENT

Page

88-91

Date

Sat 01 July 2017

AVE (ZAR)

141410.91

ince a slew of legislativ e

changes aimed at speeding

up black economic trans-

formation hit the local

business environment over

the past few years, lawyers

and observers in the BEE space agree the

changes are resulting in a 'proliferation'

of black ownership deals in the countr y.

While much still needs to be ironed out

by the new BBBEE Commission in order

to provide clarity on interpretation and the

precise modus operandi businesses need

to follow to be compliant with awide range

of laws and codes in the transformation

space, indications are that the new legal

framework has been awake-up call for many

companies to embrace black ownership in

one form or another.

According to Verushca Pillay, corporate

and commercial director at Cliffe Dekker

088

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LEGAL

Hofmeyr, notwithstanding that the pace of

legislativ e change has been slow, there has

been greater pressure applied by customers

on businesses to increase the extent of their

black ownership.

For private-sector customers, the driver

is that they are able to earn more BEE pro-

curement points if they procure goods and

services from companies that are at least 51%

black owned or 30% black-women owned.

With the renewed proliferation of owner-

ship transactions, it will be interesting to see

whether they create actual value and result

in increased participation by black people

in the economy.

Nozipho Bhengu, director atWerksmans

Attorneys, believes that qualifying smallenterprises (QSEs) may have been the most-

affected categor y, since they have to complywith all five elements (namely ownership,

management control, skills development,

enterprise/supplier development and socio-economic development) - they can no longer

select just three or four elements to comply

with. QSEs are businesses with turnovers

of more than R10 million per year but less

than R50 million per year.

'Firms are definitely taking active

steps to improve their BEE ownership pro-

files through direct black involvement by

selling equity to black investors, or through

employee share-ownership schemes and

other structures,' she says. 'It has forced

companies to review their BEE practices,

and implement meaningful, deeper and

long-lasting BEE solutions across all the

measured elements."

Bhengu adds that the most positive signi-

ficant shift has been the move away from the

empowerment deals with a few connected

individuals to broad-based empowerment

deals with communities or employees. The

second significant positive shift is that it has

motivated businesses to require their service

090

providers and suppliers to implement BEE

policies and be empower ed.

'This has created amindset that BEE

is a requirement to do business in South

Africa, says Bhengu. 'As a result of the new

legal framework, some businesses have tried

to improve their scores on skills develop-

ment, ownership and supplier development.

With regard to supplier development, most

affected firms have taken apolicy decision to

procure goods and services from empower ed

suppliers to improve their BEE rating.

'When it comes to ownership, firms

have taken active steps to improve their

BEE ownership profile through direct

black involvement by selling equity to

black investors or through employee

share ownership schemes.

Regarding the Codes of Good Practice,

which supplement various BEE laws, Pillay

saysthat of the various amended sector codes

gazetted in draft form prior to February 2016,

only the amended tourism, ICT and forestry

sector codes have been gazetted in final form

- ostensibly aligned with the provisions of the

amended BEE codes of 2013.

'It is notable that the final form of the

ICT Sector Code contains certain more

restrictive provisions that were not set out

in the draft published for public comments,

such as the higher number of total points

required to achieve particular BBBEE

compliance levels.

The newICT sector-specific code calls

for aminimum prescribed equity of 30% as

against 25% in the generic code. Pillay says

what is not clear is the extent to which such

changes were discussed and agreed to with

stakeholders prior to finalisation of the ICT

Sector Code. 'It's also telling that so many

of the sector codes have not yet been aligned

with the amended BEE codes of 2013. These

include the Financial Sector Code, the

Integrated Transpor t Sector Code and the

Property Sector Code. As a result of the

draft amendments to such codes having

been gazetted by the deadlines prescribed

by the Depar tment of Trade and Industr y,

the original sector codes for such sectors

remain in force, notwithstanding that the

amended BEE codes came into effect in

May 2015, says Pillay.

Meanwhile, major BEE ownership deals

concluded on or after 24 October 2014valued

at at least R25 million must now be registered

at the BBBEE Commission.

Pillay says registration had been delayed

in anticipation of the announcement of final

thresholds, but on 9 June 2017 government,in a notice, set the amount at a transaction

value of R25 million or more. The registration

requirement is effective immediately . All

parties to a transaction have a collectiv e

responsibility to register such deals.

A major BEE transaction is one that

has resulted - or will result - in ameasured

entity claiming ownership points in terms of

the ownership scorecard of the applicable

BBBEE Codes of Good Practice. The notice

provides that the transaction value excludes

administr ation, professional and legal fees

and takes effect immediately , she says.

'Parties must submit the transaction

for registration within 15business days of

concluding it. The commission must issue

a certificate of registration in respect of

the transaction within 10 days of the parties

making the submission.

'The requirement for registration is not

a requirement to obtain the commission 's

consent for it but the commission is entitled

to advise the parties of any concerns it has

regarding the transaction, and the parties

must then take steps to address the commis-

sion's concerns. If adequate steps are not

taken, the commission can then initiate

an investigation into the transaction. " Pillay

adds that given the retrospectiv e requirement,

'It hasforced companiesto reviewtheir BEE practice, and implement

deeperand long-lastingBEE solutionsacross all the measured elements'

parties will have to give consideration to

whether BEE ownership transactions they

have entered into from 24 October 2014

require registration. 'In terms of the new

empowerment framework, black ownership

has been pushed up the priority stakes on

scorecards considerably compared to weight-

ings given to other elements, such asskills

transfer, training and social investment.

Pillay adds that the notice also requires

that BEE ownership transactions concluded

on or after 24 October 2014 (but before thefinal publication date of this notice) that

equal or exceed the R100 million threshold

must be registered with the BBBEE

Commission within 30 days of the final

publication date of the notice. However, it is

questionable whether the requirement for

registration can be retrospectiv e in effect.

Another matter yet to be finalised is the

long-awaited technical assistance guide-

lines. Jenni Lawrence, MD of verification

services at Grant Thornton, says that the

verification sector is still waiting to hear

if the gazetted verification manual will be

revised in line with the amended codes. How-

ever, there appears to be no word on this.

'The much anticipated "technical

assistance guide" or TAG as it is known,

also seems to have gone by the wayside,

says Lawrence. 'The BBBEE Commission

released a few FAQs on their website, but

these are in some cases interpretive by

nature and it remains to be seen if these

will hold up if tested.

Regulations were issued in Januar y 2017

under the Preferential Procurement PolicyFramework Act (PPPFA), which became

effective from 1April 2017. The regulations

reflect more extensiv e alignment between

the PPPFA and the BBBEE Act. They permit

organs of state and public entities that are

bound by the PPPFA to determine that

certain BEE pre-qualification criteria are

applicable to aparticular tender from time

to time. Pillay says the pre-qualification

criteria are designed to drive procurementfrom exempted microenterprises (EMEs)

and QSEs, and from businesses with

a minimum BEE compliance level.

LEGAL

If an organ of state or public entity issues

a tender containing any of the pre-qualifi-

cation criteria, an entity that does not meet

such criteria will not qualify for considera-

tion under the tender.

A tender could specify one or more pre-

qualification criteria such as a Level 2 BEE

compliance aswell as EMEs and/or QSEs.

'The 80/20 or 90/10 rule still applies andthe PPPFA does not entitle an organ of state

or public entity to award a tender strictly on

BEE criteria. However, the pre-qualification

assists in restricting the pool of tenderers

to entities with a specific BEE compliance

level, to EMEs or QSEs, or to entities that

will sub-contr act aminimum portion of

the tender to black or black women-owned

entities, according to Pillay.

The string of amendments to the BEE

legal framework along with heightened

impatience by government over failure ofcompanies to make faster progress in terms

of requirements of the Employment EquityAct, resulted in companies (particularly

QSEs) doing business with government now

having to double their effor ts to meet more

stringent compliance requirements.

This, while state-owned enterprises

and public organisations were earmarked

by BEE architects as key drivers to speed up

economic transformation, and all discretion

was removed from these institutions regard-

ing implementation of BEE.

However, this attempt to speed up trans-

formation is seemingly also facing headwinds

as trade union Solidarity announced in May

this year that it would face off with Eskom

in the Labour Court over the state-owned

power provider 's employment equity plan(EEP), which covers the period 2017 to 2020.

Solidarity told news service Fin24.com

that Eskom failed to consult adequately on

its EEP, and was, therefore, asking the court

to declare the plan invalid. ®

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