BEE Partner, South Africa Economy Watch

It is substantially more difficult to prove that a business, which is about to be started, will in fact be successful. Such a venture has no historical audited financial statements reflecting a good profit history. Funders of such ventures are by nature extremely suspicious, and always look for some form of concrete evidence that a start-up business venture will succeed. Read the rest of this entry »

Again this is a principle that applies exclusively to measuring ownership contributions. The principle has many different names, such as “one time all time”, “high water mark” and “continuing consequences”. When companies first started engaging in BEE, before there were standard measurement principles, they made the assumption that once they had sold a BEE stake, they would be able to recognise this contribution to BEE regardless of whether the BEE party remained in the investment or not. Read the rest of this entry »

A common misperception of ownership is that it relates to economic return exclusively. When ownership is broken down it includes two primary rights. The one is economic return and the other is control, or influence, over decision making, which is exercised through voting rights. Read the rest of this entry »

BEE Party’s Net value calculation

The net value calculation is broken down into two formulae and draws from the deemed net value result above. The first, Formula A, calculates the debt-free ownership as calculated above, as a percentage of the targeted debt-free ownership for the year, measured as a pro-rata score against the allocated points. Read the rest of this entry »

BEE Enterprise Net value

The net value is determined by calculating the current market value of the asset in relation to the current market value of the acquisition debt. Where the value of the asset increases in relation to the debt, the net value points will increase. Read the rest of this entry »

The general broad-based ownership scheme will only receive recognition as Black owned where it satisfies the conditions stated in Section 1 Annexure 100B of Statement 100, which are as follows: Read the rest of this entry »

There is much detail in this section. It is, arguably, one of the most important issues in the context of BEE. BEE, and particularly ownership, has developed a bad name because the wrong partners have been sought. It is all very well to have a paternalistic approach and give ownership to staff members or some unfortunate person, but is this a sound business principle? It may be, but normally it is not. The point is, if an empowerment deal is not based on sound business principles, then a sustainable relationship is unlikely. Read the rest of this entry »

Since large residual white populations remained in southern Africa after independence, a considerable degree of accommodation has been required to reduce conflict between the owners of the resources and the new majority “owners” of the state. South Africa’s 4.5 million whites continue to dominate industry, commercial agriculture, the financial sector, mining, and the vast majority of agricultural lands and resources. Read the rest of this entry »

Potential partners should be courted before finalising the partnership, This can be done by offering the Black party a position on the board or management to assess the fit of the respective parties. Small business may not ordinarily hold board meetings although it may become a useful practice. A board meeting that includes the business’s accountant, BEE party and other relevant parties is a beneficial exercise. Apart from this it is also good business practice. Read the rest of this entry »

As a result of historical circumstances, Black people wanting to get involved in business usually have limited access to finance.

There are relatively few empowerment companies who want to buy equity stakes in small business. It is also unlikely that a business owner or employee has the knowledge to obtain empowerment funding to buy the equity. Read the rest of this entry »

Split compliance targets

The employment equity scorecard splits the compliance targets between 0 to 5 years and 6 to 10 years. The Codes acknowledge that transformation is not going to be an overnight phenomenon and that businesses will take a while to establish Black people in relevant employment positions. They have provided moderate targets for the first five years in consideration of this. Overnight transformation strategies are unlikely to result in sustainable development.

The management indicator

The majority of points, 15, are allocated to this indicator. The management indicator is subject to the gender adjustor and full points will only be scored where 50% of the management targets for Black people are held by Black women. The targets are split. The target for 0 to 5 years is 40% of total management and the target for 6 to 10 years is 60% of total management positions that should be held by Black people. Read the rest of this entry »

Net remuneration

This represents the amount of remuneration after deducting the following:

• current and arrear contributions, within specified limits, to approved pension and/or retirement annuity funds that the employer is entitled or required to deduct from the employee’s remuneration
• at the option of the employer, current and arrears retirement annuity fund contributions, within specified limits, which the employee has paid directly to the fund, provided the employee furnishes the employer with proof of payment; such proof of payment must be obtained annually by the employer from the employee (or when the employee terminates employment, if earlier) and retained for inspection purposes

Medical aid scheme contributions in the case of persons aged 65 or older. Read the rest of this entry »

The QSE skills development scorecard only contains one indicator. It is significantly simpler than skills development of non-QSE businesses and easier to obtain a higher score. Unfortunately, because the target is based on terms and calculations used in the Skills Development Levies Act, the SDLA, this is a technical section.

Indicator terminology

Leviable amount

The leviable amount is derived from the SDLA. It the amount that the levy that must be paid to the SETA is calculated on. BEE uses the same calculation and therefore terminology, but sets a target over and above that payable to the SETA. The scorecard sets the target for the indicator as 2% of the leviable amount for QSEs. Essentially, the leviable amount is the annual total net salaries and wages payable by the entity. Read the rest of this entry »

Learning programmes

The indicator specifies skills development spent on learning programmes. What constitutes a learning programme? If the money is not spent on a learning programme as defined, the measured entity may not include the expense in measuring skills development contributions. Statement 401 defines a learning programme as, “any of the learning programme types described in the Learning Programme Matrix“.

The Learning Programme Matrix is provided as Annexure 400A of Statement 400. It provides a broad spectrum of training that it considers a learning programme. Any of the following may be included as measurable for QSE contributions to skills development: Read the rest of this entry »

Having established how much the business needs to spend, the next step is to consider what to spend the money on so it will count as contributions to transformation. This section provides guidance on what the company may and may not include as skills development spend. The term “skills development spend” is defined, meaning that unless the spend meets the definition, it will not be included in the measurement. Read the rest of this entry »

Calculations of BEE Skills Development

The calculations of skills development spend includes expenditure on learning programmes and in-service training programmes. The following calculation assumes the indicator is subject to adjusted recognition for gender.

Measurement of the skills development spend indicator

The calculation of the adjusted recognition for gender is as follows:

A = B/C + C

A = the adjusted recognition for gender

B = the skills development spend on Black employees divided by the leviable amount

C = the skills development spend on Black women employees divided by the leviable amount Read the rest of this entry »

The skills development levy was designed to force entities to invest in skills development by paying money to a SETA. This money is recoverable from that SETA when the company invests in skills development. A large majority interpreted the skills development levy as a pure tax, paid the money to the SETA and never reclaimed it. This approach results in zero return and becomes, as mentioned, a straight tax.

The objective of BEE is to stimulate growth, not to invoke taxes. If the skills development initiative is not going to result in a return for the business then it is likely to result in unsubstantial skills training. If it is unsubstantial, then the trainee is not going to be any closer to participating in the mainstream economy and the exercise lacks substance. Strictly speaking, BEE contributions that lack substance are not measurable.

An investment implies that the employee will return from training with the ability to make more money for the company than prior to the training. Whether that training entails operating a computer programme more efficiently or part-time study for a university degree is particular to each business. But it must result in a return for the company greater than the initial investment. Read the rest of this entry »

The trickle-down effect of preferential procurement is the only reason that private companies not dealing directly with public entities or organs of state have a reason to contribute to broad-based BEE. To qualify as a supplier to upstream customers, a business requires a high BEE status and, more specifically, a favourable BEE procurement recognition level.

Preferential procurement turns BEE into a competitive policy. Suppliers will be assessed on their BEE procurement recognition level in conjunction with standard drivers such as cost, quality and service. The more a business contributes to BEE, the greater it will be rewarded through customers wishing to buy from them to leverage off the business’s high BEE score. Read the rest of this entry »

Section 6 of Statement 500 excludes the following items from procurement in the calculation of the total measured procurement spend:

• taxes, levies and rates levied by organs of state and local government
• public sector procurement from organs of state or public entities listed in Schedule 1 of the Public Finance Management Act of 1998.

Schedule 1 entities include constitutional entities such as the Public Protector, the Human Sciences Research Council, national government, provincial and local government. The intention is not to require Schedule 1 entities to obtain BEE verification. However, Schedule 2 and 3 entities will require BEE verification. Read the rest of this entry »

The procurement recognition level refers to each supplier’s BEE procurement recognition level as determined by that supplier’s BEE status level. The table below is sourced from Statement 000. Suppliers should be able to provide the purchasing business with a BEE certificate from a verification agent. The certificate will contain the BEE status level and probably the BEE procurement recognition level. Read the rest of this entry »