BEE Partner, South Africa Economy Watch

• The Ownership Level
• The Corporate Advancement Level
• The SMMEs (Small, Micro and Medium Enterprises) Outsourcement Level Read the rest of this entry »

The issue of BEE ownership in a business is the dimension most often equated with empowerment because of the way empowerment was viewed in the late 1990s. We equated equality with equity, which, while it has a basis, cannot be the only aspect of transformation. The second reason ownership has such a high profile is that it is the criterion most explored from a preferential procurement perspective, meaning preferential procurement scoring is based solely on ownership for most charters and for the First Code (if you are outside a charter). Read the rest of this entry »

Most business people have a gut feel for what the client wants, which is built up over years of running the business and interacting with clients. However, it is more difficult to distil this sense into three simple, short descriptions of what your client values in your business. But, once done successfully, these descriptions can be immensely powerful in communicating the essence of the business to all stakeholders. Read the rest of this entry »

The current BEE Act, the First Code of Good Practice and the BEE strategy document, all released in 2003, are the cornerstones of government’s plan to give impetus to broad-based empowerment by 2014. This legislation has direct bearing on the current BEE requirements for your business, and as a consequence needs to be studied in some detail. Read the rest of this entry »

Becoming an empowered company is not good enough. Soon all your competitors will have achieved similar status. Your company will need to do better than that. Whoever has undertaken the transformation process in the best way will be the winners, not those who have merely transformed. The key lies in transforming your business to become black empowered while simultaneously creating a sustainable competitive advantage. Read the rest of this entry »

Empowerment has been defined by the government as ‘an integrated and coherent socio-economic process that directly contributes to the economic transformation of South Africa and brings about significant increases in the number of black people that manage, own and control the country’s economy, as well as significant decreases in income inequalities:’ Read the rest of this entry »

In legal terms, the beneficiaries of BEE are ‘black people’, which, according to the Broad-Based BEE Act (the BBBEE Act, or BEE Act), is ‘a generic term which means Africans, Coloureds and Indians’^. 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 »

Economic interest is a participant’s right to share in the economic fruits of the business. The legal form of the distribution is not important, but normally comes in the form of dividends and capital gains. The Codes define it as a claim against the entity representing return on ownership of the entity similar in nature to a dividend right. 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 »

Trusts are commonly used by small business owners as an asset protection mechanism. The protection is normally used in the form of a family trust. The Codes do not intend restricting a BEE party’s use of family trusts to protect assets. 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 »

What are the qualities that a business needs to look for in a BEE partner? The answer lies in both parties’ ability to identify the qualities inherent in themselves. There is little value in a partnership where skills and abilities are replicated. To form a mutually beneficial BEE deal, both parties must know themselves and their proposed partner before a decision can be taken. Standard management principles must be applied to BEE deals. Flamboyant creativity should be balanced with practical conservatism. Read the rest of this entry »

The Boston Consulting Group (BCG) categorized businesses into four groups:

• Start-ups (BCG uses the term “Question mark”.)
• Stars
• Cash cows
• Dogs.

Start-ups are new ventures with no track record. Start-ups usually require capital investment and do not produce any cash benefits for the owners. A start-up can evolve to a star or a dog. They are high-risk entities making them difficult to value and will find it hard to obtain empowerment partners. 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 »

The parties involved in the structuring of a deal vary according to the size of the deal. The professional fees for listed deals can reach as high as R10 million rand just for the opinion of the various parties involved in the structure. Put in context with the size of the deals, however, this is not as extreme as it appears. QSE deals will need fewer and leis expensive professionals and the costs will be reduced to a fraction this amount. 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 »

Section 3.2 of Statement 102 provides the criteria for the sale of assets to qualify for recognition as an ownership alternative and achieve ownership points. The transaction must adhere to all the following criteria:

• It must result in the creation of a sustainable business opportunity for the Black party.
• It must result in the transfer of specialised skills or productive capacity to Black people. Read the rest of this entry »