BEE Partner, South Africa Economy Watch

Developing Black intellectual capacity

Developing Black intellectual capacity may appear to be irrelevant to QSE business. It is not as if most professional services firms such as accountants, attorneys, engineers and doctors fall into the QSE category. These professional services are at the heart of developing the country’s intellectual capacity. This section is critical to these professions.

There is little confidence in Black people by both Black and white people. It is that simple. The previous education system did not provide Black people with an equivalent education to white people. When a Black person enters the market an assumption is made that he or she does not have the same “mental prowess” as a white person. The result is an inherent lack of confidence in Black people.

Who have the least confidence in Black people? Strangely enough, Black people do. One seldom hears of Black people consulting Black attorneys on mergers and acquisitions. They go to white attorneys because they do not have confidence in their Black counterparts. Read the rest of this entry »

Job hopping by Black people

Job hopping by Black people is increasingly being seen as a problem. Businesses train Black people into positions only to find that they leave the position for a new company. Understanding the reason for job hopping becomes a staff retention strategy to prevent this practice.

The primary reason driving job hopping is culture. Some company cultures do not accept Black people’s cultures and backgrounds, resulting in their being forced to assimilate Western business culture to gain access to the mainstream economy. This can be uncomfortable for a Black person. Read the rest of this entry »

Bonus points

Two bonus points are available in employment equity. The bonus points are based on what the Codes term EAR EAP stands for “economically active population“. The Codes do not provide a clear explanation on how the bonus points are to be calculated. What follows is my interpretation on how to calculate bonus points. The two points are allocated to each indicator based on the indicator’s percentage of total points available. If the management indicator meets its EAP target, the bonus points would be 2s x 2 points. If the employee indicator reaches its EAP target, then the bonus points would be ¹₂-⁽₅². x 2 points. 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 »

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 »

The Practical Application of Preferential Procurement

The practical application of preferential procurement is better discussed in conjunction with the practical application of enterprise development. The two elements should work together. Where a business chooses to contribute to and therefore be measured on the preferential procurement element, it should also choose the enterprise development element. By choosing the elements together it can capitalise on the enhanced recognition offered to purchasing from enterprise development beneficiaries and, more importantly, try to create a stronger BEE strategy. Read the rest of this entry »

Targets

Achievement of the allocated points is based on the measured entity reaching the compliance targets. The compliance targets in this element are fairly ambitious because very few suppliers will have a decent BEE status level, particularly in the early stages of this policy. The Codes accounted for this by splitting the compliance targets from years 0 to 5 with a target of 40% and years 6 to 10 with a target of 50%. The QSE targets are substantially lower than those provided in the generic scorecard. Read the rest of this entry »

All capital expenditure, including fixed property, is included in the total measured procurement spend.

Fixed property was predominantly white owned at the effective date of the Codes. Unless fixed property is part of normal trade, buying a property is going to result in an abnormal total measured procurement spend for that year. The purchase will distort the real procurement intentions of a business, which it may perceive as being unfair. However, because procurement is only measured on an annual basis, it will not have a prolonged impact on the measured entity’s preferential procurement scorecard. Read the rest of this entry »

Targets

The targets are discussed before indicator terminology in this element because they are necessary for understanding some of the indicator terminology. Enterprise development and socio-economic development use the same methodology for calculating the target. The calculation is not clearly articulated in the Codes and is a technical calculation. Read the rest of this entry »

The Codes have introduced new concepts in enterprise development to encourage sustainable contributions.

Statement 600 provides a benefit-factor matrix that classifies the substance of contributions on their ability to enhance the financial and operational capacity of the beneficiary entity. The greater the substance of the contribution, the higher the recognition granted to that contribution. The benefit factor is the percentage recognition given to the actual amount of the contribution. Read the rest of this entry »

The Codes use enterprise development as a secondary driver for encouraging BEE contributions. Becoming a beneficiary for enterprise development is attractive to any business because it means other BEE contributors may invest their enterprise development contributions in that qualifying business.

Qualifying contributions are not restricted to Black-owned businesses. By allowing a white-owned business that achieves a substantial BEE score to qualify as an enterprise development beneficiary, it is argued that this would encourage the facilitation of Black ownership in the white businesses through financing mechanisms. Read the rest of this entry »

Interestingly, the sale of assets is not addressed in the enterprise development element. Strictly speaking, by selling a Black person an income-producing asset, an opportunity to produce an enterprise has been created.

A measured enterprise may recognise the sale of assets as enterprise development or ownership. No points will be awarded for enterprise development if the transaction has been recognised and scored in ownership, and vice versa. Read the rest of this entry »

The enterprise development scores are measured with this formula: A = B/C x D

A = the score for enterprise development carried forward to the generic scorecard

B = the value of all qualifying contributions from the date of inception of measurement or the date of this statement

C = the compliance target

D = the weighting points. Read the rest of this entry »