ABBREVIATIONS · ABBREVIATIONS B-BBEE Broad-Based ... 1 INTRODUCTION ... Summit participants...

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ABBREVIATIONS

B-BBEE Broad-Based Black Economic Empowerment

DFI Development Finance Institution

the dti The Department of Trade and Industry

IDC Industrial Development Corporation

IPAP Industrial Policy Action Plan

SOE State-Owned Enterprise

SOEPF State-Owned Enterprise Procurement Forum

NDP National Development Plan

NT National Treasury

PPPFA Preferential Procurement Policy Framework Act

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DEFINITIONS

Black people: African, coloured and Indian persons who are natural persons and:

• Are citizens of the Republic of South Africa by birth or descent; or

• Are citizens of the Republic of South Africa by naturalisation before the commencement date of the

Constitution of the Republic of South Africa Act of 1993; or

• Became citizens of the Republic of South Africa after the commencement date of the Constitution of the

Republic of South Africa Act of 1993, but who, had it not been for the Apartheid policy, would have

qualified for naturalisation before then.

• The definition of “Black people” now includes South African Chinese people as per the Pretoria High

Court ruling on 18 June 2008.

B-BBEE: The economic empowerment of all black people – including women, workers, youth, people with

disabilities, people living in rural areas and unemployed people – through diverse but integrated socio-economic

strategies that include, but are not limited to:

• Increasing the number of black people who manage, own and control enterprises and productive

assets;

• Facilitating enterprises and productive asset ownership and management by communities, workers, co-

operatives and other collective enterprises;

• Human resources and skills development;

• Achieving equitable representation in all occupational categories and levels of the workforce;

• Preferential procurement; and

• Investing in enterprises that are owned and managed by black people.

the dti Codes of Good Practice: the dti Codes of Good Practice on Black Economic Empowerment gazetted on 9

February 2007

Exempted Micro Enterprise (EME): An entity with an annual turnover of less than R5 million.

Generic Scorecard: The balanced scorecard issued in line with the dti Codes of Good Practice, 2007.

Qualifying Small Enterprise: An entity that qualifies for measurement under the Qualifying Small Enterprise

Scorecard with a turnover of between R5 million and R35 million, which qualification does not result in the

circumvention of the Codes.

Sector Charter: A B-BBEE Sector Charter, gazetted in terms of Section 12 of the B-BBEE Act, means that it:

• Has been developed and agreed upon by major stakeholders in the industry

• Is published for information purposes only and used as a statement of intent by industry players

• Is fully binding between and among businesses operating in the industry.

A Sector Charter gazetted in terms of Section 12 has no bearing on state organs and departments.

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TABLE OF CONTENTS

1 INTRODUCTION ..................................................................................................................................................... 6

1.1 BACKGROUND ................................................................................................................................................... 6

1.2 A SHORT HISTORY OF ECONOMIC EMPOWERMENT IN SOUTH AFRICA .......................................................................... 7

1.3 EXECUTION OF THE B-BBEE STRATEGY ................................................................................................................... 7

1.3.1 B-BBEE OBJECTIVES ......................................................................................................................................... 7

1.3.2 B-BBEE LEGISLATION ........................................................................................................................................ 8

1.3.3 PRESIDENTIAL B-BBEE ADVISORY COUNCIL ......................................................................................................... 8

1.3.4 CODES OF GOOD PRACTICE ................................................................................................................................. 9

2 A DECADE OF ECONOMIC EMPOWERMENT (2003 – 2013) ............................................................................ 11

2.1 SETTING THE SCENE ............................................................................................................................................. 11

2.2 ADDRESS BY THE MINISTER OF TRADE AND INDUSTRY .............................................................................................. 11

2.2.1 THE B-BBEE AMENDMENT BILL ......................................................................................................................... 12

2.3 ADDRESS BY THE PRESIDENT OF THE REPUBLIC ...................................................................................................... 12

2.3.1 ACHIEVEMENTS AND IMPACTS OF B-BBEE IMPLEMENTATION ................................................................................ 13

2.4 PRESIDENTIAL B-BBEE ADVISORY COUNCIL........................................................................................................... 14

2.4.1 AMENDMENT OF B-BBEE ACT ........................................................................................................................... 15

2.4.2 FRONTING ........................................................................................................................................................ 15

2.4.3 MONITORING AND EVALUATION OF B-BBEE ......................................................................................................... 15

2.4.4 REGULATING OF THE VERIFICATION INDUSTRY ..................................................................................................... 15

2.4.5 ESTABLISHMENT OF B-BBEE COMMISSION ......................................................................................................... 16

2.4.6 THE PATH TOWARDS THE CREATION OF BLACK INDUSTRIALISTS ............................................................................ 16

2.5 REMARKS BY THE BLACK BUSINESS COUNCIL (BBC) ............................................................................................... 18

2.6 REMARKS BY THE EMPLOYMENT EQUITY COMMISSION ............................................................................................. 18

3 A BOLD NEW TRAJECTORY FOR B-BBEE......................................................................................................... 19

3.1 B-BBEE ACHIEVEMENTS AND PERFORMANCE ......................................................................................................... 19

3.2 THE REVISED B-BBEE CODES OF GOOD PRACTICE ................................................................................................ 20

3.2.1 OWNERSHIP ..................................................................................................................................................... 21

3.2.2 MANAGEMENT CONTROL ................................................................................................................................... 21

3.2.3 SKILLS DEVELOPMENT ....................................................................................................................................... 21

3.2.4 ENTERPRISE AND SUPPLIER DEVELOPMENT ......................................................................................................... 22

3.2.5 SOCIO-ECONOMIC DEVELOPMENT ...................................................................................................................... 22

3.2.6 SUMMARY OF REVISIONS ................................................................................................................................... 22

3.2.7 IMPLEMENTATION CHALLENGES .......................................................................................................................... 24

3.3 OVERVIEW OF PANEL DISCUSSION ......................................................................................................................... 24

3.4 PROGRESS ON THE IMPLEMENTATION OF SECTOR CHARTERS ................................................................................... 25

3.5 PROGRESS ON THE IMPLEMENTATION OF THE DTI INCENTIVE SCHEMES ...................................................................... 25

3.6 OVERVIEW ON THE STATE OF THE ECONOMY .......................................................................................................... 27

4 SUMMIT DELIBERATIONS ................................................................................................................................... 27

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4.1 COMMISSION 1 - ALIGNMENT OF PREFERENTIAL PROCUREMENT POLICY FRAMEWORK ACT (PPPFA) AND B-BBEE ...... 28

4.1.1 BRIEF BACKGROUND TO THE TOPIC – PPPFA AND B-BBEE................................................................................. 28

4.1.2 ISSUES RAISED DURING DISCUSSION .................................................................................................................. 28

4.1.3 RECOMMENDATIONS ......................................................................................................................................... 30

4.2 COMMISSION 2 - STATE OWNED ENTERPRISES (SOES) AND SUPPLIER DEVELOPMENT ............................................... 30

4.2.1 BRIEF BACKGROUND TO THE TOPIC .................................................................................................................... 31



4.3 COMMISSION 3 - BLACK INDUSTRIALISTS AND LOCALISATIONS/DESIGNATED SECTORS ................................................. 33


4.3.2 ISSUES RAISED IN THE DISCUSSION .................................................................................................................... 33


4.4 COMMISSION 4 - ACCESS TO FINANCE .................................................................................................................... 34




5 COMMON ISSUES EMANATING FROM ALL COMMISSIONS ............................................................................ 36

6 SUMMIT RECOMMENDATIONS – THE NEXT EMPOWERMENT PHASE ......................................................... 37

6.1 SHORT-TERM ....................................................................................................................................................... 37

6.2 MEDIUM - LONG TERM .......................................................................................................................................... 37

6.3 RECOMMENDED FOR ACTION BY THE GOVERNMENT ................................................................................................. 38

7 SMME EXHIBITION .............................................................................................................................................. 39

8 CONCLUSION ....................................................................................................................................................... 39

9 APPENDICES ....................................................................................................................................................... 40

9.1 APPENDIX 1: INDUSTRIAL DEVELOPMENT INCENTIVE ADMINISTRATION DIVISION - INCENTIVES OFFERED ....................... 40

9.2 APPENDIX 2: LIST OF EXHIBITORS .......................................................................................................................... 43

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1 INTRODUCTION

The following report is based on the National Summit on Broad-Based Black Economic Empowerment (B-BBEE),

which was held on 3 and 4 October 2013. This report is intended to provide a detailed account of the proceedings of

the summit, highlighting successes and challenges deliberated upon as well as recommendations for the future

implementation of Government’s developmental objectives regarding inclusive economic and socio-economic growth

of black people in the South African economy.

1.1 Background

Broad-Based Black Economic Empowerment (B-BBEE) legislation was introduced in South Africa 10 years ago. The

promulgation of this legislation was seen as a development imperative aimed at creating an enabling environment for

economic transformation. It is against this background that the Government, led by the Department of Trade and

Industry (the dti) in collaboration with the Presidential B-BBEE Advisory Council (hereafter referred to as the

Advisory Council), held the first National Summit on B-BBEE from 3 to 4 October 2013 at Gallagher Estate in

Midrand, Johannesburg. The summit, which was attended by more than 2 000 delegates, was held under the theme

of A Decade of Economic Empowerment. Summit participants included Government, various political party

representatives, the Portfolio Committee on Trade and industry, private sector (corporate entities, qualifying small

enterprises and exempted micro enterprises), labour and civil society.

It has been 10 years since the promulgation and implementation of the B-BBEE Act No. 53 of 2003 and various

successes have been recorded, including a significant number of B-BBEE deals, the establishment of an institutional

framework for the verification industry, the institutionalisation of the Presidential B-BBEE Advisory Council, the

promulgation of the Codes of Good Practice in 2007 and the establishment of Sector Charter Councils, as well as the

gazetting of sector codes. the dti, as the lead department, has worked tirelessly to market and communicate the

implementation of the legislation, with national, provincial and local stakeholder engagements involving grassroots,

corporate entities and the Government. The department established a programme to monitor and evaluate the

legislation, implementation framework and the strategy.

However, challenges do exist and mechanisms have been put in place to address these. The summit took stock of

the challenges and provided an outline of further implementation of the B-BBEE over the next 30 years in terms of

Government’s planning frame, as outlined in the National Development Plan (NDP).

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1.2 A Short History of Economic Empowerment in South Africa

The political freedom attained by the majority of South Africans from the apartheid regime as expressed in the first

democratic elections in 1994 was a key moment in the history of our country. However, the political liberation was not

accompanied by similar gains in the economic sphere. For many years, the economy of the country was firmly in

white hands, with the majority of black South Africans denied access through complex mechanisms that created

conditions that perpetuated the status quo.

In an attempt to reverse this situation, the Government through the dti introduced the concept of B-BBEE, which was

seen as a process that would bring about transformation of the South African economy for the majority of its people. It

was envisaged that through this economic and socio-economic process, the number of black people who managed,

owned and controlled the economy would increase significantly. Furthermore, it was anticipated that this process

would lead to a significant reduction in inequalities in society. At that time, there was significant focus on the creation

of a black middle class, building on and strengthening the already existing levels between 1994 and the early 2000s.

History abounds with accounts of political and social instability fuelled by inequalities in societies. The formulation and

execution of the B-BBEE concept and strategy was intended to mitigate the risks associated with such inequalities.

The apartheid past of South Africa had created a mixed economy with a negative legacy and this had to be

addressed. At the time, South Africa had one of the highest GINI co-efficients in the world, at 0.66. The successful

implementation of the strategy would reduce this inequality measure.

1.3 Execution of the B-BBEE Strategy

1.3.1 B-BBEE Objectives

The democratic Government of South Africa introduced the B-BBEE concept with a view to achieving certain

objectives, as broadly outlined -below. Specifically, the strategy was in pursuit of nine objectives, as follows:

• The empowerment of more black people as owners and managers of enterprises. A black-owned enterprise

was defined as one that has 51% ownership by black people, with substantial management control of the

business.

• Achievement of a substantial change in the racial composition of ownership and management structures as

well as in the skilled occupations of existing and new enterprises.

• Promotion of access to finance to fuel black economic empowerment.

• The empowerment of rural and local communities through enabling access to economic activities, land,

infrastructure, ownership and skills.

• Promotion of human resource development of black people through mentorships, learnerships and

internships.

• An increase of the extent to which communities, workers, co-operatives and other collective enterprises own

and manage existing and new enterprises, including an increase of their access to economic activities,

infrastructure and skills.

• Creation of an environment that ensures that black-owned enterprises benefit from the Government's

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preferential procurement policies.

• Development of the operational and financial capacity of B-BBEE enterprises, especially small, medium and

micro enterprises (SMMEs) and black-owned enterprises

• An increase the extent to which black women own and manage existing and new enterprises, and facilitate

their access to economic activities, infrastructure and skills training.

1.3.2 B-BBEE Legislation

The B-BBEE Act No. 53 of 2003 was enacted for the following purposes:

• Establish a legal framework for the promotion of black economic empowerment

• Empower the Minister to issue Codes of Good Practice and to publish transformation charters

• Establish the Black Economic Empowerment Advisory Council

• Provide for all matters related to the Act

The Act promotes the constitutional right to equality and effective broad-based participation by all in the economy,

increases employment and leads to equitable income distribution. Furthermore, the Act establishes a national policy

to promote economic unity of the nation, protect the common market and promote equal opportunity and access to

government services. The Act prescribes actions to be taken by the Minister and expands on the functions and terms

of reference of the bodies to be established as outlined in the preceding paragraph.

1.3.3 Presidential B-BBEE Advisory Council

The Advisory Council was established according to the Act in 2009. As per the Act, it is chaired by the State

President and has 19 members appointed by the President. Members include ministers from the dti and departments

of Labour, Economic Development, and Women, Children and People with Disabilities. The Secretariat function is

located at the dti and works closely with the Presidency to administer the work of the Advisory Council.

The Advisory Council is responsible for providing leadership and direction in the implementation of B-BBEE in the

country. The functions of the Council are to:

• Advise Government on -B-BBEE;

• Review progress in achieving B-BBEE;

• Advise on draft transformation charters, if requested to do so; and

• Facilitate partnerships between organs of state and the private sector that will advance the objectives of this

Act.

The Advisory Council has divided its work programme into four sub-committees to address different aspects of the

B-BBEE outcomes:

• Ownership, Management Control, B-BBEE deal structuring, chaired by Mr Sandile Zungu;

• Skills Development and Employment Equity, chaired by Ms Chantyl Mulder;

• Enterprise Development, Procurement, Access to Finance, and Socio-Economic Development, chaired by

Ms Ellen Tshabalala; and

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• Instruments to promote B-BBEE (Legislation, Fronting, Verifications, Charters), chaired by Ms Tsakani

Ratsela.

The work of the sub-committees has entailed deliberations on the various themes, in some cases led by research

findings commissioned by the sub-committees themselves. In addition, the sub-committees have engaged various

institutions, including academic institutions, and received presentations from various quarters.

The Advisory Council made key recommendations to the Summit that will be expanded on later in this report.

1.3.4 Codes of Good Practice

The B-BBEE Codes of Good Practice (hereafter referred to as the Codes) were published in 2007. The aim of the

introduction of the Codes was to provide a standard framework for the measurement of B-BBEE across all sectors of

the economy. In particular, the codes were aimed at achieving the following objectives:

• Broadening the base of beneficiaries;

• Redefining B-BBEE from focusing on ownership and deal-making to entrepreneurship, operational

involvement and skills development;

• Ensuring financial sustainability of financial transactions;

• Creating uniform standards and measurements; and

• Clarifying policy position on sector charters, multinationals and small business.

The codes require that all entities operating in the South African economy make a contribution towards the objectives

of B-BBEE.

The codes are characterised by two broad elements. Firstly, they encourage all entities, both public and private, to

implement B-BBEE initiatives and, secondly, they cover seven components of the B-BBEE scorecard, as defined.

These components are:

• Ownership

• Management control

• Employment equity

• Skills development

• Preferential procurement

• Enterprise development

• Socio-economic development (including industry-specific and corporate social investment initiatives)

These components were outlined in the 2003 B-BBEE strategy. The strategy further allocated points to each

component to make up the generic scorecard. The points were allocated as shown in Table 1:

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Table 1: B-BBEE Scorecard: Points and Compliance per Element

Element Weighting Compliance Targets

Ownership 20 points 25% +1

Management control 10 points (40% to 50%)

Employment Equity 15 points (43% to 80%)

Skills Development 15 points 3% of payroll

Preferential Procurement 20 points 70%

Enterprise Development 15 points 3% (NPAT)

Socio-Economic Development 5 points 1% (NPAT)

TOTAL 100 points

As per the B-BBEE Act, the codes are binding on all public companies and state-owned enterprises (SOEs) and

entities. The Government, in particular, is required to apply the codes when making decisions on procurement,

licensing and concessions, public-private partnerships (PPPs) and the sale of state-owned assets or businesses.

Private companies must apply the codes to qualify to do business with any government enterprise or organ of state in

any of the aforementioned categories of business transactions.

Companies are also encouraged to apply the codes in their interactions with one another, since preferential

procurement will affect most private companies throughout the supply chain.

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2 A Decade of Economic Empowerment (2003 – 2013)

Ten years into the implementation of the B-BBEE policy and legislation, it seemed an opportune time to reflect on

how far the country had come in its pursuit of B-BBEE. Government took a decision to hold a national summit in this

regard; the first of its kind to engage the topic of B-BBEE in South Africa. The theme adopted was A Decade of

Economic Empowerment.

The high-level summit held at Gallagher Estate on 3 and 4 October 2013 was hosted by Minister of Trade and

Industry Dr Rob Davies, MP. In addition to looking back over the past 10 years of the B-BBEE framework, the summit

launched the B-BBEE Amendment Bill, unveiled the revised Codes of Good Practice and charted the next era of

broad-based black economic transformation in South Africa.

2.1 Setting the Scene

A high-level political team addressed the first session of the two-day summit, with the President of the Republic of

South Africa providing the keynote address. Inputs from the Director-General of the dti, Mr Lionel October, Minister

Davies and a member of the Presidential BEE Advisory Council, Mr Sandile Zungu, preceded the President’s speech.

In his welcoming address, Mr October gave an overview of the purpose and intended outcomes of the summit.

2.2 Address by the Minister of Trade and Industry

In his opening remarks, Minister Davies traced the genesis of the summit from the start of the current political

administration, when the decision to hold such a summit was made. In his address, he said large companies are

lagging in terms of the implementation of B-BBEE and still “battling to embrace and implement meaningful

transformation”. This finding was based on a 2012-13 study commissioned by the dti and the Advisory Council. The

study revealed that the overall economy was at level four in terms of compliance with the legislation. Minister Davies

highlighted the determination of Government to move away from narrow share ownership by black people to

meaningful and genuine empowerment that leads to the creation of sustainable black companies.

The Minister noted that passive shareholding deals did not work and resulted in the least real empowerment of

people. He further noted the lack of meaningful relationships between big and small companies and said too little has

been achieved in this area. Fronting through the use of complex transactions was identified as a major problem.

With regard to the Codes, which were introduced five years ago with seven categories, the Minister articulated his

lack of satisfaction that many players were not earning points in important areas. He noted that other players were

earning points without fully and honestly implementing the Codes. Procurement, skills development, ownership and

enterprise development were singled out as areas of particular sub-optimal performance.

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The Minister also noted under-representation of black people in industrialisation. In this regard, the department would

like to see how the B-BBEE framework could be used to improve the representation of black industrialists.

2.2.1 The B-BBEE Amendment Bill

To address the challenges to the implementation of this national imperative, the Minister outlined the new B-BBEE

amendment Bill, which has been drafted to introduce corrective measures. The objects of the Bill are to:

• Establish a B-BBEE Commission, which will act as a watchdog for B-BBEE implementation and the

introduction of a verification regulator;

• Create a monitoring, evaluation and reporting framework for the public and private sectors;

• Create a statutory offence for fronting and other related offences;

• Introduce penalties ranging from a maximum of 10 years to 10% company turnover and prohibition not to

trade with state organs for 10 years;

• Trumping provision to be applicable on conflicting provisions specific to B-BBEE only; and

• Strengthen the application of codes to organs of state and sector codes to affected sectors.

In summary, the Amendment Bill provides for a new statutory definition of fronting, a new office to deal with fronting,

the regulation of verification agencies, and alignment of charters with the B-BBEE codes. At the time of the summit,

the Bill had been passed by National Assembly, but still had to go through the National Council of Provinces.

2.3 Address by the President of the Republic

In his keynote address, the President of the Republic, Mr Jacob Zuma, provided a context for the economic policies

of the country as being founded upon the Freedom Charter. He emphasised it was clear that drastic steps needed to

be taken to reverse the racial nature of the economy that had been inherited by the democratic government in 1994,

and that “transformation was not going to happen by osmosis”.

He reminded the delegates that the current administration seeks to effect the following outcomes through its

economic policies:

• Create decent employment

• Eliminate poverty

• Deal with extreme inequality

In seeking these outcomes, the Government aims to achieve positive results in broadening ownership, restructuring

the economy, achieving equitable regional development and limiting a negative industrial impact on the environment.

The notion that B-BBEE was only about a few deals involving big business and of benefit to a few individuals had to

be dispelled. B-BBEE should have maximum impact on all South Africans.

The President indicated that the country was proud of the successes gained through the pillars that informed the

economic transformation agenda and highlighted achievements since 1995. The following achievement can be noted:

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• A 40% increase in per capita income, from R27 500 in 1993 to R38 500 in 20012

• 43% increase in disposal income per capita

• Total employment has increased by 3.5% since 1994

These combined statistics point to an increase in the black middle class, one of the early intentions of the B-BBEE

strategy and legislation. There was a view at the time that B-BBEE was predominantly focused on building and

strengthening a middle class, rather than being a grassroots poverty alleviation mechanism that would help all people

to access opportunities. In this respect, an achievement can be noted.

However, challenges in the economic landscape of the country are still to be found. Unacceptable levels of poverty,

unemployment and inequality (particularly with regards to income) are major challenges that still face the country.

Black participation in the economy has not reached the levels envisaged in the B-BBEE policy, i.e. ownership and

management control. The current situation is one that is characterised by black participation amounting to mere share

ownership. The President stressed that gross black ownership of South African assets on the Johannesburg Stock

Exchange as at 2010 amounted to only 6,8%. He bemoaned the fact that despite a focus by Government on

manufacturing support, there are no black industrialists in the country. He outlined his vision as one where the

countryside would be full of factories owned by black entrepreneurs who were taking advantage of government

policies and programmes, such as those contained in the Industrial Policy Action Plan (IPAP).

President Zuma called for a legislative framework for B-BBEE that leads to the creation of black industrialists. This

call echoes that made by several stakeholders, including the Advisory Council.

2.3.1 Achievements and Impacts of B-BBEE Implementation

The President lauded the early groundbreaking work done by organisations such as the Black Management Forum

towards the B-BBEE Act of 2003 and the Codes of Good Practice (2007). The 10 years of B-BBEE policy

implementation have seen some significant achievements, which the President expanded upon. These include:

• R600 billion worth of B-BBEE transactions

• 500 publicly announced B-BBEE ownership transactions worth at least R533 billion

• Representation of black people and women in senior management positions in the private sector has

increased from less than 10% in the 1990s to more than 40% today

• The Black Business Supplier Development Programme, which was launched by the dti in 2010, has

approved applications worth R797 million

• Black-owned SMMEs have been supported to the tune of R451 million in one financial year (2012/13)

• The National Empowerment Fund has approved transactions worth more than R5 billion, with 60% of its

beneficiaries being SMMEs and support given to the creation of 44 000 jobs

• In excess of 200 co-operatives have been supported through a special incentive programme, with the

creation of more than 200 jobs and 700 temporary job opportunities.

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The President assured the delegates that active B-BBEE will continue to be an important policy of the ANC

Government, driving real and meaningful economic transformation and growth. Furthermore, other legislation such as

the Gender Equity Bill and the amendment Employment Equity Act will go a long way in improving the loopholes in

employment equity. He singled out the position of SMMEs as the backbone of the country’s economy and that these

would be supported, particularly in alignment with the National Growth Path (NGP) sectors of mining, agriculture, the

green economy, tourism, infrastructure development and manufacturing.

The President spoke briefly about the B-BBEE Amendment Bill, which Parliament had passed earlier in the year (in

June 2013). He emphasised how this would be used to address the scourge of fronting, which is a major obstacle to

the implementation and attainment of the ideals espoused in the B-BBEE national strategy. He further alluded to the

fact that in the amendment, the areas of skills development and education would be given additional attention, with a

focus on managerial and technical skills for emerging entrepreneurs.

The President stressed the importance of B-BBEE as an integral part of the Government’s economic policy and

economic transformation. ”It is part of a broader objective of promoting inclusive growth and economic development,”

he said.

In his closing remarks, the President made a comment that by 2030, South Africa should be an inclusive economy

and the reference to black versus white should not exist.

2.4 Presidential B-BBEE Advisory Council

The Summit was also addressed by Mr Sandile Zungu, a member of the Advisory Council.

In the course of its work and deliberations, the Council has made recommendations that are intended to further

enhance the reform and development of the economic landscape of the country towards meaningful participation by

black people in pursuit of inclusive growth. Prior to the Summit, all four Sub- Committees (see section 1.3.3 above)

tabled reports based on the focus areas and made key recommendations on the areas that warrant review and

refinement of the B-BBEE Act and the Codes of Good Practice.

The strategic objectives of the recommendations are as follows:

• The amendment of the primary and secondary legislative framework to address inter alia circumvention,

regulatory mechanisms and compliance;

• Alignment of the B-BBEE primary legislation to other key pieces of legislation and policy instruments (e.g.

PPPFA, Mining Charter, Liquid Fuels Charter, Sector Charters etc.);

• Monitoring, evaluation and reporting (consistent application across all spheres of Government and sectors,

increasing implementation and technical capacity, and strengthening institutional mechanisms);

• Regulation of the verification industry; and

• Establishment of B-BBEE Commission or Tribunal to analyse and vet B-BBEE transactions.

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2.4.1 Amendment of B-BBEE Act

The Advisory Council proposed that the B-BBEE Act be reviewed to extend its applicability to all sectors of the

economy. It was further recommended that the sustainability reports submitted by companies should include B-BBEE

status.

2.4.2 Fronting

The Advisory Council agreed that fronting is one of the biggest challenges in the effective implementation of B-BBEE.

As the State President had highlighted this also as a major obstacle, the Advisory Council made the following

recommendations to address fronting:

• Fronting must be prescribed in the B-BBEE Act;

• A Service Level Agreement must be entered into between the dti and the Special Investigation Unit;

• The National Treasury and the dti must collaborate on curbing B-BBEE Fronting; and

• Sanctions for B-BBEE fronting should include:

o Penalties and blacklisting of entities; and

o Penalties and blacklisting for management (company directors).

2.4.3 Monitoring and evaluation of B-BBEE

Section 11 of the B-BBEE Act makes provision for an integrated and co-ordinated approach to B-BBEE by all organs

of State, public entities, private sector, NGOs, local communities and other stakeholders. This section calls for the

provision of a system for organs of State, public entities and other enterprises to prepare B-BBEE plans and report on

compliance with such plans.

Against the above-mentioned background, the Advisory Council proposed that:

• All public entities and organs of State must submit regular reports on their compliance to B-BBEE, preferably

on an annual basis;

• The annual reports of all departments in the three tiers of Government must cover B-BBEE

performance/implementation;

• All heads of departments and CEOs of SOEs must be legally compelled to report on the performance of

their institutions on the implementation of B-BBEE; and

• Monitoring and evaluation of B-BBEE should form part of the evaluation of all Ministers.

2.4.4 Regulation of the Verification Industry

The Advisory Council noted the challenges encountered in the market due to the fact that the verification industry is

unregulated. Some of the challenges include the absence of a proper code of conduct for the actors in the industry.

Misrepresentation of B-BBEE status by Accredited Verification Agencies was also noted as a concern.

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A recommendation to regulate the industry has been proposed by the Advisory Council through the establishment of

a regulating authority by amending the B-BBEE Act. Furthermore, the Advisory Council recommended that the dti be

empowered to revoke the accreditation status of misbehaving Accredited Verification Agencies.

The Advisory Council also noted that the Cabinet, in its meeting of 6 December 2005, approved a statement on

Verification and Fronting. The recommendation made was that these statements be released for implementation.

2.4.5 Establishment of B-BBEE Commission

The establishment of a B-BBEE Commission, similar to the Competition Commission, has been recommended for

B-BBEE transactions. It is envisaged that this Commission will establish the capacity and authority to investigate

B-BBEE transactions and scrutinise B-BBEE claims contained therein. Furthermore, the proposed Commission will:

• To oversee, supervise and promote adherence with this Act in the interest of the public;

• To strengthen and foster collaboration between the public and private sector to promote and safeguard the

objectives of B-BBEE;

• To receive complaints relating to B-BBEE in accordance with the provisions of this Act;

• To investigate, either of its own initiative or in response to complaints received, any matter concerning

B-BBEE;

• To promote advocacy, access to opportunities and educational programmes and initiatives of B-BBEE;

• To maintain a registry of major B-BBEE transactions, above a threshold determined by the Minister by notice

in the Gazette;

• To receive and analyse such reports as may be prescribed concerning B-BBEE compliance from organs of

state, public entities and private sector enterprises;

• To promote good governance and accountability by creating an effective and efficient environment for the

promotion and implementation of B-BBEE; and

• To exercise such other powers that are not in conflict with this Act as may be conferred on the Commission

in writing by the Minister.

2.4.6 The Path towards the Creation of Black Industrialists

In September 2012, the Presidential B-BBEE Advisory Council resolved to convene a special meeting to define the

new trajectory “Black Industrialists” in support of the country’s industrial policy and its effect on economic

transformation. As part of executing the mandate, the Advisory Council convened two brainstorming sessions in

which different SOEs and Developmental Finance Institutions (DFIs) were invited to be part of the deliberations. The

SOEs and DFIs were expected to define their roles towards the creation of black industrialists.

The main purpose of the brainstorming sessions was to determine the common understanding of the meaning of

“black industrialists” by looking at similar processes from other developing countries such as South Korea and

identifying the different strategies that Government needs to put in place to support the new trajectory.

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A major obstacle towards the attainment of this goal was identified as the absence of a coherent and cohesive policy

framework aimed at promoting “black industrialists”. The various policies and programmes currently in existence were

not put in place with the intention of creating and supporting the creation of black industrialists.

These policies include:

• The National Development Plan

• The Industrial Development Policy Action Plan

• The B-BBEE Act and Codes (in revised form)

• The Competitive Supplier Development Programme

• The Preferential Procurement Policy Framework Act

Further, even as these policies were not intended to promote black industrialists, there are certain barriers that exist

within such policies, which will hinder prospects of creating such industrial enterprises. Furthermore, there is no fiscal

certainty of both the interest and exchange rates to facilitate investment planning for long-term, capital-intensive

projects.

The creation of black industrialists will require strong political leadership, a single and comprehensive policy

framework, a common approach to financing through DFIs, access to markets, fiscal certainty, incentives to promote

industrialists and procurement support.

The Advisory Council recommended that the following actions be taken:

• Revision of the fiscal policy to provide more regulatory certainty;

• Acceleration of the process for alignment of the Preferential Procurement Policy Framework Act (PPPFA) and

B-BBEE Act;

• Identification of the key components with the IPAP framework to develop black industrialists;

• Assessment of policy analysis reports to determine the status of the regulatory regime to assist in identifying the

gaps and improvements to be introduced;

• Analysis of the report of the SOE review to determine opportunities for facilitating black industrialists;

• Identification of other limitations and barriers to the creation of black industrialists;

• Revisit the mandate of DFIs;

• Conduct research to identify industries and sectors of focus (status quo and future plans);

• DFIs and SOEs to determine the support packages to offer aspirant black industrialists;

• Identification of other critical stakeholders to provide inputs to the development of the black industrialists

strategy; and

• Formulation of a coherent and cohesive strategy or policy framework for the creation and promotion of black

industrialists.

This new trajectory presents an opportunity to support the creation of black industrialists. Notwithstanding the actions

recommended above, some obstacles in the way of attaining this goal were identified, including:

• Limited/lack of access to finance

• Participation in low complex areas by black business

• Low entrepreneurship culture

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• Limited access to markets

• Limited geographical location by DFIs

2.5 Remarks by the Black Business Council (BBC)

The Black Business Council (BBC), represented by the CEO, Mr Xolani Qubeka, welcomed the improvements on the

Act. He particularly singled out the fact that some of these improvements will have a direct impact on SMMEs;

particularly the fact that 100% black-owned companies will attain an automatic Level 1 rating. The BBC also

welcomed the idea of legislating towards a more biting attitude on Fronting.

BBC also stated that as the country celebrates this important milestone of 10 years of transformation, there needs to

be a review of the achievements and a study of the areas where the desired outputs and outcomes have not been

achieved.

At its first anniversary earlier this year, delegates of the BBC deliberated on the Act and generally welcomed the

amendments. The BBC gave its support to the changes in the Act and the Codes of Good Practice. It called on the

Government to do everything in line with South Africa’s Constitutional democracy to drive towards the next level of

economic transformation. In this regard, the BBC tabled the following proposals:

• A call for the creation and development of Black Industrial Conglomerates. This next frontier in the war of

economic emancipation will have to be within the legislative framework;

• A push for significant transformation of the private sector and to not only focus on those companies that do

business with the public sector; and

• The repeal of the PPPFA and placing more emphasis on set-asides in large productive sectors.

It emerged from the deliberations at the summit that on the whole black business owners and those who aspire to be

involved in the economy are still marginalised and that the legislative framework has not yet sufficiently addressed

the levelling of the playing ground. In his address to the summit, Mr Xolani Qubeka stated that most black people

involved in the economy still feel rejected, ignored and marginalised in their quest to gain access to the productive

resources of the economy.

2.6 Remarks by the Employment Equity Commission

In his address to the summit, Dr Loyiso Mbabane, the Chairperson of the Employment Equity Commission, said there

is a link between employment equity and skills development. He, however, added that skills development has not

helped to improve employment equity levels across all sectors. An amount of R57 billion has been spent on skills

development in the last 10 years.

In looking at the trends in employment, top management is still largely white male. This clearly indicates that change

is slow, particularly in the top management echelons. Dr Mbabane said the Employment Equity Commission strongly

believes that employment equity is still relevant for transformation and would make a big contribution to the emerging

push towards the creation of black industrialists.

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3 A Bold New Trajectory for B-BBEE

3.1 B-BBEE Achievements and Performance

A research study conducted by the dti and released at the summit showed that although there has been challenges

in the implementation of the B-BBEE codes, there has been some progress.

In presenting the findings to the summit, the Chief Director of the BEE Unit, Ms Nomonde Mesatywa, said that since

2007 there has been a modest improvement in each of the elements of the scorecard by legal form, size, province

and industry. This, she said, could be attributed to the introduction of the codes. The level of empowerment across

the economy has grown from a situation where companies were non-compliant to a level four on the empowerment

scorecard.

The study noted some differences between the performance of Qualifying Small Enterprises (QSEs) and Exempted

Micro Enterprises (EMEs) against large companies. QSEs and EMEs had the highest empowerment level, which is

level three compared to level six of large companies. This could be attributed to less onerous conditions that were

placed on these two enterprise categories. However, the study highlighted some challenges with respect to the

ownership element of the scorecard. Thirty-three per cent of large enterprises had zero black ownership and only 9%

of enterprises had more than 90% black ownership. This is despite reports that showed that more than R600 billion in

B-BBEE transactions have been recorded since 1995. According to Ernst and Young, since 1995 there have been

more than 1 500 publicly announced B-BBEE ownership transactions worth at least R533 billion. Table 1 below

shows the performance of various sectors against the scorecard by sector.

Table 1: Performance against the B-BBEE Scorecard by Sector

SECTOR B-BBEE Level

Agriculture and Nature Conservation Level 5

Catering, Accommodation and other trade Level 5

Community, Social and Personal Services Level 5

Construction Level 4

Finance and Business Services Level 5

Manufacturing Level 5

Mining and Quarrying Level 5

Publics Sector Level 3

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Retail, Motor Trade and Repair Level 5

SETA Level 3

State-Owned Enterprises Level 3

Transport, Storage and Communications Level 5

Whole, Trade and Allied Services Level 5

3.2 The Revised B-BBEE Codes of Good Practice

With respect to the Codes, Ms Mesatywa stated that Government wanted to make sure that codes are easy to apply.

To ensure this, the Codes went through a robust testing process.

There were seven elements that were previously provided for. The new Codes provide for five elements, namely:

• Ownership

• Management Control

• Skills Development

• Enterprise and Supplier Development

• Socio-Economic Development

The Codes further provide for sub-minimum performance levels in priority elements, which include ownership, skills

development and Enterprise and Supplier Development (ESD). The sub-minimum performance levels are as follows:

• For ownership, the threshold requirement is 40% of net value;

• For skills development, the threshold is 40% of total weighting points; and

• For ESD, the threshold is 40% for each of the two categories, i.e. enterprise development and preferential

procurement.

The revised Codes also provide for the combination of enterprise development and procurement into one category

known as ESD. The main objective behind this grouping of these two elements is to drive the creation of productive

enterprises in the value chain of companies.

To lighten the burden on SMMEs, 100% EMEs and QSEs are not expected to do verification and would automatically

become level 1 B-BBEE contributors. They would, however, need to produce an affidavit attesting to their status. The

threshold for EMEs has been increased to R10 million, while that of QSEs has gone up to R50 million. The

discounting principle is still applicable, but with one level down both for large companies and QSEs.

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3.2.1 Ownership

With respect to the ownership element, the revised codes have provided for the following:

• 40% of the eight sub-points allocated to net value as this is key driver of true ownership in the hands of

black people and critical to measure economic interest on annual basis

• Clarity for Family Trust on the B-BBEE ownership principles for recognition on the ownership element

• Clarification that only RSA-based and regulated investments will be considered for qualification as Mandated

Investments

• Enhanced the provisions for Private Equity Fund

• Increased the weighting points of the Ownership scorecard from 20 to 25 points

• The points for Ownership have been broadened to include designated groups in the main points

• New entrants have been incorporated into the main points of the Ownership Scorecard and increased from

R20 million to R50 million

• Consolidated ownership fulfilment and net value points

3.2.2 Management Control

In the management control pillar, the revisions are as follows:

• Junior Management has been incorporated in the scorecard.

• The management control element has been aligned with the EAP targets as published by the

Department of Labour annually.

o These were aligned to the Commission for Employment Equity report.

• The measurement principle of EAP targets for enterprises operating in the provincial and national level

has been provided for.

3.2.3 Skills Development

Skills development revisions include:

• Informal and work-based training (Category F and G) can now be recognised, but has been capped at

15% of the total value of skills expenditure;

• The 6% compliance target for skills development expenditure has been maintained and clarification has

been provided that it should include external training expenditure;

• A 15% cap for non-core training costs such as accommodation, catering and other has been included;

and

• Clarification has been provided that international training interventions can be recognised, provided they

meet the SAQA requirements for recognition.

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3.2.4 Enterprise and Supplier Development (ESD) With respect to ESD, the revisions are that:

• Entities can apply the import exclusion principle, but this is not applicable to designated sectors as

pronounced by the Minister of Trade and Industry.

• The Value-Adding Supplier concept with Empowering Supplier defined has been replaced as follows:

• An Empowering Supplier within the context of B-BBEE is defined as a B-BBEE compliant

entity, which can demonstrate that its production and/or value adding activities take place in

the country;

• Criteria to qualify as an Empowering Supplier are listed below (large enterprise should comply

with at least three of the criteria, whereas QSEs should comply with at least one):

o At least 25 % of cost of sales, excluding labour costs;

o Depreciation (unless in the service sector) must be spent in RSA;

o For enterprises operating in the service industry, the labour cost can be

included, but to a threshold of 15%;

At least 50% of jobs created are for black people, provided that the number

of black employees on the first year of measurement is maintained;

Transformation of raw material/beneficiation;

At least 25% includes local manufacturing, production and/or assembly,

and/or packaging; and

At least 12 days per annum is to be spent on skills transfer activities that are

productive and will assist beneficiaries to increase their operational,

technical or financial capacity.

EMEs and start-ups are exempted from the Empowering Supplier definition.

3.2.5 Socio-Economic Development

There are no changes with respect to the socio-economic development element.

3.2.6 Summary of Revisions

In summary, the changes to the scorecard are indicated in the table below.

Table 2: Summary of Revisions to the B-BBEE Codes of Good Practice

Level Current codes Amended codes

B-BBEE Recognition Level

1 ≥100 ≥100 135%

2 ≥85 but <100 ≥95 but <100 125%

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3 ≥75 but <85 ≥90 but <95 110%

4 ≥65 but <75 ≥80 but <90 100%

5 ≥55 but <65 ≥75 but <80 80%

6 ≥45 but <55 ≥70 but <75 60%

7 ≥40 but <45 ≥55 but <70 50%

8 ≥30 but <40 ≥40 but <55 10%

Non-compliant <30 <40 0%

The general feeling of the summit was that the Codes were less onerous compared to the draft Codes. However,

there was a sense that some of the elements, such as ownership and enterprise and supplier development, may be

difficult and will pose challenges for companies. The amendments were, in the main, accepted by the summit.

Final revised Codes were gazetted on 11 October 2013. For the first year after the gazetting of these Codes,

measured entities can elect to use the Amended Codes or the 2007 Codes. However, after the first year all B-BBEE

compliance will be measured as per the Amended Codes.

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3.2.7 Implementation Challenges

Despite the achievements, there was broad consensus across the different stakeholders on the challenges the

country faces with regard to economic transformation. These include:

• Inadequate meaningful collaboration between big and small businesses;

• Fronting, with complex mechanisms employed in this regard;

• Insufficient capacity development (skills development and transfer);

• Misalignment of legislation (PPPFA and B-BBEE, for example); and

• Inadequate financing for black-owned start-up enterprises.

3.3 Overview of Panel Discussion

A panel discussion session with the three ministries (Trade and Industry, Economic Development and Public

Enterprises) was facilitated by Mr Teddy Daka.

A new trajectory for the creation of black industrialists was highlighted by both political leaders and the Advisory

Council as critical to drive economic transformation in the future. The aim of the session was to ascertain where the

black industrialists were, as well as to explore ways to ensure that they are able to benefit from the economy. Dr

Davies said it is imperative for South Africa to trade in value-added goods and be extensively involved in production.

The result of this would be the creation of strong routed jobs in various sectors and products of a higher quality. He

also reported that a lot has been done with the assistance of the dti in turning around the fortunes of some in the

manufacturing sector against the backdrop of the most difficult circumstances in the world economy.

He cited an example of the infrastructure programme that is driven by SOEs and co-ordinated by the Presidency,

which has spent up to R1 trillion to date. He believes that it is necessary for black industrialists to become experts in

particular technical areas.

Minister for Economic Development Ebrahim Patel believes that in building a class of black industrialists the country

needs to accomplish two things:

1. On the demand side of the economy, the State and corporates must be entrenched as buyers of goods from

the new industrialists; and

2. On the supply side of the economy, the state should provide support for supply side measures such as

funding, skills development and marketing support.

He, however, reiterated that the state cannot resolve all these needs, but can provide an enabling environment. In

this regard, he emphasised the need for competition policies that are aimed at curtailing challenges of monopoly to

establish fair competition in the economy.

The adviser to the Minister of Public Enterprises, Ms Mncobo, stated that SOEs are catalysts for industrialisation that

help to revive sectors of the economy through the stimulus that is created within their programmes. She indicated that

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DPE is already working on the supplier development programme and aims to link companies that have secured big

contracts with smaller black companies. Within the context of the economic infrastructure Bill, the DPE appealed to

black businesses to articulate what it is that they are prepared to do to broaden their participation in the economy.

Questions from the floor included:

• Is the B-BBEE policy, as it stands, able to create black industrialists?

• Do we have a proper procurement framework to support black industrialists?

• Is funding accessible and available to support black industrialists?

• What will be the effect of labour unions in the creation of black industrialists?

• Is there Government support for technology transfer to black-owned businesses?

The panel responded to the questions by giving examples of some of the work that has been done, such as the

incubation programmes, the disbursement (by the Industrial Development Corporation) of about R16 billion to

SMMEs, the reduction of turnaround times of transactions during the application process, and the use of incentive

schemes to encourage and support technology transfer. The panel highlighted some programmes that have been

successfully implemented towards the creation of black industrialists such as the manganese plant (based in the

Northern Cape) owned and managed by black women and the refurbishment of coaches for locomotives, driven by

PRASA.

3.4 Progress on the Implementation of Sector Charters

Ms Portia Tau-Sekati gave an informative presentation on the introduction and implementation of Sector codes.

These instruments were introduced and implemented to enhance transformation using unique knowledge and

characteristics of the sector to deepen meaningful participation in the mainstream of the South African economy.

Furthermore, the charters were to promote transformed, vibrant and globally competitive sectors, reflective of the

demographics of South Africa and contributing to the establishment of an equitable society. There are currently nine

sector charters.

The summit noted the progress and concerted effort in some sectors and highlighted the fact that more needed to be

achieved. Positive observations included the reasonable achievement of targets in preferential procurement,

enterprise and socio-economic development. However, under-performance in management control and employment

equity was also noted. Mixed performance was recorded in the areas of ownership and skills development. Delegates

raised concerns about the relevance of the charters while the codes were in existence.

3.5 Progress on the Implementation of the dti Incentive Schemes

Ms Susan Mangole from the Industrial Development: Incentive Administration Division (IDIAD) made an impressive

presentation on progress made in this regard. To respond to the challenge of access to finance, the dti has

developed 21 incentive schemes. The following are relevant for the support of B-BBEE:

• Black Business Supplier Development Programme

• Co-operative Incentives Scheme

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• Incubator Support Programme

• Manufacturing Competitiveness Enhancement Programme

• Sector-Specific Assistance Scheme

• Export Marketing and Investment Assistance

• Capital Projects Feasibility Programme

• Enterprise Investment Programme

• 12I Tax incentive

• Automotive Incentive Scheme

• Manufacturing Investment Programme

• People-carrier Automotive Investment Scheme

• Aquaculture Development Enhancement Programme

• Film and Production

• Business Process Services

• Critical Infrastructure Programme

The schemes were implemented to stimulate and facilitate the development of sustainable, competitive enterprises

through the efficient provision of effective and accessible funding mechanisms that support national priorities. The

incentive schemes were structured according the following clusters:

• Broadening participation

• Competitive investment

• Manufacturing investment

• Services investment

• Infrastructure investment

Significant and impressive progress was achieved in the following areas:

• Black Business Supplier Development Programme – 2 128 applications have been approved to the value of

R797.8 million since September 2010;

• Co-operative Incentives Scheme – 1 202 applications have been approved to the value of R287.4 million;

• Incubation Support Programme – 14 ISP incubators approved to the value of R168.8 million;

• Manufacturing Competitiveness Enhancement Programme – 387 projects approved since May 2012, with a

projected investment of R4.2 billion; and

• Business Process Services – 30 applications approved since inception 2011, with a projected investment of

R1.2 billion.

The above account is a strong demonstration of the effective implementation of incentive schemes as a response to

economic transformation.

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3.6 Overview on the State of the Economy

Mr Gerhard Kuhn, an economist at the IDC, gave a comparative high-level overview of the global and South African

economies in terms of current trends and future performance. He cited the following issues:

• A fragile global economy recovery

• The United States economy showing fairly modest growth

• The Eurozone is still in a crisis, but signs of recovery are emerging

• BRICS economies have a mixed performance

In terms of the world’s economies, about 60 million more people are unemployed as a result of the various economic

crises. In the South African economy, a modest increase in activity has been recorded. Overall performance can be

attributed to goods-producing services, agriculture, mining sectors and direct exports. Consumer spending is the key

component of the economy. There has been a dismal performance in the manufacturing sector, with a drop in overall

manufacturing output since 2009. Exports are still under pressure, despite the recoveries of the economy. The

mining sector has also shown a dismal performance as a result of the global economy, electricity constraints and

industrial action. The Government continues to create jobs, however, the private sector has shown an overall incline

of numbers. The overall outlook of the South African economy is that import demand is expected to remain relatively

strong, while the weaker rand will push up import costs such as crude oil and capital goods.

4 Summit Deliberations

The deliberations of the summit by delegates were conducted in four commissions, which constituted the

• Alignment of PPPFA and B-BBEE

• SOEs and Enterprise Development

• Black Industrialists and Localisation/Designated Sectors

• Access to Finance

Each commission had a facilitator and presenter who provided the document for discussion, setting the platform for

high-level deliberations and outcomes.

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Proceedings of the commissions are captured in detail below.

4.1 Commission 1 – Alignment of PPPFA and B-BBEE

Ms Portia Tau-Sekati facilitated the discussions at this commission. The presenter was Mr Teddy Daka.

4.1.1 Brief Background to the Topic – PPPFA and B-BBEE

Public procurement is the function whereby public sector organisations acquire goods, services and development and

construction projects from suppliers in the local and international market, subject to general principles of fairness,

equitability, transparency, competitiveness and cost-effectiveness. It includes many activities that support the service

delivery of government entities, ranging from routine items to complex development and construction projects. It also

directly or indirectly supports Government’s social and political aims. Procurement reforms in South Africa started in

1995 and were directed at two broad focus areas, namely the promotion of principles of good governance and the

introduction of a preference system to address certain socio-economic objectives. The systems of procurement and

provisioning were fragmented, owing to the fact that tender committees are responsible for procurement, whereas

provisioning is largely underwritten by the norms and standards in the logistic system driven by the National Treasury.

The PPPFA was promulgated in response to Section 217(3) of the Constitution of the Republic of South Africa. Under

the Act, a procurement policy may provide for the following:

• Categories of preference in the allocation of contracts; and

• The protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination.

The Public Finance Management Act 76(4) permits the National Treasury (NT) to make regulations or issue

instructions applicable to all institutions to which the Act applies concerning the ”determination of a framework of an

appropriate procurement provisioning system which is fair, equitable, transparent competitive and cost-effective”.

There are therefore numerous legislative frameworks that guide procurement practices and these include:

• The Constitution

• The Public Finance Management Act 1 of 1999

• The Municipal Finance Management Act No. 56 of 2003

• The Preferential Procurement Policy Framework Act No. 5 of 2000

• The Broad-Based Black Economic Empowerment Act No. 53 of 2003

• The Promotion of Administrative Justice Act No. 3 of 2000

• The Prevention and Combating of Corrupt Activities Act No. 12 of 2004

4.1.2 Issues Raised During Discussion

A discussion on the challenges of public procurement in South Africa took place, with delegates concurring that

enormous predicaments still exist, including:

• Lack of proper knowledge, skills and capacity

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• Non-compliance with SCM policy and regulations

• Accountability, fraud and corruption

• Inadequate monitoring and evaluation of SCM

• Unethical behaviour

• Too much decentralisation of the procurement system

• Ineffectiveness of the B-BBEE policy

Delegates said some of the practices with regards to non-compliance with the rules and procedures can be attributed

to the tendency to not make use of a competitive process for both quotations and bids as well as incorrect use of the

preference points system. Some also noted that there are inadequate controls and procedures for the handling of

bids, the appointment of bid committee members are not aligned to policy requirements, and there is insufficient

motivation for deviations from SCM procedures.

The general belief was that the majority of people who had hoped that freedom would bring relative socio-economic

liberation and improvement are feeling increasingly bitter towards Government over issues that include a lack of

perceived quality of governance, service delivery failures, fraud and corruption in some spheres of the economy and

disillusionment with empowerment policies.

Delegates also noted the absence of officials from NT who should be part and parcel of discussions around the

urgent need to rethink innovative ways of curbing corruption and other administrative malpractices within the spheres

of Government. They also believe that the PPPFA undermines the intentions of B-BBEE. Arguments were put

forward for greater centralisation of procurement to knowledgeable, accountable procurement officials/agents or

procurement consortiums.

The Government adopted the provision of B-BBEE to empower all historically disadvantaged people rather than only

a small group of black investors. To this end, it has also adopted the B-BBEE Act, which calls for expanded

opportunities for workers and smaller enterprises as well as more representative ownership and management. The

feeling in the deliberations was that current B-BBEE provisions have, however, in many instances failed to ensure a

broad-based approach, instead imposing significant costs on the economy without supporting employment creation

or growth.

The current B-BBEE model remains excessively focused on transactions that involve existing assets and benefit a

relatively small number of individuals. First, ownership and senior management issues receive disproportionate

emphasis. The unintended consequences of this trend include ‘fronting’, speculation and tender abuse. Secondly,

the regulations do not adequately incentivise employment creation, support for small enterprises and local

procurement. The preferential procurement regulations aggravate the situation by privileging ownership over local

production. Finally, the B-BBEE regulations penalise public entities as suppliers. The democratic state own public

entities on behalf of its people, yet the regulations do not count them as ‘black empowered’ (Zuma, 2009).

Some of the concerns about the regulations were expressed by the State-Owned Enterprise Procurement Forum

(SOEPF), a voluntary forum of procurement/supply chain management executives of SOEs.

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The PPPFA was highlighted as a major impediment in advancing the objective of B-BBEE in the public sector. The

PPPFA makes it impossible for black-owned companies to compete fairly with large companies. The Act puts in place

a weighting of 80% on price and 20% on B-BBEE score for smaller tenders, and 90% weighting on price, with 10%

weighting on B-BBEE for larger tenders. In this regard, the conference recommended that a review of the PPPFA to

align it with BBBEE be prioritised.

In the discussions, participants believed that the PPPFA is not transformational because it favours the traditional

suppliers over black suppliers. According to SOEPF, the empowerment legislative framework is fragmented. There is

a need to harmonise the empowerment framework in the country.

4.1.2.1 Some Questions from Commission Participants

• Why align when decisions have been taken to prioritise B-BBEE and where B-BBEE takes preference over

initiatives that have similar and possibly contrary mandates?

• Does the B-BBEE Commission or another authoritative body have the capability to monitor all applications

and ensure that all applicable companies are registered lawfully?

• What are the procedural logistics and specifications of the preferential pricing process?

• Does local content have more weight than B-BBEE within the PPPFA context?

• How do we redefine the PPPFA to make sure it is aligned with B-BBEE?

• How do we scrap the PPPFA without losing on the positive aspects of it?

4.1.3 Recommendations

• The B-BBEE Advisory Council had earlier recommended a revision of the fiscal policy to accelerate the

process of aligning the PPPFA and the B-BBEE Act, as well identifying key components within the industrial

policy for black entrepreneurs. This should include access to policy analysis, reports to determine the status

of the environmental regime, all of which will assist to determine the gaps and improvements to the

establishment. The delegates in this commission supported this.

• A complete overhaul of the PPPFA.

• Set asides to be introduced in all SOEs and in public sector procurement.

• Establish a working committee to engage with the NT, led by the dti on the reform/overhaul of the PPPFA.

• The Advisory Council to engage and continually work with the NT to implement and resolve the issues

raised.

• The Office of the President be involved in the process of supporting the mandate and taking action to ensure

the highest oversight.

4.2 Commission 2 - SOEs and Supplier Development

Discussions at this commission were led by Mr Thabo Masombuka. Dr Thami Mazwai was the presenter.

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4.2.1 Brief Background to the Topic

Based on the Government’s developmental and transformation agenda, there is a clearly articulated mandate given

to the SOEs on the role they are expected to play in supporting Government to achieve its goals.

the dti has proposed a fundamental shift in how enterprise development and procurement should be implemented.

SOEs have done well in driving localisation and supplier development, but more needs to be done. The objective of

enterprise development is to provide financial and non-financial support to small enterprises to ensure sustainable

economic, operational and technical independence. It is acknowledged that SOEs have a crucial role to play in

fostering enterprise development in their supplier development programmes.


Addressing the summit on this issue, Dr Mazwai stated that the context in which these enterprises operate needs to

be taken into account.

Dr Mazwai painted a worrying picture with respect to small enterprise development:

• 3,5 million small businesses in South Africa; 80% < R200k turnover per annum

• 90% of SMEs are black-owned

• 85-90% of the formal sector is white-owned

• <10% of entities in townships turnover > R1m

• SMEs constitute <60% of economic activity in rural areas, with 40% owned by Pakistanis and

Bangladeshis

• Many squatter camp businesses turn over R10 a day

• >50% live below the poverty line

• Gini-coefficient at 0.64; the second highest in the world

• Youth unemployment is at 60%, translating to roughly 3,3 million people

He further stated that despite all the support structures and government agencies that are in place, there is a high

failure rate of SMEs in South Africa, which is due to lack of:

• Finance

• Management know-how

• Market access

• Skills

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Delegates raised the following for consideration in a B-BBEE programme of enterprise and supplier development:

• The Construction Charter Matrix favours larger entities whereas it is the small SMEs that need the help;

• There is a need to consider tying ED and skills development spend more tightly;

• ED beneficiaries must be used as suppliers (not just helped) and their activities tested, monitored,

supported and developed;

• Certain sector councils must make sure that sector codes are aligned to reviewed B-BBEE codes to

ensure that ED is enhanced;

• Participation and input of young people must be enhanced; and

• Youth and women empowerment to be given priority in enterprise development.

The biggest hurdle is the lack of alignment between legislation that has B-BBEE impact and the B-BBEE Act and

Codes of Good Practice. This lack of alignment results in confusion over which Act should take precedence over the

other. This has led to the lack of robust implementation of the B-BBEE Act and the Codes of Good Practice within

some SOEs and public entities that tend to comply with the PPPFA. This has caused uncertainty in the

implementation of certain initiatives within SOEs and public entities.

4.2.2.1 Some Questions asked by Delegates

Questions included:

• Are SOEs achieving the transformation agenda?

• What hinders SOEs in achieving the agenda?

• Is there is no relationship between those who formulate the framework, the opportunities under which

small business operate and those who will be future business owners?

• What role can academic institutions such as universities play in inculcating a culture of

entrepreneurship?

• What should SOEs do to improve the achievement of the agenda?


Delegates who participated in this commission suggested that supplier development should be part of the

performance management requirement of any SOE. In addition, the proposal was made that the targets, which

should be a relatively higher weight, must be linked to the KPI targets of all top executives. The transformation targets

should not just be for the SCM executives.

Furthermore, it was recommended that the awarding of contracts should be better leveraged by ensuring that any

work awarded has significant transformation.

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4.3 Commission 3 - Black Industrialists and Localisations/DesignatedSectors

This discussion was facilitated by Professor E Links and had two presenters, namely Dr T Makube and Mr Ajay Lalu.


The issue of growing a black industrialist class has come up over many years of deliberations in various quarters

since the promulgation of the B-BBEE Act. It is a concept that is taken as a proxy for full economic transformation.

4.3.2 Issues Raised in the Discussion

In looking at the issue of black industrialists, the presenters drew the attention of the delegates to the following:

• There is an outdated terminology from 1960s on what the definition of an industrialist is;

• As skills transfer is critical to drive the creation of industrialists, there is a need to consider and determine

how this transfer of skills will be undertaken; and

• Ownership and financing.

The commission participants noted the failure of SOEs and government departments to use state buying power to

deepen the creation of black industrialists and small enterprises. Currently, a policy that looks at the emergence of

black industrialists does not exist. Existing legislation or policies, such as National Development Plan (NDP), IPAP, B-

BBEE and PPPFA, are accidental. Examples, such as that of Korea (which managed to draw in the marginalised to

become active players in the mainstream economy), were made to illustrate that the creation of black industrialists is

possible.

Some of the concerns that were raised on the issue of the creation of black industrialists were:

• There is a general decline in VAT, company tax and individual tax

• The playing field in terms of importing and exporting are uneven, resulting in decline in GDP

• Legislation is not harmonised

• Impact of anti-competitive behaviour in some sectors and the role of the competition commission in this

regard cannot be over-emphasised

4.3.2.1 Some Questions Raised by the Delegates

The following key questions were raised with respect to creation of black industrialists:

• Are the prevailing conditions conducive for the creation of black industrialists?

• Are policies geared towards the formation of this grouping?

• Are the finance institutions able to support this cause of creating black industrialists?

• What role can SOEs play in creating black industrialists?

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• To create black industrialists as a new sector and form of empowerment and to be mindful that the current

policies do not support black industrialists.

• To ensure that the process is backed by a strong political leadership.

• The Presidential B-BBEE Advisory Council recommended a revision of the fiscal policy to accelerate the

process of aligning the PPPFA and the B-BBEE Act, as well identifying key components within the industrial

policy for black entrepreneurs. This should include access to policy analysis and reports to determine the

status of the environmental regime, all of which will assist to determine the gaps and improvements to the

establishment.

• The Presidential B-BBEE Advisory Council has already identified ways to align SOEs. It further recommends

revisiting DFI mandates to ensure that DFIs and SOEs are in support of black businesses and to identify

other critical stakeholders to provide input into the development and growth of black enterprises, thereby

assisting in creating a pool of black industrialists.

• A policy for the creation of black industrialists.

4.4 Commission 4 – Access to Finance

Dr Claudia Manning facilitated the discussion in the fourth commission. The presenter was Ms Phokwane Moloele.


It is widely accepted that SMMEs have a strategic role to play in tackling poverty and unemployment. However, in

South Africa, SMMEs are beset with various problems that become obstacles to their development. The main

obstacles faced by SMMEs are a less enabling business environment and internal problems associated with low

access to capital and markets, and lack of entrepreneurial competence. It is also important to note that a significant

number of SMMEs are concentrated in rural areas.

There is no doubt that with the availability of adequate capital and easy access, micro-scale enterprises will develop.

This will lead to improvements in the productivity and scale of the businesses. Revenue will increase and so will their

purchasing power and absorption level of employment. A broad impact of this will be reduced urbanisation, poverty

and unemployment levels.

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In her input to the commission, Ms Phokwane Moloele indicated that private sector lenders have little appetite for

funding entrepreneurs, particularly black businesses. On the other side, DFIs are experiencing serious challenges

that impact on the financing of black companies. These difficulties include long lead times and poor skills to access to

credit in entrepreneurial businesses, lack of pre-financing support and ever-changing funding mandates. Lack of

collateral continues to be a hindrance to financing black businesses despite all the schemes that have been set up by

Government and its agencies. Furthermore, government programmes for the youth, disabled and vulnerable

communities are struggling to reach targets as the beneficiaries are seen as welfare recipients and not economically

productive groups.


The concerns raised in this commission include:

• Government incentive schemes’ application processes still have long lead times;

• Black entrepreneurs are still struggling to provide quality information in their applications;

• Government is still the biggest source of entrepreneurs’ financial problems due to late payments;

• Government requirements in tenders are a constraint – e.g. short term contracts;

• Black entrepreneurs are still struggling with the issue of collateral/own equity; and

• Pre-financing support is still very limited from DFIs.

Following deliberations on the above issues in the commissions, the participants broadly welcomed the amendments

to the Bill and the Codes.


• The concept of DFIs operating closer to rural areas was raised;

• A supportive and mutual benefit of performance and co-operation between DFIs and SMMEs is required;

• Lending should be in accordance with the feasibility of and cost of running the business;

• Where loans are granted, the type of business and the duration of the production process should be

considered;

• Stakeholders want to see “set asides” for black business in state procurement contracts;

• Alignment of the PPPFA with B-BBEE policy framework;

• Review of procurement regulations;

• Recapitalisation of the NEF;

• Review the role of DFIs in the development agenda;

• Provision of venture capital for start-ups;

• Support facilities for collateral funding;

• Limited use of Government and SOEs buying power to stimulate the creation of black industrials; and

• DFIs and the dti to review systems and processes for handling of funding applications.

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5 Common Issues emanating from all commissions

• A complete overhaul of the PPPFA.

• The creation of an enabling environment through facilitation, provision of support and enforcement of the B-

BBEE policy framework.

• Improved working relations between big businesses and SMMEs.

• Improved working relationships between departments to ensure consistency in the implementation of B-

BBEE practices.

• Significant improvement of the education system to create relevant skills required by the economy.

• Clarity on the role of SOEs in leading the drive towards the creation of an inclusive economy.

• Implementation of clearer governance structures (by SOEs) to facilitate B-BBEE.

• SOEs to maximise a broader contribution to supporting economic recovery and opportunities for enterprise

and innovation.

• A need to re-evaluate the mission and goals of SOEs.

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6 Summit Recommendations – The Next Empowerment Phase

6.1 Short Term

• Reform of the Preferential Procurement Policy Framework Act.

• Set asides be introduced in all SOEs and public sector procurement. In this regard, the Black Business

Council’s position submitted to the NT requesting a withdrawal of the practice note that disallows

government set-asides should be finalised.

• Establish an Advisory Commission to engage with the NT supported by the dti on reform of PPPFA. The

Advisory Council to engage and continually work with the NT to implement and resolve the issues raised by

these commissions.

• That the Office of the Presidency be involved in the process in support of his mandate to take action and

ensure the highest oversight.

• Where a tender has been awarded, not more than 25% of that business should be sub-contracted to

businesses with a lower BEE level than their own.

• Government must work with DFIs and private sector to find creative ways to unlock collateral potential of

entrepreneurs.

• The IPAP to help create black industrialists.

• SOEs to also ring-fence opportunities for EMEs, youth and women.

• SOEs should drive localisation to enhance enterprise development.

• Dedicated resources for enterprise development and supplier development within SOEs.

• Enterprise development and supplier development should be included in performance areas of executives

and managers of SOE.

• Culture of non-payment of accounts by government departments and SOEs should be completely

eradicated and legislated in PFMA and MFMA.

• Need leadership within SOEs that should report to Minister on enterprise development and supplier

development.

• SOEs to set aside budgets for enterprise development and supplier development.

• Enforcement of penalties.

• Company boards to be measured on ED and supplier development of SOEs.

6.2 Medium to Long Term

• Tax Breaks for black industrialists.

• Government has to change how it views and deals with Research and Development and the

commercialisation of R&D and innovation.

• SOEs to analyse the value chain for enhanced ED development.

• SOEs to partner with private sector and incentivise private companies that implement qualitative ED

programmes.

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• Mandatory reporting on supplier and enterprise development should be introduced.

• Venture capital/angel funding to be harnessed.

6.3 Recommended For Action by the Government

• the dti to engage the NT around the misalignment of PPPFA and B-BBEE policy frameworks.

• Aggressive communication on codes to be broadened to cover rural communities.

• Engage SOEs on expanding the opportunities for designated groups.

• Improve education systems to support the creation of black industrialists.

• A clear policy on creation of black industrialists.

• Tighten mandatory reporting and enforcement of penalties.

• Harmonisation of legislation across Government.

• Participation of NT should be prioritised in other B-BBEE engagements.

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7 SMME Exhibition

An exhibition was held alongside the main plenary session. A group of small businesses from various sectors and

provinces showcased their services and/or products. Some of the businesses had previously received financial

support from the dti and its agencies (such as seda). In addition, various support agencies based at national and

provincial level exhibited at the event. These included key public sector role players across all tiers of Government

whose departments offer business development services, organised business associations, private sector companies

involved in small enterprise development, and academic and research institutions focusing on small businesses.

the dti hosted the exhibition to recognise the vital role and contribution made by SMMEs in developing the economy.

It has witnessed increased knowledge, innovation and customer-centred services among SMMEs, which have

manifested some room for improvement. It is imperative for SMMEs to convert the challenges into opportunities by

exploring more business networks and acquiring more information for business growth. With a view to give more

insight into these, other supporting government agencies such as SARS were part of the exhibition.

It has always been the objective of the dti to empower emerging and established businesses with critical information

for their business intelligence as well as afford SMMEs business networking opportunities and to exchange views on

issues such as the regulatory environment and access to finance.

Note: A full list of exhibitors is provided in the Appendix 2.

8 Conclusion

The summit ended on a high note, with delegates confident that the dti will execute the recommendations as soon as

possible..

The DG of the dti, Mr Lionel October, thanked each and every delegate for their participation, passionate

contributions and proposals. He thanked the Programme Director, Peter Ndoro, for his management of the event as

well as his participation in the process. He thanked the dti staff, Deputy Director-General Sipho Zikode and Ms

Nomonde Mesatywa and her team, who worked tirelessly to get everything ready, from the initial creation of the

Codes right through to the planning of and participation in the summit. A vote of thanks included the portfolio

committee and parliamentarians, who participated actively, processed the regulations in record time and attended the

summit. Lastly, he thanked the Advisory Council for initiating the idea of the summit and the proposed revision of the

law and Codes.

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9 Appendices

9.1 Appendix 1: IDIAD – Incentives Offered

PROGRAMME PURPOSE TARGET OFFERING

Black Business Supplier Development Programme (BBSDP)

Broader participation of black-

owned SMMEs through

provision of business

development services

• Majority black-

owned entities

• R250 000 to R35

million turnover

• One year trading

• 80:20 cost-sharing grant for

business development

services


tools, machinery and

equipment

Co-operative Incentive Scheme (CIS)

Broader participation by

promoting the development of

co-operatives

• Registered co-operative

• Operate in the emerging

sector

• Manufacturing, retail and

services

100% cost-sharing grant for

machinery, equipment and

business development services

Incubator Support Programme (ISP)

Broader participation of SMMEs

through public/private sector

partnerships to assist SMMEs

with skills transfers, enterprise

development, supplier

development and marketing

opportunities

• Registered legal entity/

higher education

institution/science council

• Want to establish new

incubator or expand

existing one


large businesses


SMMEs

Manufacturing Competitiveness Enhancement Programme (MCEP)

To assist South African

manufacturers to improve

enterprise competitiveness and

job retention

South African-registered

entities engaged in

manufacturing Standard

Industrial Classification (SIC

3), engineering services that

support manufacturing, and

conformity

assessment agencies (SIC

88220) servicing the

• Two key components:

Production Incentive

Programme (PIP) managed

by the dti and the Industrial

Financing Loan Facility (IFLF)

managed by the IDC

• PIC consists of five sub-

components offered on a cost-

sharing basis of 50%, 60%,

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manufacturing sector 70% and 80%.

• Manufacturers apply for one

sub-component or a

combination

Export Marketing and Investment Assistance Scheme

To develop export market for

South African goods and

services and recruit FDI

Export-ready manufacturers Cost-sharing grant for exhibition

costs, marketing material and

research in foreign markets

Sector Specific Assistance Scheme (SSAS)

To provide exporting assistance

to South Africa’s emerging

exporters

Export councils

Industry Associations

Joint Action Groups

80:20 cost-sharing grant up to a

maximum of R1.5 million

Manufacturing Investment Programme (MIP

Stimulate investment in

manufacturing;

increase employment

opportunities; and

sustain enterprise growth

• Small, medium and large

manufacturing enterprises

• Local and foreign-owned

manufacturing enterprises

• Up to 30% of the value of

qualifying investment costs in

machinery, equipment,

commercial vehicles, land and

buildings, capped at

R200 million

12I Tax allowance programme (12I)

To contribute towards job

creation; improve the

productivity of the South African

manufacturing sector and

training of personnel; improve

labour productivity and the skills

profile of the South African

labour force

• New manufacturing

projects; energy efficiency;

skills development

• R900 million in the case of

any Greenfield project with a

preferred status; or

R550 million in the case of

any other Greenfield project

• R550 million in the case of

any Brownfield project with a

preferred status; R350 million

in the case of any other

Brownfield project

Film and Television Production Incentive

• Support local film

industry

• Encourage and attract

large budget films

• Build South Africa’s

international profile

• Increase South Africa’s

creative and technical skills

base

• South African Productions

• Co-productions

• Foreign productions

• Post-Production

• Uncapped grant for film and

television productions shot

within South Africa

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Film & Television Production Incentive

• Support local film industry

• Encourage and attract large

budget films

• Build South Africa’s

international profile

• Increase South Africa’s

creative and technical skills

base

• South African

Productions

• Co-productions

• Foreign productions

• Post-Production

• Uncapped grant for film

and television

productions shot within

South Africa

Business Process Services (BPS)

• Attract investment

• Create employment

opportunities

Enterprises offering business

process services to offshore

market

R112 000 is payable to an

offshore job created and

sustained from 2011/12 to

2013/14; R104 000 from 2012/13

2014/15 and R88 000 from

2013/14 to 2014/15

Critical Infrastructure Programme (CIP)

• Promote competitiveness of

South African enterprises

through the export of value-

added manufactured

products

• Attract foreign direct

investment (FDI) and select

targeted advanced foreign

production and technology

methods to gain experience

in global manufacturing

networks

The programme supports

infrastructure projects in

mining, tourism,

manufacturing and services

on a reimbursement basis

CIP is a 70:30 cost-sharing grant

for projects designed to improve

critical infrastructure in South

Africa

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9.2 Appendix 2: List of Exhibitors

Bagazio

Department of Public Works

Department of Economic Development – Gauteng Province

Essay gifts

Gauteng Tourism Authority

GGDA

GDB

Lerala Bonolo Co-operative

Jonganalo menu

IDS Consulting

National Empowerment Fund

National Gambling Board

National Youth Development Agencies

Roseta Trading

Small Enterprise Development Agency

Small Enterprise Finance Agency

South African Revenue Services

Strategic Outsourcing Solutions

Today’s Destiny

South African Women Entrepreneurs Network

Transnet

Western Cape Department of Economic Development and Tourism

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