AN OVERVIEW OF PREFERENTIAL PROCUREMENT IN SOUTH … · profile – ‘preferential procurement’...

AN OVERVIEW OF PREFERENTIAL PROCUREMENT IN SOUTH AFRICA

Government initiatives and private sector responses

Tracy van der Heijden

Independent Consultant

Centre for Poverty, Employment and Growth Human Sciences Research Council

March 2008

centre for poverty employment and growth innovative employment strategies

centre for poverty employment and growth

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Human Sciences Research Council March 2008

Acknowledgements

We gratefully acknowledge the financial support of the WK Kellogg Foundation

Produced by: Tracy van der Heijden

Contact: Dr Miriam Altman Executive Director, CPEG, HSRC E-mail: [email protected] Tel: +27 12 302 2402

An overview of preferential procurement in South Africa: government initiatives and private sector responses

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Contents

EXECUTIVE SUMMARY.................................................................................................. 5 1 BACKGROUND........................................................................................................ 11 2 AN OVERVIEW OF KEY PREFERENTIAL PROCUREMENT DRIVERS ... 12

2.1 GOVERNMENT INITIATIVES.................................................................................. 12 Code and Statement 500: Preferential Procurement .................................................. 16 Code and Statement 600: Enterprise Development .................................................... 21 Code and Statement 700: Socio-economic development............................................. 26

2.2 THE RISE OF THE RATINGS AGENCIES .................................................................. 28 3 CASE STUDY 1: WOOLWORTHS LIMITED..................................................... 36

3.1 COMPANY PROFILE AND FINANCIAL OVERVIEW .................................................. 36 3.2 HISTORY OF PREFERENTIAL PROCUREMENT ........................................................ 37 3.3 OTHER ISSUES ..................................................................................................... 41

4 CASE STUDY 2: DIMENSION DATA LIMITED................................................ 42 4.1 4.1 COMPANY PROFILE AND FINANCIAL OVERVIEW ........................................ 42 4.2 4.2 HISTORY OF PREFERENTIAL PROCUREMENT .............................................. 42

5 CASE STUDY 3: ESKOM ....................................................................................... 47 5.1 COMPANY PROFILE.............................................................................................. 47 5.2 HISTORY OF PREFERENTIAL PROCUREMENT ........................................................ 48 5.3 KEY ISSUES ......................................................................................................... 51

6 CONCLUSIONS........................................................................................................ 52 APPENDIX A – EMPOWERMENT SCORE FOR TOP 200 COMPANIES - 2007 .. 54


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Tables

Table 1 – Strategy for BBBEE: elements and weightings ................................................13 Table 2 – Codes of Good Practice and relevant Statements ...........................................14 Table 3 – Summary of obstacles, implications and solutions presented by the Codes

of Good Practice and relevant Statements ................................................................15 Table 4 – Categories of BBBEE complaint suppliers in Preferential Procurement

scorecard .........................................................................................................................17 Table 5 – Preferential Procurement scorecard: calculation of components by

enhancement factor.......................................................................................................18 Table 6 – the dti’s guidelines for calculating TMPS..........................................................19 Table 7 – BBBEE Procurement Recognition Level of suppliers....................................21 Table 8 – Enterprise Development Scorecard...................................................................22 Table 9 – Beneficiaries of Enterprise Development defined...........................................22 Table 10 – Qualifying Enterprise Development contributions.......................................23 Table 11 – Benefit Factor Matrix .........................................................................................25 Table 12 – The Socio-economic Development Scorecard...............................................26 Table 13 – Definition of beneficiaries of socio-economic development.......................27 Table 14 – Qualifying contributions....................................................................................27 Table 15 – Code 700 Benefit Factor Matrix.......................................................................28 Table 16 – Empowerdex Generic Scorecard* ...................................................................30 Table 17 – Woolworths turnover and profit figures, 2006 and 2007.............................37 Table 18 – Eskom core and support business division ....................................................47 Table 19 – Eskom’s BEE targets for the past eight years................................................50 Table 20 – Eskom’s promotion and empowerment of black women entrepreneurs ..50

Figures

Figure 1 – Woolworths Limited corporate structure ........................................................36 Figure 2 – Governance structure of Eskom Holdings Limited ......................................48


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Executive Summary Fostering the development and growth of small and medium-sized enterprises (SMEs) is a key issue in increasing employment opportunities and raising personal incomes. In addition, supporting the growth of SMEs owned by previously disadvantaged population groups, black women and young people is important to achieve a more equitable economy. However, given the structure of the South African formal economy, which is dominated by large and well-established companies, barriers to entry for new SMEs owned by these target beneficiaries are significant.

One important way in which SMEs can enter the market is as suppliers to larger companies. A conscious focus by large private and public sector companies on procuring goods and services from smaller companies with a certain demographic profile – ‘preferential procurement’ – can be a significant tool in increasing the number of sustainable small businesses. Closely aligned to the concept of preferential procurement is that of ‘enterprise development’.

There are two important developments at work in the preferential procurement market. The first is government’s initiatives to move from a policy of promoting black economic empowerment (BEE) to one of promoting BBBEE. The second is the increased use of objective rating scores and scorecards to ascertain a company’s compliance with BBBEE goals. In certain important ways, the increased use of the latter is working to undermine the goals of the former.

Government initiatives

Preferential procurement is a key part of government’s strategy to promote BBBEE. Until fairly recently, private sector companies had a certain measure of autonomy in how they were judged on their BEE status, with a clear focus on shareholding and employment profile. In response to the perceived shortcomings in achieving the goals of empowerment, a document titled A Strategy for Broad-Based Black Economic Empowerment was released in 2003.

Before the release of the Strategy on Broad-Based Black Economic Empowerment, there existed no framework for the measurement of BBBEE. The Strategy provided the outline of a broad-based scorecard, comprising the seven elements of BBBEE, together with weightings, but did not contain detail on measurement principles and the application of the scorecard. The seven elements and their respective weightings out of 100 (depicted in the table below as per the Generic Scorecard) are the criteria used by the various ratings agencies to compile an empowerment score. (Qualifying small enterprises – essentially companies with an annual turnover of less than R35-million – only have to use four of these categories to compile a score, and they may select these four categories from the possible seven. Each one then carries an equal weighting of 25 points.)


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Strategy for BBBEE: elements and weightings

Element Points

Ownership 20

Management Control 10

Employment Equity 15

Skills Development 15

Preferential Procurement 20

Enterprise Development 15

Socio-Economic Development 5

Total 100

Code and Statement 500: Pre ferent ia l Procurement

The dti states the following as its incentive for this part of the scorecard:

Preferential Procurement is used to drive transformation throughout the economy by encouraging procurement only from suppliers that are compliant with the B-BBEE scorecard:

There is a market tendency to interpret B-BBEE compliance as only having ownership by black people without looking at the level of compliance with other B-BBEE requirements. This has resulted in a number of sham transactions/‘fronting’ activities being entered into in a scramble to meet this compliance requirement.

Enterprises are encouraged to procure from those entities that have a good B-BBEE contribution level based on their performance on the scorecard. A supplier that has a very good B-BBEE contribution level is likely to be chosen as a preferred supplier as compared to his peers as they will give the enterprise they are providing goods and services to a good scoring on their own scorecard as well.

Incentive to procure from Qualifying Small Enterprises and Exempted Micro Enterprises:

Statement 500 has a specific indicator for the recognition of BEE procurement spend from Qualifying Small Enterprises (QSEs) and Exempted Micro Enterprises (EMEs) by allocating specific scorecard points to procurement from these entities exclusively.

The Preferential Procurement scorecard offers BBBEE procurement recognition from three categories of BBBEE compliant suppliers, as summarised in the table below.


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Categories of BBBEE complaint suppliers in Preferential Procurement scorecard

BEE compliant suppliers which will enjoy preferential procurement recognition

Beneficiary category Description of beneficiary

(A)

BEE compliant suppliers

Based on BEE contribution level

Includes all BEE compliant companies: • Of any size; • With 30% or more on the Generic or QSE

scorecards; and/or EMEs.

(B)

QSE and EME suppliers


Includes: • QSEs – proportional representation based on their

score on the QSE scorecard to be applied; • EMEs – proportional representation based on their

deemed Level 4 status and Level 3 status if they are 50% black-owned or 50% black women-owned.

(C)

50% black-owned companies and 30% black women-owned companies

Based purely on ownership status

Includes BEE compliant companies: • Large entities; • QSEs; and • EMEs that are 50% black-owned or 30% black

women-owned. Source: the d t i

Purchasing goods and services from each of these three categories of supplier will influence the preferential procurement component of a company’s BBBEE rating as follows:

Total maximum from preferential procurement 20 points

Of which: All BEE compliant suppliers 12 points QSE and EME suppliers 3 points 50% black-owned 3 points 30% black women-owned 2 points

These categories are not mutually exclusive. For example, a company can claim points under the first category, but scores additional points if one of the suppliers is also a QSE and/or a 50% black-owned company.

The calculation of each of these components is fairly complex, allowing companies to claim more points for more compliant suppliers, and also rewarding value-adding companies and enterprise development.

The Corporate Response: The Rise of the Ratings Agencies

The majority of companies in South Africa does not appear to believe that preferential procurement or enterprise development (with a few notable exceptions for the latter) contribute to company profitability and/or lower costs. The main incentive for engaging in these activities is almost always the desire to appear


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‘compliant’, usually to prospective clients in both the private and public sector. This is unlikely to change any time soon. Until the release of the detailed government BBBEE scorecards, companies had some latitude in presenting their level of compliance. Anecdotal evidence suggests that companies would highlight those areas in which they were able to do well (such as the workforce profile) and gloss over those areas where it was more difficult. For example, preferential procurement would tend to be easier for certain companies (such as those who purchase a large amount of fairly standardised goods and/or basic services), but much more difficult for those with complex supply chains, such as fresh food retailers. This is no longer possible, since the scorecard means that all aspects of BBBEE must be taken into account by all companies.

The 2007 TEC Empowerdex survey is attached as Annexure A. It should be noted that this survey only includes listed companies, and does not include parastatal organisations such as Eskom.

The most important fact that stands out is that 120 of the 200 companies surveyed have a score of less than 30, and can therefore be considered ‘non-compliant’. Admittedly, it appears that many of the data sets are missing, indicating that they were not submitted to Empowerdex. However, this in turn suggests that companies either do not bother to keep these records and/or that they are not too interested in their ‘official’ empowerment rating. Neither scenario is particularly encouraging. After more than 10 years of efforts to encourage transformation, this result can best be described as ‘disappointing’.

The following are the key observations that are particularly important for the purpose of this study.

1. The very poor showing of preferential procurement

An initial assessment would conclude that the introduction of a more broad-based empowerment scorecard would have a positive impact on preferential procurement. However, the results of the survey do not support this assumption.

Of the 200 companies included in this survey, only 34 had a preferential procurement score of more than 50% (that is, 10 or more out of a possible total of 20.) 59 of the top 100 scored more than 10 for ownership, but only 32 of these scored 10 or more for preferential procurement. Given that preferential procurement is a key issue in creating sustainable income and employment opportunities and in driving equity, we can expect that government will pay closer attention to how this is progressing. The findings of the 2008 survey (due out later this year) will provide more information on how companies are doing with respect to their preferential procurement targets.

2. A poor preferential procurement score seems to be one of the key issues in getting a higher overall score

Most companies aim to be at least a Level 4 contributor, at which point one counts as a 100% value partner in the preferential procurement pyramid (see table 7). In order to be a Level 4 contributor, one requires a total score of more than 65 points, but less than or equal to 75 points. Only the top 10 companies in this survey fitted into that


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category. Another 16 companies had scores of 55 or higher, but less than 65. Most of the companies in the top 11 to 40 places could make a significant improvement in their scores through better skills development programme and improved preferential procurement levels.

This suggests that companies may be more open to innovative ideas around how to increase their preferential procurement score.

3. Scores for enterprise development are much higher than expected

A surprising number of companies scored full marks for enterprise development, and many scored very high in this category. This is surprising, since at first glance it would not appear that there is that much enterprise development occurring. This may suggest that there is some dubious accounting around the calculation of the enterprise development component – on the face of it, it is difficult to see how some of the listed companies could score full marks for enterprise development. It may also suggest that the enterprise development compliance targets have been set too low, and that increasing these targets should be considered.

4. An unintended bias against small companies

Procurement from companies that have an annual turnover of less than R35-million (QSEs), which arguably is the most important part of preferential procurement, only receives a maximum additional points allocation of 3. The unintended result is that there is little real incentive for all but the most civic-minded of companies to make a real effort to procure from small PDI enterprises. Given that it is often more difficult and time-consuming to identify and establish a successful and sustainable relationship with such an enterprise, and the total procurement allocated to that company would be such a small share of total procurement, the fact that there is no BBBEE rating ‘reward’ for doing so is an issue. Allocating a higher score to doing business with small companies that have a minimum 50% black shareholding would provide a better incentive. One idea would be to have a sliding scale solution, where there is a higher reward for dealing with small black companies, but that this declines over time, recognising that these companies have been mainstreamed.

5. The sector in which the company operates may affect its ability to increase preferential procurement

We have already discussed how a company that has professional services as a key procurement item (for example, companies that are in financial services) may face a relatively easier task since there is a sizeable pool of suppliers to choose from, fees tend to be high and there is a benefit factor that can be applied to increase the value of that procurement.

Companies that procure largely goods and not services face a very different sort of challenge in increasing preferential procurement. If one is a large retailer, one would generally require large numbers of items that can be provided to stores around the country. This tends to preclude smaller PDI companies, which must be a key beneficiary group for preferential procurement to achieve the intended impact. The


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author does not believe it is coincidence that retailers have some of the lowest preferential procurement ratings on the list: Edcon (6.93 out of 20), Lewis Group (7.47 out of 20), Massmart (4.8 out of 20), Woolworths (2.64 out of 20), Spar (1.82 out of 20) and Pick n Pay (0.05 out of 20).

For example, a retailer like Pick ’n Pay probably has to purchase a considerable amount from a company like Tiger Brands. However, the latter has such a low BBBEE rating (less than 40 – a level 8 contributor) that only 10% of expenditure on its goods will count towards the preferential procurement score.

6. The customer profile of the company may affect its desire to increase its BBBEE rating

The argument is sometimes put forward that the real incentive to improve a BBBEE rating is the perceptions of existing and potential customers. This works to some extent in the existing rating structure, where companies would prefer to buy goods and services from companies that have a higher rating in order to push up their own rating. The public sector is also an important customer for many companies, and is is probably the most demanding of all clients.

However, there is an interesting argument to be made that when the customers are the general members of the public, there is much less pressure to have a good BBBEE score.


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1 Background

Fostering the development and growth of small and medium-sized enterprises (SMEs) is a key issue in increasing employment opportunities and raising personal incomes. In addition, supporting the growth of SMEs owned by previously disadvantaged population groups, black women and young people is important to achieve a more equitable economy. However, given the structure of the South African formal economy, which is dominated by large and well-established companies, barriers to entry for new SMEs owned by these target beneficiaries are significant.

One important way in which SMEs can enter the market is as suppliers to larger companies. A conscious focus by large private and public sector companies on procuring goods and services from smaller companies with a certain demographic profile – ‘preferential procurement’ – can be a significant tool in increasing the number of sustainable small businesses. Closely aligned to the concept of preferential procurement is that of ‘enterprise development’. In many instances, smaller companies owned by previously disadvantaged individuals (PDIs) – exactly who one would think of as the most important beneficiaries of any preferential procurement – lack the skills, experience and/or capital to be able to service a large company. Therefore, many of these large companies (and particularly the very largest of them) implemented a strategy of working to develop these small businesses to the point where they would be able to deliver to the buying company’s standards. This is obviously a time- and resource-consuming exercise, but it is also the strategy that would appear to have the most desirable results. A successful enterprise development strategy can create sustainable PDI-owned businesses that may otherwise never have survived or even come into existence. The formation of sustainable PDI-owned companies is often viewed as the most important tool in improving equity and income.

Although enterprise development is mainly the preserve of the largest and most committed companies, encouraging more large businesses to look at enterprise development as a key component of their empowerment strategy could have a significant long-term impact.

The increased focus on all aspects of broad-based black economic empowerment (BBBEE) by larger (particularly publicly listed) companies, in line with a greater government drive to increase BBBEE, has raised the possibility for preferential procurement to be a meaningful tool for expanding employment and income opportunities.

This paper examines how preferential procurement is being implemented in corporate South Africa by examining how three companies in three very different sectors, with different customer profiles and different management approaches, have addressed the issue. The paper starts with an overview of how corporate BBBEE ratings are currently undertaken in response to government initiatives, since we argue that this


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has a profound impact on the way in which companies approach the design and implementation of their BBBEE strategy.

2 An overview of key preferential procurement drivers

There are two important developments at work in the preferential procurement market. The first is government’s initiatives to move from a policy of promoting black economic empowerment (BEE) to one of promoting BBBEE. The second is the increased use of objective rating scores and scorecards to ascertain a company’s compliance with BBBEE goals. In certain important ways, the increased use of the latter is working to undermine the goals of the former.

2.1 Government initiatives

Preferential procurement is a key part of government’s strategy to promote BBBEE. Until fairly recently, private sector companies had a certain measure of autonomy in how they were judged on their BEE status, with a clear focus on shareholding and employment profile. In response to the perceived shortcomings in achieving the goals of empowerment, a document titled A Strategy for Broad-Based Black Economic Empowerment was released in 2003. Before the release of the Strategy on Broad-Based Black Economic Empowerment, there existed no framework for the measurement of BBBEE. The Strategy provided the outline of a broad-based scorecard, comprising the seven elements of BBBEE, together with weightings, but did not contain detail on measurement principles and the application of the scorecard. The seven elements and their respective weightings out of 100 (depicted in table 1 as per the Generic Scorecard) are the criteria used by the various ratings agencies to compile an empowerment score. (Qualifying small enterprises – essentially companies with an annual turnover of less than R35-million – only have to use four of these categories to compile a score, and they may select these four categories from the possible seven. Each one then carries an equal weighting of 25 points.)

These empowerment scorecard components, together with various guideline documents, make up the complete Codes of Good Practice (see table 2). Each code is associated with an explanatory Statement, indicating how that code should be interpreted and applied.

For the purposes of this study, we are concerned largely with the details of the codes and statements 500 and 600, but because of the way in which it has been structured, code and statement 700 also has an impact on how companies approach and implement socio-economic development strategies, which is important from the point of view of this report.


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Table 1 – Strategy for BBBEE: elements and weightings

Element Points

Ownership 20

Management Control 10

Employment Equity 15

Skills Development 15

Preferential Procurement 20

Enterprise Development 15

Socio-Economic Development 5

Total 100

By the beginning of 2004 when the BEE Act was promulgated, numerous sectors of the economy had already drafted industry charters on BEE and transformation. Whilst some contained scorecards loosely based on the broad-based scorecard contained in the Strategy, others were merely written undertakings of commitment to transformation. In addition, several of these charters were drafted prior to the release of the Strategy and stakeholders therefore had little point of reference in terms of broad-based elements and weightings. Furthermore, it became evident that other pertinent issues surrounding the measurement of BEE needed to be addressed to accelerate the transformation process. The Codes of Good Practice provided some solutions to these historical BEE implementation obstacles (see table 3).


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Table 2 – Codes of Good Practice and relevant Statements

Code Statement Statement 000 The General Principles and the Generic Scorecard Statement 003 Guidelines for the Development and Gazetting of Transformation Charters and Sector Codes

Code 000

Framework for the Measurement of BBBEE (carries general principles and Generic Scorecard)

Statement 004 Guidelines for Special Entities Statement 100 The General Principles for Measuring Ownership Statement 102 The Recognition in the Sale Assets

Code 100

Measurement of the Ownership Element of BBBEE (measures the effective ownership of enterprises by black people)

Statement 103 The Recognition of Equity Equivalents for Multinationals

Code 200

Measurement of the Management Control Element of BBBEE (measures effective control of enterprises by black people)

Statement 200 The General Principles for Measuring Management Control

Code 300

Measurement of the Employment Equity Element of BBBEE (measures initiatives intended to achieve equality in the workplace)

Statement 300 The General Principles for Measuring Employment Equity

Code 400

Measurement of the Skills Development Element of BBBEE (measures the extent to which to which employers carry out initiatives designed to develop the competencies of black people)

Statement 400 The General Principles for Measuring Skills Development

Code 500

Measurement of the Preferential Procurement Element of BBBEE (measures the extent to which enterprises buy goods and services from BEE-compliant suppliers)

Statement 500 The General Principles for Measuring Preferential Procurement

Code 600

Measurement of the Enterprise Development Element of BBBEE (measures the extent to which enterprises carry out initiatives aimed at contributing to enterprise development )

Statement 600 The General Principles for Measuring Enterprise Development

Code 700

Measurement of the Socio-Economic Development Element of BBBEE (measures the extent to which enterprises carry out initiatives aimed at contributing to socio-economic development and promoting access to the economy for black people)

Statement 700 The General Principles for Measuring Socio-Economic Development (SED)

Code 800

Qualifying Small Enterprises (QSEs)

Statement 800 to 807 General Principles for QSEs in all the Elements of the Scorecard

Code 900

Public Private Partnership Code

To be Gazetted as a Code once Aligned with the Generic Codes

Source: Department of Trade and Industry (the d t i )


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Table 3 – Summary of obstacles, implications and solutions presented by the Codes of Good Practice and relevant Statements

Historical BEE implementation obstacles

Implications Solution presented by the Codes of Good Practice

Lack of uniform framework for the recognition and measurement of BEE.

Created confusion as the same BEE initiatives or transactions may have received different BEE recognition by different organs of state, business entities and verification agencies.

Standardisation of BEE recognition and measurement principles to provide clarity.

Extensive delays in BEE implementation due to differences in interpretation.

Sectors were often locked in contentious debates around certain aspects of BEE, thereby delaying the implementation of broad-based BEE initiatives.

Standardisation of BEE recognition and measurement principles to provide clarity.

Disparity in definitions and targets in charters and other BEE requirements.

Different charters introduced definitions, targets and processes which may have diluted or negated the impact of the Strategy and circumvented the principles of the BEE Act.

Specification of the requirements for the development and recognition of industry charters (reducing disparity in principles and definitions as a result of industry charters).

Status of transformation charters was unclear.

Confusion and delays in BEE implementation resulted since companies were uncertain as to the status and application of charters.

Specification of the requirements for the development and recognition of industry charters.

Lack of underlying economic substance to many BEE transactions.

Many BEE transactions boasted high percentage levels of legal black ownership, but often the actual economic benefits accruing to black shareholders proved to be significantly lower.

Provision of a balanced ownership scorecard which measures voting rights and net economic interest in the hands of black people.

Fronting due to lack of implementation guidelines.

Lack of understanding of BEE and its elements often resulted in fronting and meant that fronting was more difficult to detect.

Provision of definitions, principles and processes to implement proper BBBEE initiatives.

Very little transformation within management levels.

Despite various attempts at transformation within entities there is still a lack of sufficient representation of black people within management levels.

The codes encourage focus on black representation at junior, middle, senior and top management levels within organisations.

Uncertainty as to what type of skills development initiatives could be counted towards skills development spend.

Skills spend may not necessarily have been aligned to a particular learning outcome.

Alignment of skills development spend on black employees to the learning programme matrix as issued under the Skills Development Act to ensure clear and quantifiable outcomes.

Narrow-based recognition tended to benefit a limited number of black people with access to capital.

Only a limited number of black people have tended to benefit from BEE to date.

The Codes promote BBBEE by encouraging that procurement opportunities be made available to BBBEE compliant suppliers, black-owned and black women-owned entities, and small and micro enterprises.

Lack of awareness of enterprise development in and of itself, as well as a lack of awareness of what constitutes enterprise development.

Unlike corporate social investment, enterprise development is a fairly new concept and fairly specific to BBBEE. For this reason, the lack of documentation with examples of what constitutes enterprise development has made enterprise development one of the least implemented elements on the scorecard

Code 600 outlines the principle of enterprise development and supplies numerous examples of what kinds of initiatives constitute enterprise development.


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Historical BEE implementation obstacles Implications Solution presented by the Codes of Good

Practice

Corporate social investment initiatives were not necessarily linked to the objective of bringing their beneficiaries into the mainstream economy.

The black majority remain largely outside of the mainstream economy

Code 700, whilst acknowledging that certain social objectives may not necessarily facilitate access to the mainstream economy, nevertheless encourages the implementation of initiatives which are socio-economic in nature and which are linked to the concept of assisting black people to be better equipped to access the mainstream economy.

BEE was seen as an obstacle to small business development due to an increase in the regulatory burden.

Small businesses tended to ignore BEE or resort to fronting techniques to maintain clients for business purposes

Exemption of all entities with an annual turnover of less than R 5-million. The inclusion of comprehensive statements for the measurement of BBBEE amongst Qualifying Small Enterprises (QSEs), based on a flexible approach where QSEs are only measured against 4 of the 7 elements of their choice.

Code and Statement 500: Preferential Procurement

the dti states the following as its incentive for this part of the scorecard:

Preferential Procurement is used to drive transformation throughout the economy by encouraging procurement only from suppliers that are compliant with the B-BBEE scorecard:

There is a market tendency to interpret B-BBEE compliance as only having ownership by black people without looking at the level of compliance with other B-BBEE requirements. This has resulted in a number of sham transactions/‘fronting’ activities being entered into in a scramble to meet this compliance requirement.

Enterprises are encouraged to procure from those entities that have a good B-BBEE contribution level based on their performance on the scorecard. A supplier that has a very good B-BBEE contribution level is likely to be chosen as a preferred supplier as compared to his peers as they will give the enterprise they are providing goods and services to a good scoring on their own scorecard as well.

Incentive to procure from Qualifying Small Enterprises and Exempted Micro Enterprises:

Statement 500 has a specific indicator for the recognition of BEE procurement spend from Qualifying Small Enterprises (QSEs) and Exempted Micro Enterprises (EMEs) by allocating specific scorecard points to procurement from these entities exclusively.

The Preferential Procurement scorecard offers BBBEE procurement recognition from three categories of BBBEE compliant suppliers, as summarised in table 4.


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Table 4 – Categories of BBBEE complaint suppliers in Preferential Procurement scorecard

BEE compliant suppliers which will enjoy preferential procurement recognition

Beneficiary category Description of beneficiary

(A)

BEE compliant suppliers


Includes all BEE compliant companies: • Of any size; • With 30% or more on the Generic or QSE

scorecards; and/or EMEs.

(B)

QSE and EME suppliers


Includes: • QSEs – proportional representation based on their

score on the QSE scorecard to be applied; • EMEs – proportional representation based on their

deemed Level 4 status and Level 3 status if they are 50% black-owned or 50% black women-owned.

(C)

50% black-owned companies and 30% black women-owned companies

Based purely on ownership status

Includes BEE compliant companies: • Large entities; • QSEs; and • EMEs that are 50% black-owned or 30% black

women-owned. Source: the d t i

Purchasing goods and services from each of these three categories of supplier will influence the preferential procurement component of a company’s BBBEE rating as follows:

Total maximum from preferential procurement 20 points

Of which: All BEE compliant suppliers 12 points QSE and EME suppliers 3 points 50% black-owned 3 points 30% black women-owned 2 points

These categories are not mutually exclusive. For example, a company can claim points under the first category, but scores additional points if one of the suppliers is also a QSE and/or a 50% black-owned company.

The calculation of each of these components is fairly complex, allowing companies to claim more points for more compliant suppliers, and also rewarding value-adding companies and enterprise development. These are summarised in table 5.


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Table 5 – Preferential Procurement scorecard: calculation of components by enhancement factor

Enhancement factor Quantum

Qualifying BBBEE ‘value-adding’ supplier that beneficiates raw materials or tend to manufacture and/or produce locally

Spend to this supplier is weighted at 1.25 x actual spend when calculating preferential procurement

Qualifying BBBEE spend where the supplier is also an enterprise development beneficiary

Spend to this supplier is weighted at 1.25 x actual spend when calculating preferential procurement

Minimum 50% black-owned suppliers of professional and consulting services

Factor of 1.25 is applied

It should be noted that this enhancement factor can only be applied when the supplier is a qualifying BBBEE supplier. Therefore, procurement from a value-adding company that is not BBBEE compliant will not be adjusted by the enhancement factor.

In order to calculate a company’s actual preferential procurement spend, the following process is followed:

1. Calculate the Total Measured Procurement Spend (TMPS);

2. Determine the BBBEE Procurement Recognition Level of each supplier;

3. Identify QSE and EME suppliers from this list;

4. Identify 50% black-owned and 30% black women-owned suppliers from this list; and

5. Identify companies that are adding value to imported products and/or manufacturing locally.

Companies obviously have an interest in having a TMPS that is as low as possible, since that will increase the apparent percentage of spend allocated to preferential suppliers. Therefore, the dti has set out detailed guidelines for calculating TMPS (see table 6).


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Table 6 – the dti’s guidelines for calculating TMPS

Total Measured Procurement Spend (TMPS)

Spend item (included in TMPS save for any exceptions outlined in the adjacent column)

Exceptions (may be permissibly excluded from TMPS)

1. Cost of sales No exceptions

2. Operational expenditure No exceptions

3. Capital expenditure No exceptions

4.

Public sector procurement – from Schedule 2 (e.g. Eskom) & 3 (e.g. State Iinformation Technology Agency, or SITA) listed organs of state and public entities as per the PFMA

Procurement from Schedule 1 organs of state and public entities is excluded from Total Measured Procurement Spend, unless the procurement is from a local government entity acting as a reseller

5. Monopolistic procurement No exceptions

6. Third-party procurement (not pass-through, third-party procurement)

Pass through third-party procurement where the measured entity may be acting as an agent in normal business practices. In other words, procurement spend which may pass through an agent (the measured entity) but which is not recorded as an expense in the entity’s financial statements but is recorded in the third party’s financial statements. For example, a travel agent buying on behalf of a third party

7. Labour brokers and independent contractors No exceptions

8. Pension and medical aid contributions Exclude capital investment portion only

9. Trade commissions No exceptions

10. Empowerment-related expenditure

The following empowerment-related expenditure is excluded from TMPS: • Investments in or loans to an associated enterprise (as

defined in Statement 102); and • Investments, loans or donations which qualify for

enterprise development and socio-economic development recognition under Codes 600 and 700

11. Imports Several exceptions – see below

12. Intra-group procurement Exceptions as per the guideline on Complex Structures and Transactions

Source: the d t i


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EXCLUSIONS FROM TMPS

Permissible exclusions from TMPS are strictly defined in Statement 500. They are:

Taxation.

Public sector procurement (schedule 1 entities as per the Public Finance Management Act No. 1 of 1999 [PFMA]).

Salaries, wages and emoluments.

Pass-through third-party procurement (where no entries relating to this procurement appear in the books of the measured entity).

Empowerment-related procurement associated with investments, loans or donations to associated enterprises or enterprise development beneficiaries.

Imported capital goods or components for value-added production in South Africa, provided that:

• there is no existing local production of such goods or components; and

• importing such capital goods or components promotes further value-added production within South Africa.

Imported goods and services if there is no local production of such goods or services including instances where:

• the imported goods or services carry a brand different to the locally produced goods or services; or

• where the imported goods or services have different technical specifications to those produced locally.

The BBBEE Procurement Recognition Level of each supplier is determined by how well they have scored on the Generic Scorecard described above (see table 7). EMEs obtain an automatic, deemed Level 4 Contributor Status (100% BEE procurement recognition).

The practical/likely implications of how preferential procurement spend is calculated is discussed in more detail below.


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Table 7 – BBBEE Procurement Recognition Level of suppliers

Source: the d t i

Code and Statement 600: Enterprise Development

According to the dti, the motivation for including enterprise development in the BBBEE codes was as follows:

The Enterprise Development Element of the Generic Scorecard aims to address certain key challenges facing QSEs, EMEs and more specifically black-owned entities that struggle to take their businesses from survivalist and/or micro level to a level of sustainability and profitability. The challenges which Code 600 therefore seeks to address include:

1. High failure rate amongst black-owned start-ups due to lack of access to financing and other business support.

Many black entrepreneurs struggle to take their businesses from a survivalist or micro-level to the next phase, owing to one or more of the following: lack of access to capital, lack of collateral, and lack of education, training and experience. Statement 600 therefore attempts to address these challenges by providing recognition for, inter alia:

Investments, loans, grants, guarantees and provision of seed capital;

Access to credit, interest-free loans and relaxed security requirements; and

Time spent on training and mentoring of black entrepreneurs/start-ups.

2. Job-creation cannot be attained without the growth of the small business sector.

Most analysts agree that growth with respect to job creation will predominantly come from the small business sector. This will only be made possible if small businesses are assisted to grow, develop and graduate from micro and survivalist entities to become sustainable, job-creating enterprises. By providing recognition for various types of

BEE status Qualification BEE procurement

recognition level (%)

Level One Contributor ≥100 points on the Generic/QSE Scorecard 135

Level Two Contributor ≥85 but <100 points on the Generic/QSE Scorecard 125

Level Three Contributor ≥75 but <85 on the Generic/QSE Scorecard 110

Level Four Contributor ≥65 but <75 on the Generic/QSE Scorecard 100

Level Five Contributor ≥55 but <65 on the Generic/QSE Scorecard 80

Level Six Contributor ≥45 but <55 on the Generic/QSE Scorecard 60

Level Seven Contributor ≥40 but <45 on the Generic/QSE Scorecard 50

Level Eight Contributor ≥30 but <40 on the Generic/QSE Scorecard 10

Non-compliant Contributor <30 on the Generic/QSE Scorecard 0


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assistance to small, medium- and micro-sized enterprises with the objective of expanding their operational and financial capacity, Statement 600 seeks to ensure that such assistance is incentivised.

Table 8 – Enterprise Development Scorecard

Criteria Weighting points Compliance target

Average annual value of all Enterprise Development Contributions and Sector Specific Programmes by the measured entity as a percentage of target

15 3% of net profit after tax (NPAT)

The weighting of different types of Qualifying Enterprise Development Contributions is effectively increased or decreased by means of the Benefit Factor Matrix. This Matrix encourages spend in certain areas by awarding full recognition (100%) in such areas, whilst still allowing significant recognition (80%) in other areas.

Table 9 – Beneficiaries of Enterprise Development defined

Beneficiary Description of beneficiary

Enterprise Development – Category A (QSEs & EMEs)

• QSEs and EMEs which are 50% black-owned or 50% black women-owned.

Enterprise Development – Category B (Any size of entity)

Any size entities which are:

• 50% black-owned or 50% black women-owned;

• 25% black-owned or 25% black women-owned which also have a BEE Status Level of one to six.

Sector-Specific Programmes – • The beneficiaries of sector-specific programmes

must meet the definitions of enterprise development beneficiaries.

Source: the d t i


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Table 10 – Qualifying Enterprise Development contributions

Type General nature and objective Examples

Category A beneficiaries (QSEs or EMEs that are 50% black-owned or 50% black women-owned)

Category B beneficiaries Any size companies that are:

• 50% black-owned or 50% black women-owned;

• 25% black-owned or 25% black women-owned which also have a BEE Status Level of one to six

Enterprise development initiatives:

• Should typically aim to assist and accelerate the development, sustainability and ultimate financial and operational independence of the beneficiaries they assist.

• This is usually achieved by helping beneficiaries to expand their operational and financial capacity.

• Grants; • Investments in beneficiary entities; • Loans; • Guarantees/security; • ‘Seed’ capital; • Access to finance through provision

of collateral/relaxed security; requirements;

• Early payments for goods supplied; • Extended credit terms for

procurement amounts owed by beneficiary entity;

• Infrastructure support to suppliers and other entities in the same area or community;

• Beneficiation; • Labour-intensive production and

construction methods; and • Investment and support to

enterprises operating in rural communities.

Sector Specific These are to be included in Sector Codes or as sector-specific initiatives and not as part of the Generic Codes. Code 600 includes this category to give individual sectors the flexibility to define their own sector-specific contributions.

Can be determined by:

• Each sector through the process of sector codes;

• Each sector through other processes, i.e. those areas identified as requiring to be specifically addressed through enterprise development initiatives in sectors that do not have charters/sector codes.

Source: the d t i


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KEY MEASUREMENT PRINCIPLES

1. Cumulative recognition to allow for fluctuations in spend based on the financial needs of different projects in different years.

All enterprise development contributions are measured cumulatively from the earlier of the commencement of the Codes or a maximum of five years prior to the commencement of the codes until the date of measurement. This cumulative period will be limited to five years at a time; in other words, the sum of contributions is averaged over the number of years (limited to a maximum of five years). The figures to be used will be either of the following:

The annual average value of the amount of money spent by the measured entity and the average NPAT over that cumulative period; or

The value of the actual amount of money spent by the measured entity in the preceding financial year and the actual NPAT in the preceding financial period.

In the case where the measured entity has not recorded any NPAT, either in the preceding financial period or at any time during the five-year cumulative period, or the net profit margin is less than a quarter of the norm in the industry, then turnover should be used as a base for determining their target. The following formula should be utilised:

3% x Indicative Profit Margin x Turnover (the Indicative Profit Margin is the profit margin in the last year in which the company’s profit margin was at least one quarter of the industry norm).

2. Inception date allows for recognition of prior spend if an entity so wishes.

Certain companies may wish to choose an inception date which is not the date of commencement of the Codes, but an earlier date. This is to allow recognition for companies that were early starters and contributed to enterprise development initiatives before the commencement of the Codes. However, companies must be able to produce evidence of contributions prior to the gazetting of the Codes if they wish to claim this spend, as they would for recognition claims following the gazetting of the Codes.

3. Encouraging particular types of enterprise development spend.

the dti has determined that not all expenditure on enterprise development has the same impact. Therefore it has developed a ‘Benefit Factor Matrix’ to incentivise spend in certain areas, whilst still allowing significant recognition in the other areas of enterprise development. This means that different types of expenditure are weighted by 100%, by less than 100% and/or by more than 100% when calculating the value of that expenditure for the purposes of ascertaining the enterprise development portion of the BBBEE score. This Benefit Factor Matrix is shown in table 11.


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Table 11 – Benefit Factor Matrix

Qualifying contribution type Contribution amount Benefit factor (%)

Grant and related contributions

Grant contribution Full grant amount 100 Direct cost incurred in supporting enterprise development

Verifiable cost (including both monetary and non-monetary)

100

Discounts in addition to normal business practices Discount amount (in addition to normal business discount)

100

Overhead costs incurred in supporting enterprise development (including people appointed in enterprise development)

Verifiable costs (including both monetary and non-monetary)

80

Loans and related contributions

Interest-free loan with no security requirements Outstanding loan amount 100 Standard loan to black-owned EMEs and QSEs Outstanding loan amount 70 Standard loan provided to other beneficiary enterprises

Outstanding loan amount 60

Guarantees provided on behalf of a beneficiary entity

Guarantee amount 3

Lower interest rate Outstanding loan amount = (prime rate less actual rate) Equity investments and related contributions

Minority investment in black-owned EMEs and QSEs

Investment amount 100

Minority investment in other beneficiary enterprises Investment amount 80

Enterprise development investment with lower dividend to financier

Investment amount Dividend rate of ordinary shareholders - actual dividend rate of contributor

Contributions made in the form of human resource capacity

Professional services rendered at no cost Commercial hourly rate of professional 80

Professional services rendered at a discount Value of discount based on commercial hourly rate of professional

80

Time of employees of measured entity productively deployed in assisting beneficiaries

Total annual cost to company of the employee divided by 160

80

Other contributions

Shorter payment periods Percentage of invoiced amount Percentage, being 15 days less the number of days from invoice date to payment date

Source: the d t i

The result of using this benefit matrix is that companies which are engaging in enterprise development are able to fully capture all the inputs that they are making, whether direct financial support, indirect financial support or assistance in kind. Since ‘in-kind’ contributions (such as mentoring) are often key factors in creating sustainable enterprises, it is important that they are included. This may also act as an incentive to companies to increase their enterprise development score by encouraging the use of this kind of support.


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Code and Statement 700: Socio-economic development

The contents of Code 700 are important for the purpose of our investigation, since it requires that companies consider corporate social investment (CSI) projects, which encourage economic participation, rather than simple ‘charity’ projects, which have generally been the more popular, since they tend to be easier to conceive and implement. The result is that, in terms of the Generic Scorecard, companies can only claim CSI spend that is linked to economic participation. We would expect the result of this to be a significant increase in the number of companies actively seeking CSI projects that focus on increased economic participation.

Code 700’s goal is to encourage initiatives that enhance the ability of black people who remain non-participants in the economic mainstream to be included in economic participation in a sustainable manner. Statement 700 adheres to the principle that socio-economic development initiatives should strive to facilitate access to the mainstream economy for black people. It does so by encouraging socio-economic development contributions that are linked to improving the financial circumstances of beneficiaries. Examples of such initiatives would be:

Provision of development capital for communities;

Training or mentoring to beneficiary communities which will assist them to increase financial capacity; and

Offering preferential terms to beneficiary communities when purchasing their goods/services (for example, early payment).

Table 12 – The Socio-economic Development Scorecard

Criteria Weighting points Compliance target Annual average value of all socio-economic development contributions by the measured entity as a percentage of the target

5 1% of NPAT

Source: the d t i

The Socio-economic Development Scorecard contains an indicator that measures socio-economic development contributions to defined beneficiaries, as well as contributions to certain ‘Approved Projects’, such as projects in rural or underdeveloped urban areas, earmarked by government for development, and any sector-specific contributions which have been approved through gazetting of a particular industry’s Sector Code.


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Table 13 – Definition of beneficiaries of socio-economic development

Beneficiary Description of beneficiary

Socio-economic development –

Social development beneficiaries are either black individuals or, as is more commonly the case, communities or groups of people. In the latter case the percentage of black people within the beneficiary group affects the amount of spend recognition in terms of the Codes: • Where 75% of the beneficiary group is black, the full

value of contributions is recognisable. • Where less than 75% of the beneficiary group is black,

then value of the contribution is multiplied by the percentage benefiting black people.

Approved socio-economic development programmes –

The beneficiaries of Approved Socio-Economic Development programmes must meet the definition of socio-economic development beneficiaries.

‘Qualifying Contributions’ is a collective term for socio-economic development contributions and approved socio-economic development programme contributions. However, such contributions must be made to the defined beneficiaries of socio-economic development initiatives and must be directly aligned to the socio-economic development principle of resulting in sustainable economic participation with the clear goal of discouraging perpetual dependence on hand-outs.

Table 14 – Qualifying contributions

Type General nature & objective Examples

Socio-development –

Socio-economic development contributions should typically strive to promote access to the economy for beneficiaries

• Development programmes (especially for Black Designated Groups as defined in Code 100)

• HIV/ AIDS & healthcare support • Support to schools and educational assistance

through bursaries • Skills development for the unemployed; ABET

programme support • Support for arts and culture • Guarantees/ security for beneficiaries • Development capital for beneficiary communities • Training/ mentoring of communities to assist them

to increase their financial capacity • Investment in the social wage of employees (e.g.

housing, transport and healthcare)

Approved socio-economic development programmes –

Contributions to projects which have been approved by organs of state as well as those that are sector-specific, as agreed to by sector representatives through their Sector Codes.

Approved Project contributions include: • Infrastructure development; • Reconstruction in underdeveloped areas; • Rural communities; and • Geographical areas identified in the government’s

Integrated Sustainable Rural Development and Urban Renewal Projects.

Source: the d t i


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As is the case with Code and Statement 600, Code 700 is associated with a ‘Benefit Matrix’, which assigns a different weighting to different types of contribution, and allows companies to claim non-financial contribution. The Benefit Matrix for Code 700 contributions is indicated in table 14.

Table 15 – Code 700 Benefit Factor Matrix

Qualifying contribution type Contribution amount Benefit factor (%)

Grant and related contributions

Grant contribution Full grant amount 100 Direct cost incurred in supporting socio-economic development, or approved socio-economic development contributions

Verifiable cost (including both monetary and non-monetary)

100

Discounts in addition to normal business practices supporting socio-economic development, or approved socio-economic development contributions

Discount amount (in addition to normal business discount)

100

Overhead costs incurred in supporting socio-economic development, or approved socio-economic development contributions

Verifiable costs (including both monetary and non-monetary)

80

Contributions made in the form of human resource capacity

Professional services rendered at no cost supporting socio-economic development, or approved socio-economic development contributions

Commercial hourly rate of professional

80

Professional services rendered at a discount supporting socio-economic development, or approved socio-economic development contributions

Value of discount based on commercial hourly rate of professional

80

Time of employees of measured entity productively deployed in assisting beneficiaries and supporting socio-economic development, or approved socio-economic development contributions

Monthly salary divided by 160 80

Source: the d t i

2.2 The rise of the ratings agencies

The majority of companies in South Africa does not believe that preferential procurement or enterprise development (with a few notable exceptions for the latter) contribute to company profitability and/or lower costs. The main incentive for engaging in these activities is almost always the desire to appear ‘compliant’, usually to prospective clients in both the private and public sector. This is unlikely to change any


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time soon. Until the release of the detailed government BBBEE scorecards, companies had some latitude in presenting their level of compliance. Anecdotal evidence suggests that companies would highlight those areas in which they were able to do well (such as the workforce profile) and gloss over those areas where it was more difficult. For example, preferential procurement would tend to be easier for certain companies (such as those who purchase a large amount of fairly standardised goods and/or basic services), but much more difficult for those with complex supply chains, such as fresh food retailers. This is no longer possible, since the scorecard means that all aspects of BBBEE must be taken into account by all companies.

The second important impact is a result of the sheer complexity of the scorecards. Previously, most companies could ‘ramble’ their way through the reporting of their BEE initiatives in their annual reports, focusing attention on attractive stories. However, the introduction of a uniform scorecard for everyone has greatly increased the value of the scorecard rating result, which is a very objective measure.

The third important impact is the way in which the areas of preferential procurement, enterprise development and socio-economic development have been weighted. Enterprise development makes up a full 15% of the total score, but only a few companies are active in enterprise development in any meaningful way. Reaching the target of 3% of NPAT is going to prove a considerable challenge for many companies. For example, Pick ’n Pay would have to spend around R25-million each year on enterprise development to reach this target. Therefore we would expect that those companies that have limited ability to change factors such as ownership would be taking a very good look at efforts in enterprise development to try and improve their scores. (Given that most companies do not have the capacity to implement and run meaningful enterprise development initiatives, this may create some interesting opportunities in this space.)

The increased focus on economic participation initiatives in what is essentially CSI can be expected to have the same impact.

The leading rating agency in South Africa is Empowerdex, and it is worth taking a look at its Generic Scorecard ratings for the top 200 empowerment countries in South Africa. The Empowerdex rating scorecard mirrors that of the dti, as can be seen from its format in table 16.


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Table 16 – Empowerdex Generic Scorecard*

Element Category Indicator Weighting points

Interim target

Compliance target

Exercisable voting rights in the enterprise in the hands of black people 3 25%+1 vote Voting rights

Exercisable voting rights in the enterprise in the hands of black women 2 10%

Economic interest of black people in the enterprise 4 25% Economic interest of black women in the enterprise 2 10%

Economic interest

Economic interest of the following black natural people in the enterprise: • Black designated groups; • Black participants in Employee Ownership

Schemes; • Black beneficiaries of Broad-Based Ownership

Schemes; or • Black participants in co-operatives

1 2.5%

Ownership fulfilment 1 No restrictions

Realisation points

Net value 7 25% Involvement in the ownership of the enterprise of black new entrants 2 10%

Ownership: Measures effective ownership of companies by black people. Code 100 Total Points = 20.

Bonus points

Involvement in the ownership of the enterprise of black participants: • in Employee Ownership Schemes; • of Broad-Based Ownership Schemes; • Co-operatives

1 10%

Exercisable voting rights of black board members using the Adjusted Recognition for Gender 3 50% Board

participation Black executive directors using the Adjusted Recognition for Gender 2 50%

Black senior top management using the Adjusted Recognition for Gender 3 40% Top

management Black other top management using the Adjusted Recognition for Gender 2 40%

Management Control: Measures effective control of companies by black people Code 200 Total Points = 10.

Bonus point Black independent non-executive board members 1 40%

Black disabled employees as a percentage of all employees using the Adjusted Recognition for Gender

2 2% 3%

Black employees in senior management as a percentage of all such employees using the Adjusted Recognition for Gender

5 43% 60%

Black employees in middle management as a percentage of all such employees using the Adjusted Recognition for Gender

4 63% 75%

Black employees in junior management as a percentage of all such employees using the Adjusted Recognition for Gender

4 68% 80%

Employment Equity: Measures initiatives intended to achieve equity in the workplace Code 300 Total Points = 15.

Bonus points Bonus points for meeting and exceeding EAP targets in each of the above categories

3

Element Category Indicator Weighting Interim Compliance


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points target target Skills development expenditure on learning programmes specified in the Learning Programme Matrix for black employees as a percentage of leviable amount using the Adjusted Recognition for Gender

6 3% Skills development spend on learning programmes

Skills development expenditure on learning programmes specified in the Learning Programme Matrix for black employees with disabilities as a percentage of leviable amount using the Adjusted Recognition for Gender

3 0.3%

Skills Development: Measures the extent to which employers develop the competencies of black employees Code 400 Total Points = 15.

Learnerships Number of black employees participating in learnerships or Category B, C and D programmes as a percentage of total employees using the Adjusted Recognition for Gender

6 5%

BEE procurement spend from all suppliers based on the BBBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend

12 50% 70%

BEE procurement spend from qualifying small enterprises or from EMEs based on the applicable BBBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend

3 10% 15%

Preferential Procurement: Measures the extent to which companies buy goods and services from BEE compliant suppliers as well as black-owned entities Code 500 Total Points = 20.

B-BBEE procurement spend from any of the following suppliers as a percentage of Total Measured Procurement Spend: • Suppliers that are 50% black-owned (3 of %

points); or • Suppliers that are 30% black women-owned (2

out of 5 points)

5 15% 20%

Enterprise Development: Measures the extent to which companies carry out initiatives contributing to enterprise development Code 600 Total Points = 15.

Average annual value of all enterprise development contributions and sector-specific programmes made by the measured entity as a percentage of the target

15 3% of NPAT

Socio-Economic Development: Code 700 Total Points = 5.

Average annual value of all socio-economic development contributions made by the measured entity as a percentage of the target

5 1% of NPAT

Source: Empowerdex * Copyright: Empowerdex


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The 2007 TEC Empowerdex survey is attached as Annexure A. It should be noted that this survey only includes listed companies, and does not include parastatal organisations such as Eskom.

The most important fact that stands out is that 120 of the 200 companies surveyed have a score of less than 30, and can therefore be considered ‘non-compliant’. Admittedly, it appears that many of the data sets are missing, indicating that they were not submitted to Empowerdex. However, this in turn suggests that companies either do not bother to keep these records and/or that they are not too interested in their ‘official’ empowerment rating. Neither scenario is particularly encouraging. After more than 10 years of efforts to encourage transformation, this result can best be described as ‘disappointing’.

The following are the key observations that are particularly important for the purpose of this study.

7. The very poor showing of preferential procurement

An initial assessment would conclude that the introduction of a more broad-based empowerment scorecard would have a positive impact on preferential procurement. However, the results of the survey do not support this assumption.

Of the 200 companies included in this survey, only 34 had a preferential procurement score of more than 50% (that is, 10 or more out of a possible total of 20.) 59 of the top 100 scored more than 10 for ownership, but only 32 of these scored 10 or more for preferential procurement. Given that preferential procurement is a key issue in creating sustainable income and employment opportunities and in driving equity, we can expect that government will pay closer attention to how this is progressing. The findings of the 2008 survey (due out later this year) will provide more information on how companies are doing with respect to their preferential procurement targets.

The company with the highest preferential procurement score was Barnard Jacobs, with a score of 15.00. It must be noted that this is a relatively small company, and that they would probably have professional services as a key procurement item. Given the benefit factor that is applied to this kind of procurement, it is probably easier to meet procurement targets in this environment than in others.

A full 158 of the companies received an overall rating of less than 55, making them level 6 contributors. The result is that purchases from these companies will only contribute 60% of every R1 spent towards the preferential procurement target. This could be one reason why the preferential procurement scores are so low: Companies are buying from big companies that have low scores, and this in turn pulls their own scores down. For example, SAB Miller would supply a large number of retailers through its ABI subsidiary, but SAB Miller’s score is only 45, which means that only 60% of that expenditure counts.

The only way for companies to break out of this preferential procurement ‘co-dependence’ cycle will be to make a genuine effort to deal with smaller black-owned businesses.


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(As an aside: It is very interesting to note how very low the skills development scores are. Looking at the generic scorecard, it may be that companies are not initiating learnerships. Whatever the reason, the poor showing in this area seems to undermine the private sector’s claims that the lack of skills is a key constraint to growth, since they do not seem to be motivated to activity in this area.)

8. A poor preferential procurement score seems to be one of the key issues in getting a higher overall score

Most companies aim to be at least a Level 4 contributor, at which point one counts as a 100% value partner in the preferential procurement pyramid (see table 7). In order to be a Level 4 contributor, one requires a total score of more than 65 points, but less than or equal to 75 points. Only the top 10 companies in this survey fitted into that category. Another 16 companies had scores of 55 or higher, but less than 65. Most of the companies in the top 11 to 40 places could make a significant improvement in their scores through better skills development programme and improved preferential procurement levels.

This suggests that companies may be more open to innovative ideas around how to increase their preferential procurement score.

9. Scores for enterprise development are much higher than expected

A surprising number of companies scored full marks for enterprise development, and many scored very high in this category. This is surprising, since at first glance it would not appear that there is that much enterprise development occurring. This may suggest that there is some dubious accounting around the calculation of the enterprise development component – on the face of it, it is difficult to see how some of the listed companies could score full marks for enterprise development. It may also suggest that the enterprise development compliance targets have been set too low, and that increasing these targets should be considered.

What is particularly interesting is that there does not seem to be a clear correlation between the enterprise development score and the preferential procurement score, as one would expect. For example, Spar scored a dismal 1.84 out of 20 for preferential procurement, but scored full marks of 15.00 for enterprise development. The respective scores of Lewis Group are 7.47 and 15.00. Pick ’n Pay scores 5.77 out of 15 for enterprise development, but only 0.05 for preferential procurement.

One possible explanation for the high enterprise development scores in some of the retail stores such as Spar may be the role of franchisees, since support of the latter could be included in the enterprise development amounts.


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10. An unintended bias against small companies

Procurement from companies that have an annual turnover of less than R35-million (QSEs), which arguably is the most important part of preferential procurement, only receives a maximum additional points allocation of 3. The unintended result is that there is little real incentive for all but the most civic-minded of companies to make a real effort to procure from small PDI enterprises. Given that it is often more difficult and time-consuming to identify and establish a successful and sustainable relationship with such an enterprise, and the total procurement allocated to that company would be such a small share of total procurement, the fact that there is no BBBEE rating ‘reward’ for doing so is an issue. Allocating a higher score to doing business with small companies that have a minimum 50% black shareholding would provide a better incentive. One idea would be to have a sliding scale solution, where there is a higher reward for dealing with small black companies, but that this declines over time, recognising that these companies have been mainstreamed.

11. The sector in which the company operates may affect its ability to increase preferential procurement

We have already discussed how a company that has professional services as a key procurement item (for example, companies that are in financial services) may face a relatively easier task since there is a sizeable pool of suppliers to choose from, fees tend to be high and there is a benefit factor that can be applied to increase the value of that procurement.

Companies that procure largely goods and not services face a very different sort of challenge in increasing preferential procurement. If one is a large retailer, one would generally require large numbers of items that can be provided to stores around the country. This tends to preclude smaller PDI companies, which must be a key beneficiary group for preferential procurement to achieve the intended impact. The author does not believe it is coincidence that retailers have some of the lowest preferential procurement ratings on the list: Edcon (6.93 out of 20), Lewis Group (7.47 out of 20), Massmart (4.8 out of 20), Woolworths (2.64 out of 20), Spar (1.82 out of 20) and Pick n Pay (0.05 out of 20).

For example, a retailer like Pick ’n Pay probably has to purchase a considerable amount from a company like Tiger Brands. However, the latter has such a low BBBEE rating (less than 40 – a level 8 contributor) that only 10% of expenditure on its goods will count towards the preferential procurement score.

12. The customer profile of the company may affect its desire to increase its BBBEE rating

The argument is sometimes put forward that the real incentive to improve a BBBEE rating is the perceptions of existing and potential customers. This works to some extent in the existing rating structure, where companies would prefer to buy goods and services from companies that have a higher rating in order to push up their own rating. The public sector is also an important customer for many companies, and is is probably the most demanding of all clients.


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However, there is an interesting argument to be made that when the customers are the general members of the public, there is much less pressure to have a good BBBEE score (this issue is discussed in more detail below, in the Woolworths assessment).


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3 Case study 1: Woolworths Limited

3.1 Company profile and financial overview

A household name throughout southern Africa, Woolworths sells a wide range of products including food, clothing, beauty, homeware and more under its own label in some 300 stores nationwide, as well as through franchise partners in Africa and the Middle East. Its corporate structure is summarised in figure 1.

Figure 1 – Woolworths Limited corporate structure

Source: Woolworths Holdings Limited

For the remainder of this report, we have focused on the operations of the South African subsidiary Woolworths (Pty) Ltd only.


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Table 17 – Woolworths turnover and profit figures, 2006 and 2007

Item 2007 (R-million) 2006 (R-million)

Turnover 17,379 14,208

Net profit after tax 1,087 837.4

The split between food and non-food retail sales for the 2007 financial year was 54:48, indicating food sales of around R9-billion.

3.2 History of preferential procurement

In terms of the wider BBBEE issues, as is the case with many high-profile listed companies, Woolworths has steadily increased the public profile of its various BBBEE initiatives, established a number of public-spirited foundations and similar organisations, and even publishes a separate sustainability report. Its progress in the area of BBBEE in general and preferential procurement in particular can be ascertained from it various publications and statements.

In listing its goals for BBBEE, Woolworths has clearly included preferential procurement and the associated enterprise development. Its BBBEE goals are summarised as:

To become a Level 4 contributor;

To advance equity ownership;

To make preferential procurement a priority;

To support enterprise development and to work with potential BEE suppliers to help their businesses grow;

To accelerate the development of core retail skills through focused training initiatives; and

To meet employment equity targets and, where there is a skills shortage at senior leadership level, create a skills pipeline to provide the necessary momentum for change.

Despite these goals, Woolworths still has a long way to go, given that its actual rating in the 2007 survey gave it a score of 34.2, which represents a Level 8 contributor. Woolworths will have to almost double its score to reach the minimum 65 that is required to be a Level 4 contributor.

One of the poorest showings for Woolworths is in the area of preferential procurement, where it scored only 2.64 out of a possible maximum of 20. According to the Empowerdex scorecard, Woolworths spent a (weighted) R10.4-million on preferential procurement in 2007. For the purposes of calculating TMPS, the cost of


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sales, all operational expenditure and all capital expenditure are combined. The 2007 Woolworths annual financial statements indicated qualified expenditure of around R18-billion, of which R11.4-billion can be considered ‘core’ procurement expenditure – cost of sales. In light of these figures, the actual preferential procurement spend appears very low.

It is not clear how the preferential procurement spend is allocated among the various Woolworths product lines, but the company’s own declarations on the subject do provide some input. In its annual reports and other official documents, Woolworths always stresses its commitment to buying from South African suppliers, particularly in the area of clothing, textiles and other homeware items. In this area it also has the opportunity to support small black entrepreneurs, thanks in no small part to the increasing popularity among consumers of South African design. The following extracts from recent Woolworths Annual Reports elaborate on this focus on preferential procurement.

Box 1 – Supporting South African business first

Woolworths is a passionately South African business and it is committed to buying as much as possible from local suppliers. More than 90% of our total merchandise is sourced from South African suppliers.

Woolworths continues to promote and support local, South African design through initiatives such as:

South Africa young designers at Woolworths

Since 2003, Woolworths has collaborated with some of South Africa’s bright young fashion designers, including Maya Prass, Stoned Cherrie and Stephen Quatember, featuring their clothing lines in select Woolworths stores.

All Woolworths suppliers, both local and international, are bound by the Supplier Code of Business Principles, which requires conformance to the highest legal and ethical standards and environmental practices Our business partners are also required to ensure that this code is applied in respect of subcontracting or secondary supplier arrangements, and compliance with the code is monitored through a formal auditing process.

The code covers the following: child labour; forced labour; health and safety; wages, hours of work and entitlements; discrimination; freedom of association and the right to collective bargaining; harsh or cruel treatment; and environment.

Sourcing strategies are, we believe, fundamentally in line with the Fair-trade™ principles. The development of the Fair-trade™ accredited product set is being monitored closely and the value of adding suitably accredited products to the Woolworths product portfolio will be continually evaluated.

Preferential procurement is a priority and Woolworths is committed to BEE supplier partners providing core product for the company over time. Supporting the preferential procurement focus is an equal commitment to partnering with potential BEE suppliers, supporting enterprise development initiatives. Teams have been set up who are devoted to working more closely with emerging suppliers, further driving the commitment to supporting South African businesses first.

Despite these sentiments, it is also likely that Woolworths faces many obstacles in its goals of increasing preferential procurement, caused by the nature and structure of its supply chain, particularly with respect to fresh food. (It is probably because of the


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difficulties of implementing preferential procurement in the area of food retailing that Woolworths has a higher preferential procurement rating than those retailers whose business is almost entirely food-based, such as Spar (1.82) and Pick n Pay (0.05). Woolworths attributes almost half of its retail sales to non-food items, which would explain its relatively high ranking if our argument is accurate.)

At this juncture it is useful to bear in mind that achieving a significant increase in a preferential procurement rating is analogous to increasing purchases from smaller companies. Suppliers that have the highest ownership by PDIs and who employ the greatest number of PDIs tend to be smaller companies. We already have evidence that most of South Africa’s largest private sector companies (and certainly several key food suppliers such as Tiger Brands) have very low BBBEE ratings. This is a key issue, since it implies that a strategy of increasing preferential procurement is in many respects the same as a strategy to increase purchases from smaller companies. Spending R2-million at a small company that is a Level 2 contributor (not too difficult for a small PDI-owned business to achieve) is analogous to spending R22-million with Tiger Brands (and that excludes the extra points that are gained by dealing with a small company).

So, what are the main restrictions on a company like Woolworths purchasing more from smaller suppliers? The answer lies in two main areas – supply chain management and standards.

SUPPLY CHAIN MANAGEMENT

The way in which a company manages its supply chain is usually determined by what its customers require, and cost considerations. The inadvertent result can sometimes be to very effectively exclude smaller companies. There are a number of features of the Woolworths business model that are probably contributing to the (unintended) exclusion of smaller companies:

1. Strong focus on organic and free range food: This is in response to customer demands, but the production of organic and free range food is not often a solution for small farmers, given the complexities and cost of certification.

2. A policy of uniform products and quality: Not all Woolworths stores stock exactly the same items, but where they are the same, they are exactly the same. A two-litre bottle of milk in the Bloemfontein Woolworths is exactly the same as a two-litre bottle of milk in the Sandton branch. This is in contrast to more decentralised models such as Spar, where fresh items such as milk are often purchased from local suppliers. A strictly controlled centralised supply system usually guarantees much higher products standards, but does require that suppliers are able to deliver large quantities to rigorous quality standards.

3. Strong focus on very high quality fresh produce: This implies rigorous cold chain logistics and the management thereof, which requires capital investment and skills that tend to be beyond the scope of many PDI small companies.

On the plus side, Woolworths’ focus on many specialty items (which would only tend to be sold in small amounts), compared to its rivals Spar and Pick n Pay, probably gives it an advantage in dealing with smaller suppliers.


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Woolworths does cite a number of examples of how it has implemented a combined strategy of enterprise development and preferential procurement, but these represent only a small portion of total expenditure, and it is also clear that these have required considerable effort and input from Woolworths, suggesting that the overall impact on preferential procurement may be very limited for a very long time.

Box 2 – Preferential procurement at Woolworths

Products like potatoes and mdumbis have been grown organically, mainly by women, for many years, and today in excess of 100 of these disadvantaged rural farmers now supply Woolworths. One of the striking advantages of developing organic food markets is the opportunity that opens up for previously disadvantaged South African farmers to enter and participate in the economic mainstream.

A collaboration between the Ezemvelo Farmers Organisation, Dr James Hartzell of Assegai Organics and Dr Albert Modi of the University of KwaZulu-Natal has resulted in more than 200 farmers supplying Woolworths with organic madumbis, sweet potatoes, baby potatoes and green beans. The Ezemvelo farmers live on smallholdings scattered over the deep-green hills and valleys near Umbumbulu, on KwaZulu-Natal’s south coast. While the community is not geographically remote, the people are effectively isolated from first-world life. Their existence is deeply rural and poverty-struck. They have no access to running water or electricity. Parents battle to pay even nominal fees for their children to attend school. They eat what they can grow, cooked over fires in smoky huts. Until now, they have had no concept that their land could be an economic asset – and that growing more than they eat could tap them into the economy.

The project started in 2001 with 28 original members, and quickly expanded. Dr Hartzell and Dr Modi worked closely with the farmers to improve farming methods and undertake crop trials. They assisted with putting in place the processes required for the farmers to qualify for organic certification and established the channel for them to supply their produce to the developed market. The KwaZulu-Natal Department of Economic Development and Tourism provided funding for infrastructure, such as fencing. AFRISCO, an international organic certification agency agreed to waive the certification fee for the first year. The Ezemvelo Farmers Organisation became their first certified group of subsistence farmers in South Africa.

The 18-month Beaufort West Hydroponics pilot project resulted in the establishment of a modern greenhouse facility staffed by 14 previously unemployed people who have undergone specialist training and mentoring. The pilot phase yielded successful trials of various crops and established vital links with the mainstream of the South African economy. This success has paved the way for the project to expand into a vibrant and economically viable business run by previously disadvantaged persons drawn from the local communities. It brings new energy to Beaufort West where unemployment is high and opportunities are severely limited.

This includes the construction of an additional greenhouse floor area of approximately 5000m2, equipped with state-of-the-art computerised irrigation and climate control systems. There are also plans to propagate their own plants, to develop nursery and quarantine facilities, and to establish their own laboratory and packing facilities that meet global standards. This expansion will provide at least 80 additional job opportunities for local residents, injecting an annual salary and wage income into Beaufort West of more than R2-million.

Initiating sustainability at the heart of Woolworths Foods, disadvantaged rural farmers became mainstream Woolworths suppliers when, three years ago, Assegai Organics, a pack house in KwaZulu-Natal, identified an opportunity to engage surrounding rural communities.


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It is interesting to note that Woolworths does not have a separate brand for the products that are produced by these empowerment initiatives.

STANDARDS

The role of standards in excluding smaller PDI companies is well documented. When the standards in question apply to food, the impact can be even greater. Very few small companies have the capacity to implement, or the available capital to invest in, the stringent requirements necessary to meet the most sophisticated food safety standards.

A company like Woolworths, which bases a lot of its competitive market positioning on superior quality fresh food, cannot afford to compromise on any of these standards, but once again, this is having an inadvertent negative impact on preferential procurement.

A summary of how Woolworths views food safety is set out in box 3.

Box 3 – Food safety

Food safety is critical to the business, and mechanisms are in place to ensure that consumers are offered product which has undergone thorough testing and rigid process control to ensure it is as safe as possible.

Processes include Routine Checks – our SANAS (South African National Accreditation System) accredited food laboratory runs routine checks for any potentially harmful micro-organisms and pathogens. It also routinely monitors pesticide residue levels on fresh produce and heavy metal levels in fresh fish – and International Britannia Limited (IBL) Audits – an independent auditing organisation – conducts four hygiene audits a year in each of our stores where food is cooked to ensure that good food handling routines are in place and that our stores are as clean as they should be.

3.3 Other issues

In summary, Woolworths has created a market positioning that is good for profits, but may not be so good for furthering the aims of preferential procurement. This position is probably exacerbated/supported by one important feature of the retail industry with respect to the pressure to improve BBBEE ratings.

The retail industry is arguably the sector that faces the least pressure as far as BBBEE compliance is concerned. This implies that it could lag other sectors in transforming. The reason for this is that companies like Woolworths have a client base that (i) is vast, so that no one consumer or group of consumers wields any power over the company; and (ii) as a general rule, people tend to value the guarantee of food quality and food safety over the details of the company’s BBBEE credentials. We would not expect people to stop purchasing from a premium brand company like Woolworths simply because the company is a Level 7 BBBEE contributor.


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4 Case study 2: Dimension Data Limited

4.1 4.1 Company profile and financial overview

Dimension Data is a specialist IT services and solutions provider, established in South Africa in 1983. The company has become a global player, with its primary listing being offshore. It is clear that Dimension Data views itself first as a global company. Its latest annual financial statements are presented in US dollar terms, not Rands, and business activities in South Africa are not clearly stripped out, but consolidated together with the rest of Africa and the Middle East. (The consolidated Revenue figure for that region was US$931-million, and it is likely that the bulk of this was from South Africa. However, Dimension Data is also a services company, and the provision of services is often associated with a low procurement of goods and services from outside sources.)

4.2 4.2 History of preferential procurement

The 2007 Empowerdex TEC survey indicated that Dimension Data scored very poorly, with a total of just 12.43. However, Empowerdex noted that it had not received the required information from Dimension Data in time to make an accurate calculation (the BEE ownership statistics are publicly available). It also noted that Dimension Data had been rated by another agency, and had received a score of 68.73, which would have placed its seventh on the Top 200 list. Empowerdex notes that this cannot be audited, and it seems an unlikely result, if the calculation was done on the same basis as for the other companies.

Based on an ownership score of just under 9, Dimension Data would have to score 59 points from the other categories. Even assuming high CSI spend, Dimension Data most likely scored relatively low for its percentage of black management and employment equity. The 2008 Empowerdex survey will provide a better picture.

It should be noted that other major IT companies had the following TEC scores:

Bytes Technology 66.90 GijimaAst 56.29 Business Connexion 55.71

All of these companies had relatively high scores for ownership, but quite poor scores for employment equity. This is to be expected, given the lack of skills in the sector, and it is probably an issue that is also reflected in Dimension Data’s score. It is interesting to note that none of the companies had a skills development score of more than 10 out of 15, and that GijimaAst received a score of 1.10 in this area. Once again, this begs the question of what companies are doing to improve the skills base in this sector.

As is the case with many larger companies that are struggling to achieve the ambitious targets set out in the dti guidelines, Dimension Data places a strong focus on its CSI


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efforts in all of its correspondence around its BBBEE efforts. Many companies have highlighted their CSI spend in this manner, not from any ulterior motive, but because their efforts in this area make for good reading. However, the new detailed BBBEE guidelines will make it very difficult for companies to confuse form with substance by pushing CSI efforts ahead of other very important issues, such as preferential procurement and/or skills development.

Given the lack of information in an objective document like the Empowerdex TEC survey, what we can glean about Dimension Data’s approach towards preferential procurement and enterprise development is contained in their own documents:

Box 4 – Preferential procurement

Following the release of the dti Codes of Good Practice and the draft ICT Charter, Dimension Data very quickly focused on the implementation of a dynamic Preferential Procurement model throughout the company.

The model was launched in 2001 with full executive endorsement and saw the appointment of Dimension Data Executives, Sean Joubert and Derek Wilcocks, as project sponsors. A small team was subsequently recruited to execute on the preferential procurement strategy and communicate it to the business and Dimension Data suppliers.

The strategy was to initially focus on “non-stock” supplies and services, targeting the vetting of Dimension Data’s 300 largest suppliers in the database, before moving on to qualifying small entities (OSEs) and micro enterprises. A number of internal projects quickly followed to prepare Dimension Data’s ERP system for the complex reporting that would be needed.

During this period, a number of changes were introduced by government and the DTI, including the phase II release of the Codes of Good Practice in December 2005. The constant changes to the measurement of preferential procurement highlighted the need for a system that was dynamic, flexible and easy to use.

To this effect, Dimension Data recently commissioned the services of B1SA, which offers a versatile Broad-based BEE management tool aimed at large organizations. The tool enables Dimension Data to speed up the vetting of its large vendor base and to dynamically update the BEE credentials of our suppliers as legislation changes. It also provides a means of effectively measuring our day to day progress on the 7 elements of transformation.

Without compromising on quality, price and service, preferential procurement in Dimension Data has increased from 39.7% in 2004, to over 53% in 2005.

The way in which supply chain managers are directed to implement preferential procurement provides a good illustration of how the issues are approached. The following is an extract from internal guidelines issued by Dimension Data to managers:


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Box 5 – Supplier management: “understanding preferential procurement" – you need a score from your suppliers to calculate your own BEE scorecard

Preferential procurement is worth 20 points on the scorecard, so it is worthwhile making the effort to comply. In general you can earn points by purchasing from other companies that are BEE compliant. The generic scorecard requires you to spend 70% of your eligible procurement on suitable BEE compliant companies and the QSE scorecard requires 50%.

You have to recognise that most suppliers will not have a scorecard, and even be loath to supply you with their score, given that they themselves are trying to get similar information from their suppliers! This is the cascading effect of BEE – each company relies on other companies to calculate their score. Until everyone has a score, no one's score can be accurate.

What scores should you be looking for:

The higher the score of the supplier, the better it will impact on your preferential procurement score. At the moment we expect scores to be quite low, but as scorecards become the norm and the principles of BBBEE are understood and implemented the scores will improve.

What you actually need from your suppliers:

In order for preferential procurement to work, you have to have a firm understanding of what constitutes eligible procurement; then you have to ascertain the BBBEE score of those eligible suppliers (we send out a standard letter to our suppliers, you are welcome to download it and make use of it). It is advisable not to fall into the trap of hastily replacing low scoring suppliers with more acceptable scoring suppliers. This process will probably occur naturally within the next ten years. For BBBEE to work and become implemented correctly it is imperative that all companies start developing a BBBEE profile that is ultimately measured against a scorecard. You insisting on a score from your suppliers will aid this process.

The BEE Scorecard that they need to give you should contain every element of Broad Based BEE (view sample BEE Scorecard). All seven elements should be completed and a summary score should be produced for each element. Finally those summary scores should be compiled into a final BBBEE scorecard.

It must be stressed that you cannot calculate your preferential procurement score until you have a score from each supplier. Rating agencies will ultimately be charged with verifying each company's scorecard. At present there are no officially accredited rating agencies, but there are tools out there you can use to draw up your own scorecard.

It is clear that Dimension Data’s approach towards preferential procurement is based on a ‘pyramid’ approach described above, rather than a concerted effort to source new PDI suppliers. This makes good business sense, since the latter is a much more difficult and time-consuming approach. However, the obvious ‘flaws’ in this approach are around the fact that relying on an official scorecard largely limits procurement to those companies that already have had a scorecard produced. Compiling a scorecard for a small PDI company will require a lot of paperwork and time and effort. To date, most companies do not seem keen to invest this time and effort.

Dimension Data’s approach that ‘quality’ should not be compromised by moving from lower-rated to higher-rated suppliers is indicative of a general attitude within corporate South Africa, which has three key components:


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1. The overwhelming belief that preferential procurement does not inherently make good financial sense. Most companies believe that there is a trade-off between good procurement and preferential procurement. This is unlikely to change until there is a sufficient pool of skilled PDI companies available to compete for business.

2. The view that changing procurement to meet the dti standards is something that will take a long time is a common one, and one that is supported by the results of surveys such as the TEC 2007, which indicates that the bulk of corporate South Africa has a long way to go in meeting BBBEE targets. The problem with everyone having low scores is that there is only limited pressure on individual companies to take drastic measures to improve theirs.

3. The fact of low BBBEE scores becomes at the same time everyone’s and no one’s problem. Companies can blame their low preferential procurement scores on the fact that other companies have low scores, and state that there is ‘nothing we can do about it’.

Dimension Data claims in its latest annual report that its preferential procurement currently stands at “more than 50%”. However, this is difficult to verify because of the lack of an objective peer group assessment such as the TEC survey. Given the real challenges that Dimension Data faces in increasing preferential procurement, it does not seem likely that it has actually achieved this target, as it is defined in the generic scorecard, which clearly defines how procurement spend is calculated.

The 2008 survey will be very interesting to show how Dimension Data is actually performing in these categories against it peers. Once again, it should be stressed that companies such as Dimension Data face considerable challenges in increasing their BBBEE, given the composition of their skills requirement. Given that they do not face the same supply chain constraints as a company like Woolworths, but rather just a shortage of suitable business partners, they should be very open to any innovations that would help them to address this.

ENTERPRISE DEVELOPMENT

Once again, because Dimension Data did not actively participate in the Empowerdex TEC 2007 survey, it is not clear how it rates in the area of enterprise development. However, it appears that Dimension Data’s perception of what constitutes ‘enterprise development’ is in certain respects a little different from how the Generic Scorecard rates the various components.

First, it appears to view ‘enterprise development’ as a situation where it partners with a PDI company and assists that company with skills transfer, with a view to creating a PDI business partner from whom it can source business. This is a good model, since it gives the development partner a vested financial interest in the result of its intervention. The more these initiatives are viewed as having a direct financial benefit, the more likely that they will succeed, since the motivation on both sides is correctly structured.

However, these initiatives by Dimension Data appear to be limited, and its own definition of ‘enterprise development’ (as set out in box 6) is a little different:


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Box 6 – Enterprise development

Dimension Data, as a leading global provider of IT services, acknowledges the regional realities of the countries that we work in. One of the key realities in South Africa is the lack of BEE ICT companies capable of supporting large enterprise and public sector customers. Dimension Data is committed to addressing this challenge through its Enterprise Development Programme (EDP).

Enterprise Development Programme

Dimension Data’s Enterprise Development Programme is a structured means of building capability within BEE SMME ICT organizations in South Africa. This programme extends beyond mere partnering and into true development of BEE enterprises. The premise of the programme is that Dimension Data will train, mentor, assess and monitor the progress of select BEE ICT companies during actual deployment of projects to its customers, in order to broaden their competencies. The selection of BEE companies will be based on both an assessment of their current core competencies and their desire to expand and broaden their competencies in other areas. It is envisaged that by participating in the EDP, BEE ICT companies will have a lasting value proposition to take to the market. The Dimension Data Enterprise Development programme consists of five components – training, mentorship, learnerships, assessments and reporting.

Through its Enterprise Development Programme, Dimension Data intends to build BEE ICT organisations that can deliver world-class services to their customers.


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5 Case study 3: Eskom

5.1 Company profile

Eskom divides its business into those areas relating to core activities – the supply of electricity – and its non-core business activities – that which provide services around the use of electricity. This division is illustrated in table 18.

Table 18 – Eskom core and support business division

Core business Support businesses Markets Electricity • Generation • Transport • Trading • Retail

• Rotek Industries and other support services

• Capital Expansion Department • Project Development Department • Technical services

• South Africa • SADC • Africa connected to the SA grid • Rest of Africa

Source: Eskom

The Generation Division produces most of South Africa's electricity from coal-fired stations producing low-priced electricity from low-cost coal. Eskom also operates Africa’s only nuclear power station. Small hydro and pumped-storage facilities make up the balance of the electricity generation capability.

The Government of the Republic of South Africa is the sole shareholder of Eskom. The shareholder representative is the Minister of Public Enterprises. The ownership and governance structure is illustrated in figure 2.


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Figure 2 – Governance structure of Eskom Holdings Limited

Source: Eskom

It should be noted that since Eskom is not a listed company, it is not included in the Empowerdex TEC 2007 survey, but if it were, it would probably have a high score. The shareholding by government could be said to be a fully BBBEE one, and Eskom has made significant progress in transforming its management and workforce.

5.2 History of preferential procurement

Eskom has made significant progress in reaching impressive levels of preferential procurement, as indicated below. In many respects, Eskom approaches preferential procurement in the same way that government does – as a business priority rather than as a happy coincidence – which approach many private sector companies seem to have adopted. This is obviously having excellent results, and it is an indication of what can be achieved with the correct attitude and priority setting by an organisation.

However, it must be remembered that Eskom does not face the same competitive and profit-making pressures that most private sector companies do. It also has vast resources at its disposal. These factors have placed the company in a much better


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position to adopt an aggressive preferential procurement strategy than most private sector companies find themselves in.

It is not clear how the current crisis that Eskom faces will affect its progress in preferential procurement. However, it now must address other priorities when sourcing goods and services, other than furthering the goals of BBBEE.

Eskom has a clear and prioritised policy to maximise purchases from BEE firms of all sizes and across a spread of industries. It also works to foster businesses owned by BEE women across all sectors of the economy. The company has concentrated its efforts on black suppliers in the manufacturing, construction and mining/extraction sectors and providers of professional consulting services.

Eskom has realised one very important truth: as one moves higher up the supply chain, it becomes progressively more difficult for new BEE businesses to compete against more established market players. Therefore Eskom has developed tools to help these smaller companies to meet the requirements of large corporations. In addition to assisting companies with the acquisition and improvement of technical skills, the company works directly with BEEs, advising them on best practice, efficient production processes and enabling them to successfully grow their businesses. It also facilitates access to financing.

It is clear by the approach adopted by Eskom and outlined above that the company recognises the inherent linkages between a successful preferential procurement initiative and a supporting enterprise development strategy.

Eskom has concentrated on building up a BEE supplier database of black-owned and -controlled companies, and will first look for potential suppliers from that list. Companies can apply to be listed on the supplier database at any time. This database currently encompasses some 14,000 BEE businesses of all sizes. The value of this kind of ‘preferred supplier’ database is obviously considerable in achieving ambitious preferential procurement.

By its own accounts, Eskom generally utilises around 30% of its registered BEE suppliers at any one time, depending on the nature of the services required and those available. The vast majority of the registered suppliers are small contractors supplying good or services to local power stations or Eskom offices. However, there are also some larger companies, such as suppliers of coal and engineering, construction or professional services. A number of overseas companies have also sold equity stakes to local BEEs to comply with these listing criteria.

Eskom’s database is a useful management tool for SCM staff: The database has been set up in such a way that that a potential buyer can search using a number of parameters, including product lines and BEE status. The company’s policy is to:

Set aside some contracts for development of black suppliers;

Set aside a portion of other contracts for black suppliers, and allowing them to match the prices of traditional suppliers for that set-aside portion; and


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Prescribe a percentage of work to be subcontracted to black suppliers.

Table 19 shows how Eskom has faired in increasing preferential procurement.

Table 19 – Eskom’s BEE targets for the past eight years

Period Target achieved*

1998 R606.0-million R700.0-million

1999 R962.5-million R1,320.0-million

2000 R1,500.0-million R1,867.0-million




2004/05 1 >/= R7,465.0-million 2 2004:R8,323.0-million 2005: R10,334.0-million

2006 65% 2006: R11 068.8-million (achieved 67%)

Total R22,449.0-million (US$ 3,371-million 3)

March 2006: R41,552-million (US$ 6,295-million 3)

Source: Eskom * Figures have been audited 1 2004/2005 are from January 2004 to 31 March 2005 2 2004 Target 3 Using a conversion of US$1 = 6.6 SA Rands

In line with Eskom’s policy of specifically supporting the economic empowerment of women, there has been an increased focus on the promotion and empowerment of black women entrepreneurs to facilitate their participation in the mainstream economy. Table 20 shows how well Eskom has done in this regard:

Table 20 – Eskom’s promotion and empowerment of black women entrepreneurs

Period Target achieved*

2002 Implement a process that supports the economic empowerment of women

R197.0-million

2003 >/=R311.0-million R517.0-million 2004/05 1 >/= R521-million 2 2004:R840.0-million

2005: R1,086.0-million 2006 15% 2006: R1,286.7-million (achieved 17%) Total R832.0-million (US$ 125

million 3) March 2005: R3,086.7-million (US$ 467-million 3)

Source: Eskom * Figures have been audited


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1 2004/2005 are from January 2004 to 31 March 2005 2 2004 Target 3 Using a conversion of US$1 = 6.6 SA Rands

“The BEE initiative is a strong example of concerted effort to invest in a vibrant SME sector. The benefits of the

scheme are manifold. A large number of black-owned and-controlled small, medium and micro enterprises have become

competitive suppliers to Eskom. These new business opportunities are creating sustainable jobs, and Previously

Disadvantaged Individuals and communities are acquiring the necessary business and technical skills for their businesses

to thrive. Eskom has consistently exceeded its BEE procurement targets; since 1998 it has exceeded its targeted BEE

spending by around 36%, achieving in the last seven years a combined total BEE procurement spend of US$6,295-

million” (Source: Eskom, 2006 Annual Report).

Eskom believes that its strategy has been successful in that it is contributing to real economic progress, and not just lip service to the idea:

A large number of black-owned and -controlled small, medium and micro enterprises have become competitive suppliers to Eskom;

Previously disadvantaged individuals are participating in the mainstream economy;

The business opportunities created have also created and sustained jobs; and

PDIs and communities are acquiring the necessary business and technical skills for survival.

In terms of the obstacles that it has had to face in achieving these goals, Eskom cites the practice of ‘fronting’, where ‘front’ companies look to exploit the preferential procurement policy.

5.3 Key issues

It is clear that Eskom has made considerable progress in implementing both preferential procurement and enterprise development strategies. In this respect, it has been more successful (in both absolute and comparative terms) in achieving preferential procurement and enterprise development targets than either Dimension Data or Woolworths.

It is also clear that this success is probably largely the result of Eskom’s shareholder commitment to the policies of preferential procurement, which can take priority over other short-term profit considerations.


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6 Conclusions

There seems reason to believe that a correlation exists between the following factors and a company’s contribution towards preferential procurement and enterprise development:

1. The size of the company certainly seems to affect its ability to meet preferential procurement and enterprise development targets. In particular, the results of the Empowerdex 2007 TEC survey support the idea that enterprise development requires the kind of resources that are only available in the largest of companies.

2. The sector in which the company is located seems to have an impact on its ability (or willingness) to meet preferential procurement targets. The sector impact is felt through the type of goods that the company purchases and the suitability of these for increased preferential procurement, as well as the ‘customer impact’ described below. In general terms, companies that are located in sectors that purchase a large number of professional services (such as banking) or sectors that purchase a large number of basic goods and services (such as tourism) are much better candidates than sectors that are characterised by either complex time- and quality-critical supply chains (such as food retailers) or complex inputs (such as ICT).

The issue of the pressure brought to bear by a company’s clients is certainly a very interesting one. Barring legislation to the contrary, the main incentive for companies to improve their BBBEE rating through preferential procurement and/or enterprise development is to support their own efforts to supply other enterprises. This means that companies that rely on getting business from ‘BBBEE-sensitive’ clients such as the public sector, or other companies that need to improve their BBBEE rating, will be more likely to pursue preferential procurement. However, companies that have the general public as their clients (such as retailers) are unlikely to feel that pressure. Where the primary business of the retailer is food, it is very unlikely that these consumers will put BBBEE interests ahead of food safety, quality and certification to the extent that it would put real pressure on the retailer in question.

The result is that once these companies have diversified their shareholding (which is usually an issue that shareholders demand), diversified the workforce and management (to keep the staff and unions happy) and increased spending on skills development (which makes good business sense), they are unlikely to feel any real pressure to make a significant impact on preferential procurement and enterprise development, unless that fortuitously fits into their supply chain demands.


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REFERENCES

Department of Trade and Industry (June 2007): Broad Based Black Economic Empowerment Act – Codes of Good Practice Interpretive Guide.

Department of Trade and Industry: South Africa’s Economic Transformation: A Strategy for Broad-Based Black Economic Empowerment

Dimension Data Plc: Annual Report 2005, Annual Report 2006, Annual Report 2007

Empowerdex (Pty) Ltd: 2007 Top 200 Empowerment Companies Survey

Eskom Holdings Limited: Annual Report 2005, Annual Report 2006, Annual Report 2007

Woolworths Limited: Annual Report 2005, Annual Report 2007, Annual Report 2007, Sustainability Report 2007

Legislation

Broad-based Black Economic Empowerment Act 53 of 2003

Websites

www.dimensiondata.com

www.empowerdex.co.za

www.eskom.co.za

www.woolworths.co.za

www.thedti.gov.za

Appendix A – Empowerment score for top 200 companies - 2007

Ownership (%) Management (%)

Empl equity

(%) Skills

development (%)

Preferential procurement

(%)

Enterprise development

(%) CSI (%)

Rnk '07 Company

BEE Score (%)

Voting rights

Eco interest Score Board

Top exec black Score Score

Skills spend Score Spend Score

Contri-butions Score


1 Enaleni Pharma 79,28 35,0 35,0 18,00 75,0 37,5 7,35 11,17 1,7 9,45 51,0 13,31 20,0 15,00 0,1 5,00

2 Adcorp Holdings 73,22 27,3 27,3 18,56 41,7 14,3 5,83 7,59 1,6 9,24 67,0 12,00 6,0 15,00 2,6 5,00

3 The Don Group 70,89 32,0 32,0 15,00 62,5 50,0 11,00 13,00 75,0 7,30 10,0 4,60 3,3 15,00 0,3 5,00

4 Oceana Group 70,29 40,0 31,2 18,14 40,0 N/A 5,12 8,16 2,0 6,87 56,4 12,00 20,9 15,00 2,0 5,00

5 Hosken Consolidated 70,12 54,0 54,0 20,00 59,1 30,0 8,95 9,29 1,0 4,86 29,2 7,01 2,1 15,00 1,2 5,00

6 Sekunjalo 68,87 89,0 58,0 18,00 75,0 50,0 10,90 9,80 0,4 6,81 14,0 3,36 64,3 15,00 12,5 5,00 7 Cadiz 68,35 28,2 26,5 18,74 27,8 N/A 3,94 6,70 0,7 6,77 58,7 12,20 17,5 15,00 2,4 5,00

8 Bytes Technology 66,90 27,0 24,8 18,02 25,0 N/A 1,50 6,06 4,3 9,47 49,4 11,85 3,6 15,00 2,0 5,00

9 Metropolitan 66,59 33,3 33,3 16,49 40,6 37,5 8,63 11,58 1,8 9,60 31,4 7,54 1,8 8,90 0,8 3,85 10 Bidvest Group 65,01 41,4 41,4 20,00 31,3 16,7 6,18 7,05 1,7 9,40 9,9 2,38 36,4 15,00 1,5 5,00 11 Glenrand MIB 64,80 27,7 27,7 20,00 33,3 50,0 7,33 4,65 1,5 3,96 51,2 13,86 2,0 10,00 2,0 5,00 12 Phumelela 63,51 29,9 29,9 15,57 26,9 16,7 5,01 5,94 2,1 10,11 23,0 10,57 2,3 11,31 5,1 5,00 13 Primedia 63,14 22,2 18,2 5,58 53,6 50,0 11,00 9,39 3,1 6,47 41,7 10,70 19,7 15,00 20,0 5,00 14 Trans Hex 63,14 37,0 37,0 15,00 16,7 25,0 4,33 5,60 1,4 8,72 33,0 9,49 24,1 15,00 33,6 5,00

15 Old Mutual Plc 62,01 13,8 13,8 13,30 28,2 N/A 4,04 7,15 3,8 8,76 45,4 12,96 1,3 15,00 0,0 0,80


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16 MTN Group 61,95 12,2 22,4 13,05 54,2 66,7 10,63 8,44 5,9 7,45 35,0 8,40 2,2 10,75 0,6 3,24 17 Paracon 61,60 35,0 26,5 12,00 27,8 12,5 3,90 3,56 1,8 9,68 53,0 12,50 7,2 15,00 1,0 4,96

18 Peermont Global 60,57 58,0 58,0 18,30 27,8 N/A 2,98 8,62 1,2 8,48 21,0 5,45 2,3 11,74 11,8 5,00

19 Sanlam 60,27 26,0 26,0 16,20 35,0 N/A 4,51 3,96 1,5 4,93 44,5 10,68 5,7 15,00 2,6 5,00 20 Telkom 58,08 10,0 10,0 12,28 59,1 50,0 11,00 10,94 100,0 6,00 67,0 12,00 0,2 1,15 0,9 4,70 21 GijimaAst 56,29 50,0 37,0 12,60 31,8 12,5 7,03 3,87 0,2 1,10 54,0 14,34 7,5 15,00 0,5 2,35

22 Barnard Jacobs Mel 55,97 11,2 11,2 11,14 37,5 12,8 5,47 6,36 1,0 2,00 96,8 15,00 2,2 11,00 1,0 5,00

23 Nedbank 55,81 11,6 11,6 13,85 23,3 N/A 4,88 4,54 2,6 7,26 22,0 5,28 73,6 15,00 5,1 5,00

24 Business Connexion 55,71 25,0 25,0 15,34 25,0 20,0 5,41 2,34 1,0 9,26 14,0 3,36 22,1 15,00 1,1 5,00

25 Gold Fields 55,13 18,6 18,6 13,21 15,4 N/A 2,64 3,38 4,0 12,17 42,0 10,08 1,7 8,65 2,4 5,00

26 Exxaro Resources 54,93 53,0 53,0 19,00 42,9 12,5 6,03 3,74 3,6 12,04 37,0 8,88 0,5 2,47 0,6 2,77

27 Harmony Gold 53,98 25,0 25,0 7,00 41,7 12,5 6,36 7,90 3,1 6,00 28,0 6,72 68,7 15,00 13,7 5,00

28 Group Five 53,15 21,0 21,0 14,35 22,2 50,0 5,81 3,16 0,6 2,77 29,0 7,07 184,9 15,00 3,7 5,00 29 Aveng 53,11 42,6 42,6 17,64 11,1 33,3 4,45 3,16 0,6 1,65 18,3 6,21 0,4 15,00 1,2 5,00

30 African Rainbow 52,58 56,0 56,0 17,80 38,2 18,8 6,14 4,33 2,5 10,91 23,0 5,52 0,6 2,88 2,8 5,00


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31 Sun International 52,31 35,0 35,0 15,47 16,7 N/A 1,37 4,44 N/A 0,00 46,0 11,03 42,4 15,00 1,5 5,00

32 Absa Group 52,20 10,1 10,4 12,68 33,3 N/A 5,05 4,99 1,1 5,82 40,0 9,60 1,8 9,06 1,0 5,00

33 Mutual & Federal 52,03 16,9 16,9 15,84 50,0 N/A 4,73 2,96 5,8 15,00 35,5 8,52 N/A 0,00 5,9 5,00

34 Jasco Electronics 51,87 51,0 37,1 19,00 50,0 75,0 8,63 5,11 N/A 0,00 30,0 7,20 1,4 6,94 1,0 5,00

35 Faritec 51,33 31,8 31,8 16,87 45,8 16,7 9,42 5,90 0,3 2,11 1,9 14,90 N/A 0,00 0,4 2,14

36 Aspen Pharmacare 51,12 17,4 39,3 18,52 33,3 N/A 4,20 6,58 1,3 6,28 23,7 5,68 1,3 6,73 0,6 3,12

37 Standard Bank 50,72 10,0 10,0 5,60 27,8 N/A 3,42 7,96 1,5 3,38 43,2 10,36 34,2 15,00 1,0 5,00 38 Mustek 50,62 32,3 7,2 5,24 21,4 16,7 3,20 3,71 1,7 3,46 48,4 15,00 6,0 15,00 4,6 5,00 39 FirstRand 50,38 9,2 9,2 3,75 38,9 25,0 5,38 4,47 1,8 4,35 39,3 12,43 36,4 15,00 8,4 5,00 40 Imperial 50,14 35,4 26,8 11,54 21,4 15,0 4,31 4,24 0,2 1,01 32,0 10,68 13,7 15,00 0,7 3,36 41 Edcon 49,35 10,6 10,6 16,66 32,1 8,3 4,88 9,57 1,7 6,31 28,3 6,93 N/A 0,00 1,1 5,00

42 Alexander Forbes 49,25 30,0 30,0 15,95 29,2 22,2 5,59 4,04 6,5 6,45 44,0 10,56 0,3 1,67 1,5 5,00

43 Santam 48,06 11,8 11,8 11,30 30,0 N/A 3,87 3,16 1,8 6,30 27,5 6,60 23,6 15,00 0,4 1,83 44 Enviroserv 47,53 21,0 21,0 13,87 8,3 8,3 1,46 8,95 N/A 2,65 2,5 0,61 33,0 15,00 2,1 5,00 45 Super Group 47,00 41,8 41,8 15,00 20,0 N/A 2,59 4,82 0,5 0,99 15,0 3,60 8,7 15,00 1,4 5,00 46 Distell Group 46,38 15,0 15,0 13,21 28,1 N/A 3,14 2,23 1,8 4,44 20,4 4,90 11,6 15,00 0,7 3,46


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47 Advtech 46,25 10,1 10,1 10,83 8,3 N/A 3,87 4,59 1,5 8,98 19,0 4,56 1,7 8,41 48,4 5,00 48 Foschini 45,98 17,7 17,7 4,95 20,0 N/A 3,29 6,83 3,3 11,76 42,0 11,91 0,4 2,24 4,6 5,00

49 Merafe Resources 45,94 32,0 32,0 7,00 55,6 50,0 8,94 5,16 N/A 2,44 37,5 9,00 0,2 8,40 2,6 5,00

50 Distribution & Ware 45,50 30,5 29,1 15,00 7,1 N/A 1,15 5,06 0,1 6,17 25,0 6,00 1,4 7,12 1,0 5,00

51 Comair 45,45 26,8 26,8 9,18 7,7 N/A 1,09 4,55 N/A 0,00 44,3 10,63 38,6 15,00 9,7 5,00 52 SABMiller Plc 45,04 20,0 20,0 5,60 7,1 N/A 3,08 8,00 1,7 4,26 17,1 4,10 3,0 15,00 2,2 5,00

53 Impala Platinum 44,77 21,3 21,3 6,96 23,1 10,0 3,26 4,26 4,6 6,01 31,0 7,44 3,6 15,00 0,4 1,84

54 Coronation Fund 43,81 11,8 11,8 6,77 10,0 N/A 5,43 8,41 N/A 0,00 42,4 10,17 2,1 10,48 0,5 2,54

55 Brimstone Investment 43,17 70,0 52,0 15,39 23,1 N/A 2,38 7,34 N/A 0,68 N/A 0,00 75,5 15,00 0,5 2,38

56 Mvelaphanda Group 43,08 51,7 51,7 15,32 43,8 43,8 7,61 7,76 N/A 0,00 31,5 7,56 N/A 0,00 1,0 4,83

57 Compu-Clearing Out 42,95 N/A 10,3 3,12 5,0 N/A 2,05 4,98 N/A 0,00 71,0 15,00 3,0 15,00 0,6 2,80

58 Omnia 42,83 N/A N/A 0,00 N/A N/A 0,72 3,75 0,5 7,05 50,4 12,00 6,1 15,00 0,9 4,31 59 Lewis Group 42,48 N/A 4,0 2,32 40,0 N/A 3,61 4,96 2,1 4,12 31,1 7,47 4,8 15,00 1,8 5,00

60 AngloGold Ashanti 41,78 26,8 26,8 7,00 5,9 N/A 1,82 3,17 N/A 6,00 29,8 8,29 2,1 10,51 6,5 5,00


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61 Growthpoint Prop 41,44 21,4 21,4 5,99 14,3 N/A 3,01 6,54 N/A 0,00 42,0 10,08 5,9 15,00 0,2 0,82

62 The Spar Group 41,41 1,5 1,5 0,42 27,8 N/A 3,53 5,59 2,0 10,05 7,6 1,82 3,9 15,00 2,8 5,00

63 African Oxygen 40,46 26,0 17,4 15,43 8,3 N/A 1,79 3,67 2,6 5,49 45,7 11,41 0,1 0,28 0,5 2,39

64 Network Healthcare 39,88 15,0 15,0 4,20 9,1 10,0 1,70 2,59 2,1 4,20 30,0 7,20 32,4 15,00 9,1 5,00

65 Investec 39,17 25,1 25,1 16,00 9,4 N/A 1,22 1,77 0,3 6,53 36,0 8,64 N/A 0,00 6,7 5,00 66 Tiger Brands 39,14 3,7 3,7 10,85 20,0 N/A 4,20 6,59 1,7 4,62 16,8 6,20 0,3 1,68 1,6 5,00 67 Massmart 38,68 8,1 8,1 4,34 36,7 N/A 4,31 8,20 0,5 2,20 20,0 4,80 2,0 9,82 1,2 5,00 68 Kagiso Media 37,99 50,0 50,0 7,00 44,4 50,0 6,54 4,45 N/A 0,00 N/A 0,00 8,4 15,00 2,5 5,00 69 African Bank 37,84 7,0 7,0 10,96 30,8 16,7 3,51 5,48 N/A 6,00 33,0 7,92 N/A 0,00 0,8 3,97

70 BHP Billiton Plc 36,80 0,1 N/A 1,57 25,0 28,6 4,75 9,40 1,5 10,42 23,3 5,60 0,0 0,05 1,0 5,00

71 Investec Plc 36,38 14,3 14,3 12,00 15,6 N/A 1,60 3,04 0,1 6,21 35,5 8,52 N/A 0,00 6,8 5,00 72 Sappi 35,91 N/A N/A 0,00 19,2 N/A 2,99 3,77 1,9 5,09 32,6 9,95 1,8 9,11 1,0 5,00 73 Sasol 35,16 25,0 25,0 11,00 46,9 70,0 6,97 3,67 N/A 1,75 30,0 7,20 0,3 1,58 0,6 2,99 74 Command 35,14 70,0 70,0 15,00 35,7 50,0 8,14 0,00 N/A 0,00 70,0 12,00 N/A 0,00 N/A 0,00

75 Control Instruments 34,32 N/A N/A 0,00 N/A N/A 0,00 4,01 1,2 6,06 16,0 4,24 7,0 15,00 2,5 5,00

76 Woolworths 34,20 N/A N/A 0,00 26,9 25,0 4,09 8,41 1,8 7,56 10,4 2,64 1,3 6,50 28,0 5,00


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77 Discovery 33,95 12,9 12,9 13,21 23,1 N/A 2,39 5,29 2,9 5,86 30,0 7,20 N/A 0,00 N/A 0,00 78 Datacentrix 33,38 41,0 10,0 5,89 50,0 33,3 7,76 7,09 0,7 5,64 7,7 7,00 N/A 0,00 N/A 0,00 79 Liberty 31,55 8,6 8,6 5,69 9,1 N/A 1,80 7,49 N/A 1,75 36,5 8,76 0,2 1,05 1,4 5,00 80 Remgro 30,15 22,9 22,9 7,18 6,7 N/A 1,52 4,30 1,2 2,43 21,0 5,04 0,9 4,68 1,3 5,00 81 Purple Capital 27,63 21,3 12,7 13,50 30,0 N/A 3,80 4,00 0,3 0,70 N/A 0,00 0,1 5,60 0,0 0,04 82 Capitec Bank 27,26 18,0 18,0 13,96 22,2 N/A 1,96 0,00 N/A 0,00 47,3 11,35 N/A 0,00 N/A 0,00 83 Truworths Int 26,77 N/A N/A 0,00 18,8 N/A 1,63 6,14 2,5 10,00 13,7 4,00 N/A 0,00 2,1 5,00

84 Mvelaphanda Res 26,33 81,1 66,5 16,01 50,0 30,0 10,20 0,00 N/A 0,00 N/A 0,00 N/A 0,00 0,0 0,12

85 Unitrans 25,57 13,1 13,1 3,66 9,1 N/A 0,55 6,36 N/A 0,00 N/A 0,00 8,4 15,00 N/A 0,00 86 SA Eagle 24,92 10,0 10,0 2,80 11,1 20,8 4,79 9,25 0,6 2,86 21,8 5,23 N/A 0,00 N/A 0,00 87 Palabora 24,49 N/A N/A 0,00 16,7 N/A 3,50 2,99 N/A 6,00 51,0 12,00 N/A 0,00 N/A 0,00 88 City Lodge 24,25 1,7 1,7 0,47 25,0 N/A 2,68 3,86 3,2 6,00 26,0 6,24 N/A 0,00 1,4 5,00 89 Nampak 24,15 0,8 0,8 3,66 10,7 N/A 1,67 6,19 1,5 3,51 24,5 5,88 N/A 0,00 0,6 3,23 90 Barplats 23,94 26,0 26,0 7,00 N/A N/A 0,00 5,56 N/A 0,79 N/A 0,00 0,1 5,60 0,1 5,00

91 Murray & Roberts 23,94 22,3 22,3 14,27 15,4 N/A 0,92 3,31 N/A 0,43 N/A 0,00 N/A 0,00 2,2 5,00

92 New Clicks 23,81 N/A N/A 0,00 20,0 N/A 1,56 0,04 1,1 2,21 N/A 0,00 3,2 15,00 1,0 5,00 93 Medi-Clinic 23,71 15,0 15,0 4,20 30,8 N/A 3,25 0,93 N/A 0,00 N/A 0,00 10,9 15,00 0,1 0,33


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Top exec black

94 Johncom 23,45 15,1 15,1 4,23 33,3 12,5 6,25 6,30 N/A 0,00 6,9 1,67 N/A 0,00 2,9 5,00 95 Pick 'n Pay 23,28 N/A N/A 0,00 12,5 N/A 2,36 10,10 N/A 0,00 0,2 0,05 1,2 5,77 5,1 5,00

100 Lonmin Plc 20,09 0,4 0,4 0,11 6,3 N/A 1,63 1,80 N/A 0,27 37,0 8,88 0,5 2,41 2,0 5,00

101 Emira Property 19,78 14,2 14,2 5,18 31,3 N/A 2,43 8,10 N/A 0,00 17,0 4,08 N/A 0,00 N/A 0,00

102 Northam Platinum 19,49 29,4 29,4 7,00 31,8 N/A 2,59 1,59 N/A 0,00 34,6 8,31 N/A 0,00 N/A 0,00

103 DRD Gold 18,80 25,0 25,0 7,00 N/A N/A 0,28 0,00 N/A 0,00 48,0 11,52 N/A 0,00 N/A 0,00

104 Rainbow Chicken 18,67 N/A N/A 0,00 33,3 N/A 4,06 2,31 N/A 6,00 5,4 1,30 N/A 0,00 1,1 5,00

105 Cape Empowerment 18,58 86,0 86,0 15,00 37,5 33,3 3,58 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

106 Tongaat-Hulett 18,15 N/A N/A 0,00 9,5 N/A 1,20 6,19 N/A 0,00 24,0 5,76 N/A 0,00 1,2 5,00

107 Hyprop Investments 17,91 N/A N/A 0,00 31,8 N/A 2,91 0,00 N/A 0,00 N/A 0,00 44,4 15,00 N/A 0,00

108 Astral Foods 17,05 1,2 1,2 4,18 16,7 N/A 1,63 6,27 0,9 1,73 7,9 1,89 0,0 0,19 0,2 1,16 109 Pals 16,91 N/A N/A 0,00 N/A N/A 0,00 10,91 N/A 6,00 N/A 0,00 N/A 0,00 N/A 0,00 110 Digicore 15,58 16,1 16,1 4,51 15,0 N/A 1,90 0,00 N/A 0,00 N/A 0,00 0,8 4,17 9,1 5,00 111 Illovo Sugar 15,48 8,2 8,2 2,28 11,5 N/A 1,82 4,42 N/A 0,00 8,2 1,96 N/A 0,00 35,1 5,00 112 Steinhoff 14,40 2,2 2,2 1,07 7,1 N/A 1,83 6,50 N/A 0,00 N/A 0,00 N/A 0,00 1,3 5,00


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113 Anglo American Plc 14,35 2,3 2,3 8,89 3,3 N/A 0,20 1,99 N/A 0,15 13,0 3,12 N/A 0,00 N/A 0,00

114 AECI 14,18 6,6 6,6 1,85 5,6 N/A 0,33 0,00 N/A 0,00 93,5 12,00 N/A 0,00 N/A 0,00 115 WBHO 13,34 15,0 15,0 6,00 50,0 N/A 3,00 4,34 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00 116 Rex Trueform 12,90 N/A N/A 0,00 20,0 16,7 3,61 9,29 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

117 Pinnacle Technology 12,82 29,4 29,4 7,00 21,4 16,7 3,03 2,79 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

118 Kap International 12,80 6,0 6,0 10,80 16,7 N/A 2,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

119 KWV Investments 12,50 25,1 25,1 7,00 8,3 N/A 0,50 0,00 N/A 0,00 N/A 0,00 N/A 0,00 28,8 5,00

120 Dimension Data* 12,43 25,0 25,0 8,96 4,2 N/A 0,67 2,80 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

121 Allied Technologies 12,42 4,8 4,8 9,34 12,5 N/A 1,75 0,00 N/A 0,00 N/A 0,00 N/A 0,00 0,3 1,32

122 Matodzi Resources 12,40 25,7 25,7 7,00 40,0 50,0 5,40 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

123 Primeserv Group 12,29 25,8 25,8 11,00 21,4 N/A 1,29 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00


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124 Brait 12,00 26,0 26,0 7,00 N/A N/A 0,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 2,6 5,00 125 Afgem 11,48 26,0 26,0 8,00 35,7 33,3 3,48 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

126 Anglo Platinum 11,03 4,9 4,9 1,60 15,8 N/A 1,21 0,00 N/A 0,21 2,1 0,51 0,5 2,49 1,3 5,00

127 ERP.com 11,00 26,0 26,0 7,00 60,0 N/A 4,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

128 Wesizwe Platinum 11,00 51,0 51,0 8,00 50,0 N/A 3,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

129 Calulo Property 10,76 51,8 51,8 8,88 31,3 N/A 1,88 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

130 Cashbuild 10,67 16,7 16,7 5,67 N/A N/A 0,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 2,9 5,00 131 Makalani 10,63 25,4 25,4 7,00 43,8 N/A 3,63 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00 132 York Timber 10,33 26,0 26,0 9,00 22,2 N/A 1,33 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00 133 Clientele Life 10,20 N/A N/A 0,00 N/A N/A 0,00 0,00 N/A 0,00 N/A 0,00 1,0 5,20 1,4 5,00 134 Petmin 10,11 43,5 43,5 7,00 10,0 N/A 3,11 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00 135 Metrofile 10,00 25,0 25,0 7,00 33,3 N/A 3,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

138 Pasdec Resources 9,75 43,0 43,0 7,00 12,5 50,0 2,75 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

139 ELB 9,71 12,7 12,7 3,54 8,3 16,7 1,17 0,00 N/A 0,00 N/A 0,00 N/A 0,00 10,2 5,00 140 AVI 9,54 14,3 14,3 4,00 22,7 N/A 1,36 0,00 N/A 0,00 N/A 0,00 N/A 0,00 0,8 4,17 141 Hudaco 9,48 N/A N/A 0,00 14,3 N/A 1,48 1,72 N/A 0,00 N/A 0,00 1,3 6,27 N/A 0,00


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142 Vukile Property Fund 9,29 32,5 32,5 8,00 11,1 N/A 1,29 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

143 Metorex 9,20 11,4 11,4 3,20 N/A N/A 0,00 0,00 N/A 6,00 N/A 0,00 N/A 0,00 N/A 0,00 144 EOH 9,03 35,6 35,6 7,00 22,7 16,7 2,03 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

145 Square One Solutions 9,00 31,9 31,9 7,00 25,0 12,5 2,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

146 Scharrig Mining 8,87 44,0 44,0 7,00 10,0 N/A 0,60 0,00 N/A 1,27 N/A 0,00 N/A 0,00 N/A 0,00

147 Consol 8,76 N/A N/A 0,00 11,1 10,0 1,69 0,58 N/A 0,00 N/A 0,00 0,3 1,48 1,6 5,00 148 Spescom 8,50 31,4 31,4 7,00 25,0 N/A 1,50 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00 149 Basil Read 8,38 51,7 51,7 7,00 23,1 N/A 1,38 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

150 Simmer & Jack 8,38 44,0 44,0 7,00 23,1 N/A 1,38 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

151 Miranda Mineral 8,20 29,3 29,3 7,00 20,0 N/A 1,20 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

152 Winhold 8,00 25,0 25,0 8,00 N/A N/A 0,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00 153 Mittal Steel 7,87 N/A N/A 0,00 15,0 16,7 4,13 0,00 N/A 0,41 7,0 1,68 0,0 0,01 0,3 1,64

154 Set Point Technology 7,76 20,7 20,7 5,80 18,8 N/A 1,96 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00


HSRC

64


Empl equity

(%) Skills

development (%)


(%)


(%) CSI (%)

Rnk '07 Company

BEE Score (%)

Voting rights






155 Decillion 7,50 N/A N/A 1,00 25,0 N/A 1,50 0,00 N/A 0,00 N/A 0,00 N/A 0,00 1,0 5,00 156 PPC 7,41 N/A N/A 0,00 8,3 10,0 2,15 2,25 N/A 0,00 N/A 0,00 N/A 0,00 0,6 3,00 157 Reunert 7,34 N/A N/A 0,00 18,2 N/A 2,42 3,80 N/A 0,58 N/A 0,00 0,1 0,54 N/A 0,00 158 Excellerate 7,33 25,0 25,0 7,00 5,6 N/A 0,33 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00 159 Transpaco 7,31 27,0 27,0 7,00 N/A N/A 0,31 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

160 Ceramic Industries 7,00 N/A N/A 0,00 6,3 N/A 1,00 0,00 N/A 6,00 N/A 0,00 N/A 0,00 N/A 0,00

161 Hospitality Property 7,00 16,8 16,8 4,70 27,8 N/A 2,29 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

162 Bowler Metcalf 6,76 N/A N/A 0,00 7,1 8,3 0,76 0,00 N/A 6,00 N/A 0,00 N/A 0,00 N/A 0,00

163 Dorbyl 6,54 N/A N/A 0,00 8,3 N/A 0,54 0,00 N/A 6,00 N/A 0,00 N/A 0,00 N/A 0,00 164 Illiad Africa 6,51 10,0 2,7 4,17 25,0 N/A 2,33 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

165 Spur Corporation 6,28 N/A N/A 0,00 N/A N/A 0,00 6,28 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

166 Barloworld 6,05 0,5 0,5 0,15 8,3 N/A 0,50 0,00 N/A 0,00 N/A 0,00 1,1 5,34 0,0 0,06

167 Paramount Property 6,00 N/A N/A 0,00 N/A N/A 0,00 0,00 N/A 6,00 N/A 0,00 N/A 0,00 N/A 0,00

168 Vesta Technology 5,95 15,0 15,0 4,20 12,5 N/A 1,75 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

169 Assore 5,58 15,0 15,0 5,21 6,3 N/A 0,38 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00


65


Empl equity

(%) Skills

development (%)


(%)


(%) CSI (%)

Rnk '07 Company

BEE Score (%)

Voting rights






170 Madison Property 5,37 10,6 10,6 2,97 40,0 N/A 2,40 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

171 Sovereign Food 5,00 N/A N/A 0,00 N/A N/A 0,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 54,8 5,00

172 Grindrod 5,00 25,1 N/A 3,00 16,7 N/A 2,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

173 Resilient Property 4,80 8,1 8,1 2,28 21,4 10,0 2,52 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

174 Verimark 4,40 10,0 10,0 2,80 10,0 N/A 1,60 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00 175 Ellerine 4,25 N/A N/A 0,00 N/A N/A 0,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 0,8 4,25 176 African Media 4,20 N/A N/A 0,00 50,0 30,0 4,20 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00 177 AG Industries 4,18 N/A N/A 0,00 N/A N/A 0,00 4,18 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

178 Acucap Properties 4,08 14,6 14,6 4,08 N/A N/A 0,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

179 Eland Platinum 4,00 N/A N/A 0,00 50,0 N/A 4,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

180 Naspers 3,79 3,7 3,7 1,04 29,2 N/A 2,75 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

181 Pangbourne Prop 3,65 6,2 6,2 1,72 18,2 N/A 1,92 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

182 Metair 3,61 N/A N/A 0,00 N/A N/A 0,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 0,7 3,61


HSRC

66


Empl equity

(%) Skills

development (%)


(%)


(%) CSI (%)

Rnk '07 Company

BEE Score (%)

Voting rights






183 UCS Group 3,18 10,2 10,2 2,88 5,0 N/A 0,30 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

184 Diversified Property 3,00 N/A N/A 0,00 33,3 N/A 3,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

185 Sabvest 2,88 N/A N/A 0,00 31,3 N/A 2,88 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

186 Martprop Property 2,88 N/A N/A 0,00 31,3 N/A 2,88 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

187 PSG Group 2,83 10,1 10,1 2,83 N/A N/A 0,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00 188 Cargo Carriers 2,62 4,9 4,9 1,36 10,0 16,7 1,27 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

189 Spearhead Property 2,59 N/A N/A 0,00 13,6 N/A 0,82 0,00 N/A 0,00 N/A 0,00 N/A 0,00 0,4 1,78

190 Seardel Investment 2,50 N/A N/A 0,00 N/A N/A 0,80 0,00 N/A 1,70 N/A 0,00 N/A 0,00 N/A 0,00

191 InfoWave 2,40 N/A N/A 0,00 20,0 30,0 2,40 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00 192 Tiger Wheels 2,36 4,3 4,3 2,36 N/A N/A 0,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00 193 Western Areas 2,33 N/A N/A 0,00 25,0 N/A 2,33 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

194 Caxton & CTP 2,31 N/A N/A 0,00 5,6 N/A 0,96 0,00 N/A 1,01 N/A 0,00 N/A 0,00 0,1 0,34

195 Enterprise Risk 2,29 N/A N/A 0,00 21,4 N/A 2,29 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

196 RMB 2,03 2,9 2,9 0,82 6,3 N/A 1,21 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

197 Wits Cons Gold 2,00 N/A N/A 0,00 16,7 N/A 2,00 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00


67


Empl equity

(%) Skills

development (%)


(%)


(%) CSI (%)

Rnk '07 Company

BEE Score (%)

Voting rights






198 Ambit Properties 1,91 N/A N/A 0,00 21,4 N/A 1,91 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

199 Mercantile Bank 1,90 N/A N/A 0,00 15,0 N/A 1,90 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00

200 ApexHi Properties 1,83 N/A N/A 0,00 16,7 N/A 1,83 0,00 N/A 0,00 N/A 0,00 N/A 0,00 N/A 0,00 *

Dimension Data was unable to provide us with updated data before TEC went to press. We note, however, that Empowerment Services, an empowerment rating agency, calculated an empowerment score

for Dimension Data of 68,73. We were unable to determine if this calculation is on a similar basis as the other scores calculated for TEC. Source: Empowerdex

AN OVERVIEW OF PREFERENTIAL PROCUREMENT IN SOUTH … · profile – ‘preferential procurement’...

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