The BEE Challenge
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The presentation by Dirk Kemp discusses the importance of Broad-Based Black Economic Empowerment (B-BBEE) for businesses in South Africa, emphasizing its multidimensional nature and the need for strategic responses to achieve compliance. It outlines the various dimensions and scorecards used to evaluate a company's contribution to B-BBEE, as well as the implications of these ratings for business operations and ownership structures. The document also highlights the role of independent ratings and the potential benefits of B-BBEE, such as securing new business and improving exit strategies.
The BEE Challenge
- 1. Presentation by Dirk Kemp The BEE Challenge
- 2. Topics of Discussion Why should you be thinking about BEE? What does (and doesn’t) Broad Based BEE mean? Dimensions of Broad Based BEE & Scorecards Which standards / criteria apply to your business? Taking stock – how do you rate at present? Developing a strategic response Prioritised actions Getting an independent rating
- 3. Why even think about BEE? Doesn’t BEE only apply in Government contracts? How can BEE be made applicable to small owner-managed businesses? BEE has become an imperative for growing a business in SA over the next 10 years BEE offers several potential advantages to those who get it right – Securing existing and gaining new business, A means of realising some capital & developing an exit strategy Return to Contents
- 4. What does Broad Based BEE mean? Disillusionment with first generation BEE deals led to re-examination – BEE Commission Broad Based BEE Act (No 53 of 2003) introduced To achieve broader objectives than transfer of ownership To introduce a universally applicable system (but with flexibility – to accommodate sectoral variations) and To ensure that the impact / effect cascades throughout the economy Also established a BEE Advisory Council to review progress and introduce new ideas in future Return to Contents
- 5. Dimensions of BBBEE & Scorecards Approach to BEE is multi-dimensional: Participation in ownership & control (directorate) Participation in management & skills development Indirect empowerment – preferential procurement Indirect empowerment – enterprise development Indirect empowerment – corporate social investment Scorecards provide for varying points For each dimension For women ownership, youth ownership, etc Thresholds entitle Co. to recognition as Excellent, Good or Satisfactory Contributor to BEE – impacts ratings of its customers Scorecards are to be audited by independent rating agency > 80% An Excellent Contributor to BEE 65% - 79,9% A Good Contributor to BEE 40% – 64,9% A Satisfactory Contributor to BEE Return to Contents
- 6. Which Charter / Guidelines apply? Industry BEE Charters Mining Charter Financial Services Charter Petroleum and Liquid Fuels Charter ICT Charter Transport Charter Tourism Scorecard Agricultural Sector Human Resources (Proposed) Otherwise the BEE Codes of Good Practice apply Return to Contents
- 7. Taking stock – How do you rate now? Return to Contents 100 TOTAL 10 CSI 10 Enterpr. Dev 20 Procurement 20 Skills Devmt 10 Employmt Eq 10 Management 20 Ownership Score Actual % Target % Weight Criteria
- 8. Developing a Strategic Response Could it work to excel in non-ownership areas and qualify as a “good contributor to BEE”? If not, consider options in terms of ownership Black empowered - >25% owned by PDIs; Black women empowered - >=30% owned by PDIs Black owned - >=50% owned by PDIs Other dimensions - assess where greatest effort / adjustment will be required in order to achieve max points towards desired “contributor to BEE status” Prioritise dimensions requiring greatest effort and develop action plans Record everything you do (e.g. skills development) properly Return to Contents
- 9. Prioritised Actions In terms of Standard Bank’s RFI “ this tender is exclusively for BEE companies in following categories of the Financial Sector Charter, officially accredited . . .” Black empowered - >25% owned by PDIs; Black women empowered - >=30% owned by PDIs Black owned - >=50% owned by PDIs There is no reference to any other dimensions Look at implications and Consider possible routes to preferred status and Weigh up in context of all relevant factors Return to Contents
- 10. Possible implications Questions Do I have to give away shares in my business? Must I reduce my share in future profits of business? Can I empower my staff? How will this affect my exit strategy? Answers No Yes,but not necessarily by as much as shareholding% Yes, but shares must be issued & registered (if options – must be exercised) Depends on structure used – it could add a new option to existing exit strategy Return to Contents
- 11. Routes to Preferred BEE status Routes Sell share of existing entity – CC or Co. Sell all (or only part) of existing business to new partnership, CC, Co. or Trust in which acquirer invests Consider making it a subsidiary If selling all, reduce sale value – take out past profits before sale Continue incentivising staff based on performance Factors to Consider (these apply to all) How will business be valued by a potential purchaser in future? Can same valuation criteria be applied now? Affordability for acquirer Effect on incentives Tax implications – CGT Possible funding arrangements and sources Return to Contents
- 12. Get Independent BEE Rating Independent Rating Agencies are being accredited in terms of the Broad Based BEE Act So far, very few have been accredited, primarily Empowerdex and Empowerlogic Guidelines have been published for comment Standard Bank RFI indicates a letter from External Auditor (PAAB) will also be acceptable, verifying legal ownership / voting rights & effective control Return to Contents
- 13. How may Umnotho Trust assist? Advice on what it would take to become BEE compliant – or to achieve preferred BEE status? Identifying possible options in terms of transactions Advising on pro’s and con’s of each option Structuring a BEE transaction Finding one or more suitable black investors or partners Raising funding for the BEE transaction Drafting agreements between the parties to give effect to the BEE transaction