SUMMARY OF BLACK ECONOMIC EMPOWERMENT IN SOUTH AFRICA

Friday, August 22, 2003
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by Claire Tucker

Black Economic Empowerment (BEE) is a central part of the South African government’s economic transformation strategy. The formulation of policy and legislative to achieve BEE has been driven by the Office of the Presidency, together with the Department of Trade and Industry (DTI).
The government’s BEE strategy is set out in the Black Economic Empowerment Strategy Document formulated by the DTI.
The central legislation regarding BEE is the Broad Based Black Economic Empowerment Bill (“the Bill”) which was introduced to parliament in June 2003. This will be the enabling legislation for BEE, it is likely to be finalised by September 2003.
BEE has a number of components which aim to increase the numbers of black people (1) and/or historically disadvantaged individuals (2) (HDI) that manage, own and control the country’s economy, and decrease racially based income inequalities.
The three core elements of BEE are:

Direct empowerment through ownership and control of enterprises and assets;

Human resource development and employment equity;

Indirect empowerment through preferential procurement policies aimed at ensuring black people benefit from government tenders.

BROAD BASED BLACK ECONOMIC EMPOWERMENT BILL

Empowers the Minister of Trade and industry to issue Codes of Practice on BEE and establishes a Council to advise the President on BEE.

These Codes of Practice will be taken into account by all organs of state in determining whether businesses qualify for licences, permissions or other authorisations in terms of the law, and for the development and implementation of a preferential procurement policy, according to the criteria set in the Codes of Practice.

The Bill provides for the development of sector-specific transformation charters. Certain industrial sectors are already relatively advanced in drafting such charters. (3)

Government will use a ‘scorecard’ to measure progress in BEE by both enterprises and sectors of economic activity.

The scorecard will measure progress according to the three core elements of ownership, employment equity and indirect empowerment (i.e. procurement and service provider profile) and will allow for the benchmarking of individual enterprises and economic sectors. (4)

The scorecard will be utilised by organs of state whenever any licence or concession is granted, an asset or state-owned enterprise sold, a public-private partnership entered into, or any other economic activity engaged in.

 
THE THREE CORE ELEMENTS OF BEE
Ownership

The Codes of Practice and sector-specific charters to be developed in terms of the proposed enabling legislation will determine specific levels of black ownership that must be achieved within a set period in each sector.

Ownership alone does not in itself constitute empowerment, but must be viewed in conjunction with the other elements.

 
Employment Equity

Section 9(2) of the Constitution (5) provides that legislative and other means to promote the protection or advancement of HDI’s (such as affirmative action) are not a violation of the right to equality.

The enabling legislation with regard to employment equity is the Employment Equity Act (6) which requires enterprises to implement affirmative action measures to bring about an equitable representation of black people in all occupations, and at all levels of involvement over a period of time. Accelerated skills development also forms part of employment equity.
Certain designated employers(7) are required to prepare employment equity plans for implementation in their enterprise. The Employment Equity Act also contains monitoring and reporting requirements.

 
Preferential Procurement

Section 9(2) of the Constitution provides that legislative and other measures designed for the promotion of HDI’s in society is not contrary to the right to equality.

Section 217(2) of the Constitution provides in addition that organs of state may implement policies that prefer HDI’s when contracting for goods or services.
The enabling legislation is the Preferential Procurement Policy Framework Act (8) which gives effect to section 217(3) of the Constitution.
This Act and the Regulations (9) promulgated under it, regulate the allocation of government tenders by organs of state, this allocation is based on a points system which operates according to formulas. (10)
A private enterprise’s BEE status is determined according to their procurement from black companies, black empowered companies and black influenced companies, (11) in their own contracts for goods and services, as a proportion of their total procurement.
 
CONCLUSION
Although the overarching legislation governing BEE has yet to be finalised BEE is presently a criteria considered when evaluating government tenders, in this context the score card approach set out above is used.
The Bill proposes extending the scorecard approach to the grant by government of licences, concessions and authorisations; public-private partnerships; the sale of assets or state owned enterprises; and to other forms of government controlled economic activity. While enterprises presently are obliged to comply with the individual statutes in force, such as the Employment Equity Act, the BEE strategy and the proposed enabling legislation will extend BEE to all sectors of the South African economy.

1. This is a generic term meaning persons previously classified as africans, coloureds and indians.2. “Historically disadvantaged individuals” has been defined in a number of regulatory instruments and policy frameworks. It generally means those persons who previously suffered disadvantage, particularly through disenfranchisement. This category includes black people, women, youth, the disabled and rural communities.3. For example, the mining industry and the banking industry.4. The common BEE scorecard, included in the Strategy Document, is structured so that each Core Element counts for 30% of the total possible points. The points scored for direct empowerment or ownership will be made up of a score for equity ownership (percentage of economic benefits) counting for 20%, score for management (percentage of black persons in executive management and/or executive board or board committees) counting for 10%, the points scored for human resource development and employment equity will be made up of a score for employment equity counting 10% and a score for skills development expenditure counting 20%, the points scored for indirect empowerment will be made up of a score for preferential procurement being the procurement by an enterprise from black-owned and empowered enterprises as a proportion of total procurement counting 20%, and a score for enterprise development counting 10%. The residual 10% will be determined according to the sector or enterprise and may include such activities as beneficiation and investment in the social wage of employees eg. housing, transport and health care.5. The Constitution of the Republic of South Africa Act No. 108 of 1996.
6. Act No. 55 of 1998.
7. Such as those employers who employ more than 50 people or who have an annual turnover which exceeds the scheduled amount in terms of the Act, or who are bound in terms of an agreement made under the Labour Relations Act.
8. Act No. 5 of 2000.
9. Published in Government Notice 725, in Government Gazette 22549 of 10 August 2001.
10. For tenders for the sale or letting of assets with a rand value between R30 000 and R500 000, the 80/20 preference point system is used.
This formula is as follows:Points Scored for the Price of the tender under consideration = 80 x 1 - Pt – Pmin
                                                                                                                    Pmin Pt = Rand value of tender under considerationPmin = Rand value of lowest acceptable tenderA maximum of 20 points may be awarded to the tenderer for being a HDI and/or subcontracting with a HDI and/or achieving any of the specified goals stipulated in Regulation 17. Any extra points are added to the points scored for price to constitute the total points. Only the tender with the highest number of points may then be selected.
For tenders or the sale or letting of assets with a rand value above R500 000, the 90/10 preference point system is used.
This formula is as follows:Points Scored for the Price of the tender under consideration = 80 x 1 - Pt – Pmin
                                                                                                                    Pmin Pt = Rand value of tender under considerationPmin = Rand value of lowest acceptable tenderA maximum of 10 points may be awarded to the tenderer for being a HDI and/or subcontracting with a HDI and/or achieving any of the specified goals stipulated in Regulation 17. Any extra points are added to the points scored for price to constitute the total points. Only the tender with the highest number of points may then be selected. The goals specified in Regulation 17 include such activities as: the promotion of South African owned enterprise, the creation of new jobs or the intensification of labour absorption and the empowerment of the work force.
11. An organisation that is more than 50,1% black owned and controlled, will be classified as black, one that has between 25% and 50,1% black ownership and control will be classified as a black empowered company, while enterprises with black ownership and control that is between 5% and 25% will be considered black influenced