For the past two years, black economic empowerment (BEE) seemed to take precedence over other economic policies. Now, with growth and job creation back at the centre of economic strategy, empowerment policies are being adjusted to fit in with these priorities.
This certainly must be the reading of the department of trade & industry's (DTI) release of the second phase of the BEE codes of good practice, which deal primarily with the treatment of foreign companies and small and medium-sized enterprises (SMEs).
The codes go out of their way to ensure that no administrative burdens are imposed on these companies that may prevent them from growing and investing in the economy.
SMEs and multinational corporations have earned significant concessions from the DTI in their implementation of BEE, including exemption from and less stringent ownership requirements.
The latest release of the codes also entrenches other aspects of government's BEE priorities, in particular the focus on broad-based empowerment as opposed to domination of the process by a few politically connected individuals .
"With these codes I hope there will be a shift of balance in terms of BEE approach and understanding," trade & industry minister Mandisi Mpahlwa said at the release of the codes this week. "BEE is not just about transfer of equity but a range of issues reflected in the approach to a broad-based scorecard."
The first-phase document, released two months ago, dealt mainly with ownership and management aspects of the scorecard, defining basic empowerment principles and the implementation of an extensive accreditation and verification system.
"No-one ever imagined how much work would be involved in the codification of BEE," Mpahlwa said.
Though foreign companies are completely exempt from the ownership aspect of the scorecard, they will have to make up for this through other initiatives, still to be determined by the DTI and sector transformation charters.
Many foreign companies, particularly US IT firms like Microsoft, have long resisted the ownership clause and some have even threatened to disinvest if government should persevere.
On the other hand, many European businesses have moved ahead and have sold shares in their operations to BEE players to remain in the running for lucrative state contracts.
Business Unity SA COO Vic van Vuuren welcomes the concessions. "We have always maintained that if you want to attract foreign investment you need to set up a special BEE dispensation for them. That should also apply to small enterprises since we are expecting a lot of growth to come from them," he says.
But Empowerdex CEO Vuyo Jack says multinationals are not off the hook. "First they have to qualify for the exemption and after that must come up with an equity equivalent, which will not be a walk in the park," says Jack. "Things like sustainable job creation could in the long run prove to add more value than transfer of ownership," he adds.
Only multinationals entirely owned by their overseas parent company are precluded from a sale of their equity . The company must also prove that an equity sale would lead to "substantial commercial harm".
If neither of these criteria is applicable, the ownership aspects of the code apply as they do for the multinational firm's local rivals. The document adds that "the minister may from time to time approve certain policies that will further exempt multinationals from equity requirements". Multinationals that sell part of their stake in their local operation to BEE players will earn additional points on the scorecard.
"While we were working with the first-phase document it became clear to us that we needed to develop a specific guideline for multinationals and small enterprises," Mpahlwa commented.
"This does not, however, prevent companies in this category from implementing empowerment as defined in the main scorecard," says the DTI's acting BEE director, Pholo Radebe. "If they comply with the main scorecard they will be awarded bonus points."
According to the proposed codes, BEE initiatives of SMEs will be judged on a less stringent scorecard than the one applied to larger SA businesses .
Empowerment initiatives of small enterprises will be measured using a scorecard with five weightings as opposed to seven in the mainstream. SMEs will choose their own five weightings , which means enterprises may choose to bypass the ownership aspect of the scorecard and still earn a solid BEE rating by emphasising employment equity, skills development, preferential procurement and enterprise development .
The definition of SMEs varies. In the agricultural sector, enterprises with annual turnover of less than R2m and employing fewer than 50 staff qualify. In mining, the turnover figure is R7,5m.
The release of these codes is an important step in achieving structural reform of the SA economy, says National Empowerment Fund CEO Philisiwe Buthelezi. The state-owned NEF has the task of financing riskier empowerment ventures and the latest codes "will help us establish sustainable funding structures", Buthelezi says.
