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Five insights you cannot ignore when scrumming with B-BBEE

18 June 2013 Deon Oberholzer, Veri-Com
Deon Oberholzer, CEO of Veri-Com.

Deon Oberholzer, CEO of Veri-Com.

It is rugby season again and Deon Oberholzer, CEO of Veri-Com and B-BBEE coach gives us insight on the five developments of B-BBEE that need to be considered in order to scrum your business over the try line in 2013.

Interesting times for B-BBEE: Super 2013?

2013 has been an interesting year for B-BBEE in South Africa – election time is around the corner and as a result government is pressured to better support its constituents and black business in general. Given the recent job-losses suffered in South Africa, unions are under fractious stress; the once powerful Cosatu is taking strain and NUM has just about been marginalised by AMCU in the platinum sector.
 
It is therefore unsurprising that 2013 has been a busy year for BEE. All but one of the Sector Codes have been completed and several new and proposed Codes, Acts and Bills are waiting on the bench. These include the release of the proposed draft B-BBEE Codes, the BEE Amendment Bill, the Employment Equity Amendment Bill and the proposed Licensing of Businesses Bill. 

These ructions considered, we know that 2013/4 will push business owners to rethink their game plans if they want to remain competitive.

# 1 The New Sin Bin: Is the Licensing of Business Bill the catch-all legislation to force BEE Compliance?

When one considers the proposed Licensing of Businesses Bill and the related hype in the media, it is easy to fixate on the increased red tape and regulatory burden its implementation will place on small companies. However, there are far greater ramifications to the private sector than additional administration. When read in conjunction with all the new proposed BEE Codes, bills and regulations, the bill will endow government far reaching power to force companies to comply with its transformation agenda. So much so that any business found wanting could simply see its licence to operate cancelled. The process to challenge such a cancellation could cause many companies to go bankrupt before it could be appealed.

A frightening prospect for those who may find themselves off-sides of the bill.

#2 Foreign Players in the squad? What is Black and when does it apply to BEE?

A factor that will increasingly impact on the long-term efficacy of B-BBEE is the increasing number of African immigrants, legal or illegal, currently residing in the country. While accurate statistics are difficult to find, it is estimated that the number of “non-white” people in South Africa that do not fall within the BEE definition of the historically disadvantaged “Black person” is estimated at somewhere between 5 and 10 million. The descendants of this grouping, however, fall inside the BEE definition of Black if they were born here.

An example of how confusing this can be is the recent incident where the Port Elizabeth team, the Southern Kings were forced to recall two foreign players for contravening SARU regulations because no more than two foreign players can be fielded at a time. According to SARU, the Argentinian player in question is considered a foreigner but the Kenyan player is not because he is an African.

Will government be able clearly to demarcate these boundaries of local versus foreign rights or will the future hold an “anything but white” sentiment? 

Take the race card played by a Cape Town-based junior advocate recently when he claimed he was excluded from shipping briefings because he was black and Zimbabwean (Business Day, Tuesday 21 May 2013). He complained that the Cape Bar is notorious for excluding black African advocates. He is clearly upset by what he perceives as unfair treatment. However, he is a Zimbabwean and in terms of the definition of Black as set out in the constitution, is not entitled to any preferential treatment at all; as in terms of the definition of Black, he is in fact, “White”. 

#3 League Changes: New BEE codes and how they will affect the players and their spectators

According to the DTI there were approximately 924 000 businesses in South Africa in 2012. The new BEE codes propose that the threshold for EME (Exempted Micro Enterprises) exemption should be raised from under R5 million to under R10 million turnover which renders 95% of the businesses excepted from complying to the new BEE Codes. With the much more onerous requirements mooted in the draft BEE Codes, many of the 30 000 companies that fall between R10 million to R30 million turnover range may find the temptation to spin out into smaller entities or shrink below R10 million irresistible. Thus leaving the remaining less than 3% of businesses to carry the flag of BEE compliance and transformation. 

The vast majority of these remaining businesses will be non-compliant if measured under the new Codes, so it is probable that many of them may consider throwing in the towel. The proposed removal of exemption for imports will see many international companies suddenly having to revaluate their strategies for South Africa and Africa. An opportunity to innovate? Or another wave of job-losses in the making?

#4 Player Statistics: Where is the Verification Industry going?

The BEE Verification Industry is in flux and becoming increasingly crowded. The number of approved Registered Auditors that issue BEE Certificates already outnumber the SANAS (South African National Accreditation System) accredited verification agencies three to one. Add to this the dynamic of the IRBA (Independent Regulatory Board for Auditors) joining the scrum as of 10 July 2012 and one can expect new and interesting tactics to achieve B-BBEE compliance.

The impact that the IRBA member will have remains to be seen, but if the state of tax planning and optimisation is anything to go by, B-BBEE legislation will have to shift from its morality platform into a much more sophisticated and detailed legal space. After all, one would not expect an auditor to guide his clients on how much tax to pay as a moral issue. His job is to make sure his clients comply with the law and that law is geared to close all the loopholes the creative minds come up with.

Could fronting become the new tax evasion?

#5 Player Quotas: A game changer

The new proposed racial demographic representation clause in the new draft BEE Codes will have a dramatic impact on how businesses hire, promote and place staff. The amendment requires the overall demographic representation of Black people within the staff complement to be further racially segmented based on specific criteria. In order to comply, business owners will now have to take into account the respective race sub-groups within the definition of “Black” as guided by the Employment Equity Act, as well as the targets for each sub-grouping of the Economically Active Population.

While the draft B-BBEE Codes are not specific on the issue of national or local demographics, the general assumption is that national demographics will apply to any company that is represented in more than one province. This new requirement will have a huge effect on employment equity. If the demographics clause is applied according to national demographics, an Indian owned company that has previously enjoyed “all Black-owned” status, and was therefore a Level 1 BEE certified company, will now have to exchange Indian management and employees for 11.1% Coloured and 74.1% Black employees. There is no clarification on the rounding of figures. If 11.1% of senior managers should be Coloured and you only employ four, how will that decimal be interpreted? Or can one employ half a person?

The risk is that the future of the labour force in South Africa could again become race based. In future, mixed-race individuals could become increasingly pressured to obtain some form of official race classification in order to qualify for a post. This could also result in an obligation on the verification agency to make a determination on race classification, opening up a traumatic classification process that would have been more at home during South Africa’s old regime.

It would be really unfortunate if the BEE Super 2013 is cancelled because all the teams got disqualified.

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