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Seedbed of job creation?
Should the government’s broad-based black economic empowerment (BBBEE) strategy be reassessed and enterprise development be ditched? A leading accountancy firm and one of the country’s leading empowerment and business development entities find themselves on different sides of the fence.
KPMG recently proposed a reassessment and has suggested that enterprise development, with skills development and socio-economic development, be removed from empowerment assessment. This would mean that the seven elements used to rate companies’ BBBEE profile would be reduced to four.
But Nick van Rensburg, managing director of Anglo American’s Zimele, one of the country’s most successful empowerment and business development initiatives, has come out with guns blazing. He has strongly advocated the retention of the three elements.
“It will be an atrocity if that (enterprise development, skills development and socio-economic development) falls away,” Van Rensburg says. He describes enterprise development as the “seedbed” of job creation in South Africa and points out that whereas big business is shedding jobs in the current downturn, only small business is creating jobs. (Source: "Mail & Guardian").
Van Rensburg told the publication "BEE Scorecard" that BEE legislation and the codes of good practice have created awareness within corporate South Africa.
It has facilitated an introspective look for companies to evaluate more closely and expand their own corporate and social responsibilities.
“This has resulted in a more socially responsible corporate South Africa, whereby each business has created and developed enterprise development strategies and BEE initiatives across a spectrum of fields,” he told "BBQ Scorecard".
‘Left out in the cold’
“The spreading of the BEE base has also assisted in a 'push down' of training and transactions to the middle and lower class where true empowerment is, in fact, taking place.”
Companies that did not comply soon realised they were left out in the cold.
The benefits far outweigh the cost of a company complying with the relevant legislation / BEE Codes of Good Practice.
Another positive outcome is that companies that have not been proactive in the field have put programmes in place. This is a prerequisite to obtaining a licence to operate in South Africa.
Corporates are actually prepared to start funding these businesses from both a financial and non-financial perspective.
The legislation / BEE Codes of Good Practice have also been very instrumental in creating decent jobs for South Africans. Future job creation will occur less in the corporate sector and more in the small and medium enterprise sector.
The creation of quality entrepreneurs will go a long way to ensure the creation, sustainability and success of these enterprises, said Van Rensburg.
Broadening the base through skills development
Asked how the retention of the three elements (that KPMG is advocating the removal of) would assist in broadening the economic base, Van Rensburg said it would create stability in South Africa and a reasonably sized middle-class in a society that is considered one of the most unequal in the world.
Enterprise development and skills development go hand in hand – the economic activity and growth of South Africa depends on this, Van Rensburg told "BBQ Scorecard".
Rethink traditional seven elements, says Hlope
The suggestion by KPMG that enterprise development, with skills development and socio-economic development, be ditched, were contained in the firm’s recently released BBBEE survey, “Are we there yet?”.
KPMG says the traditional seven elements of BBBEE should be rethought and rationalised down to four in order to facilitate ease of implementation and monitoring to acknowledge ongoing and consistent progress in certain areas.
The seven elements that form the basis of the generic scorecard are: ownership, management control, employment equity, skills development, preferential procurement, enterprise development and socio-economic development initiatives.
Sandile Hlophe, managing director of KPMG Restructuring Advisory, says that because of the relative success of companies in meeting targets, some of the BEE initiatives are no longer effective, hence the need to “shift our attention to the areas that have not shown positive progress in the past four years”.
The survey states that companies should concentrate on ownership, management control, employment equity and preferential procurement, because targets for socio-economic development, which are akin to the civil society index, have been achieved.
Enterprise development and skills development, the impact of which has been limited, should also be rethought, KPMG says. Accordingly, the weighting of the remaining four elements should be increased to 25 points for each in the reconfigured scorecard.
The survey attracted responses from 250 companies, ranging from listed to unlisted, parastatal and multinational organisations.
Focusing on ownership
On the issue of ownership, Hlophe maintains that income and wealth creation come from equity ownership. A meaningfully empowered black sector of the population will therefore need access to ownership of corporate equity.
Because the transformation of an organisation begins with leadership, management control of organisations is essential for effective transformation of corporate South Africa, while employment equity acts as a measure of the transformation of an organisation through the profile of its staff complement.
“In addition, we should not underestimate the role of preferential procurement. This is the key enabler to ensure that the spirit of the regulation on black economic empowerment is translated into practical consequences for both suppliers and contractors in terms of compliance,” says Hlophe.
After 15 years, BEE is ‘still elusive for the majority’
To galvanise the attainment of the level-four compliance requirement, the target should be set at 75 points to ensure progress on all four elements, added the managing director of KPMG.
Fifteen years into democracy, black economic transformation still remains elusive for the majority black population.
This is a challenge that requires a rethink on how to accelerate BEE for the majority population who still does not enjoy an equal footing or opportunity as indicated by the 2009 BEE survey results, says Hlophe.
“We would also advocate that no further changes be done on the selected four elements, as this would require further stakeholder consultation and gazetting of the new measures which would set back the progress on BEE by a few more years,” he concluded.
Why ditching the elements could be ‘catastrophic’
Van Rensburg, in elaborating on why he is strongly opposed to the ditching of the aforementioned three elements, said: If it is not compulsory to comply with the BEE legislation/BEE Codes of Good Practice, business generally may not do anything and be complacent.
These three elements of enterprise development, skills development and socio-economic development need to be driven, targeted and measured.
It would deprive many South African citizens of the opportunity to develop their own business if corporate South Africa discontinues its enterprise development, skills development and socio-economic development initiatives.
The long-term impact of this will be catastrophic for entrepreneurial South Africa.
The entrepreneurial culture in South Africa is only now beginning to grow and is fertilised by the BEE Codes of Good Practice.
Rural and community development – in terms of enterprise development, skills development and job creation – will also suffer a setback, something the country can ill afford. This will have vast socio-economic consequences, warned the managing director of Zimele.
A world-class practice
The philosophy of enterprise development as applied by Anglo Zimele, Anglo American’s enterprise development initiative, has proved to work very well over the years and has been recognised widely as a world-class, best practice model, said Van Rensburg.
It is a systematic programme that produces the desired outcomes in the creation and development of small business and the generation of successful entrepreneurs.
Small and medium enterprises do not only require funding but also ongoing skills development and support.
Enterprise development, skills development and socio-economic development are vitally important to the South African economy as well as the growth and prosperity of the country.
Advocating adjustments to the BBBEE format
Van Rensburg proposes that the mechanism for facilitating ownership should be reviewed. The debt and vendor financing models only work when the world economies are in a bull run i.e. growing.
The ownership requirement should be tied up with a financial instrument financed by the government. The burden should not be carried by corporate South Africa.
Fine-tuning BBBEE to assist skills development
Van Rensburg says access to skills development funding can only be done through a specialist.
In the small and medium enterprise sector, the skills development levy is considered to be merely another tax and most can simply not be bothered to follow the cumbersome process of applying for these funds and paying for the services of a specialist.
“If this process can be simplified for small businesses, it will greatly enhance the effectiveness of skills development in the sector,” he emphasised.
The influence of the recessionary climate on BBBEE
The recent economic recession has had an effect on business in South Africa, as the Bureau for Economic Research warned that a shrinking of the South African economy of between 1.5 and 2% for the entire year 2009 was a distinct possibility.
The Zimele director said in the small and medium enterprise sector (SME), most SMEs have experienced limited impact (of the recession), although volumes have declined for some.
“The long-term effect of the recession where BEE shares have been funded by debt will probably require a postponement, by at least five years, on the repayment period that has been anticipated at the outset,” Van Rensburg explained.
Nadia Gameldien
