THE Department of Trade and Industry (DTI) is pressing ahead in its push to amend the codes of good practice, amid charges that the department was being “overzealous” in its actions, according to an expert.
Soria Hay, head of corporate finance at investment banking firm Bravura, said that although the proposed amendments encourage businesses to embark on more inclusive strategies to push up their black ownership levels, the long list of exclusions could result in companies “devising sophisticated structures to work around these”. The DTI released proposed amendments to its codes of good practice on broad-based black economic empowerment (B-BBEE) for public commentary in March.
The 60-day period for comment closes on Monday. “The amendments present a mixed bag for SA businesses. Proposals include stricter requirements for the enhancement of small black-owned businesses,” Hay said.
“But there is also an innovative new skills development indicator which will incentivise businesses to increase their BEE levels while supporting longterm economic growth possibilities,” Hay said. She said there were some areas, specifically around the amendments to status enhancements, that deserve careful consideration by corporate South Africa. Proposed amendments include stricter requirements for the enhancement status of small and emerging black-owned businesses yet a surprising enhancement status for black-owned generic entities.
There is an innovative new skills development indicator which will also incentivise businesses to increase their BEE levels while supporting long-term economic growth possibilities.
Hay said no amendments were proposed for broad-based schemes despite criticism levelled at these by Trade and Industry Minister Rob Davies that the majority fall short in complying. The codes were amended in 2015, with ownership at their core. Measurable elements were narrowed down to five key areas including:
•enterprise development and
•socio-economic development, with stricter compliance requirements. The proposed amendments largely target ownership and skills development.
Under the previous codes, blackowned qualifying small enterprises (QSES) and exempted micro enterprises (EMEs) could automatically receive enhanced ownership status should they have met certain criteria.
While QSEs (businesses with an annual turnover between R10m and R50m) and EMEs (with an annual turnover less than R10m) previously qualified as Level 1 BEE status for 100% black-owned enterprises and Level 2 BEE status for 51% black-owned enterprises.
Commissioner Zodwa Ntuli has been vocal about the perceived fronting that occurs via these schemes and Hay recently reported to Parliament that companies were fronting their employees through trusts and a subsequent cleansing process involveing as many as 45 companies that face prosecution and criminal investigation.
Hay said the DTI may be adopting a cautious approach to amendments until a concrete finding of non-compliance emerges from the prosecution of such companies.