Presentation by Dirk Kemp The BEE Challenge
Topics of Discussion <ul><li>Why should you be thinking about BEE? </li></ul><ul><li>What does (and doesn’t) Broad Based B...
Why even think about BEE? <ul><li>Doesn’t BEE only apply in Government contracts? </li></ul><ul><li>How can BEE be made ap...
What does Broad Based BEE mean? <ul><li>Disillusionment with first generation BEE deals led to re-examination – BEE Commis...
Dimensions of BBBEE & Scorecards <ul><li>Approach to BEE is multi-dimensional: </li></ul><ul><ul><li>Participation in owne...
Which Charter / Guidelines apply? <ul><li>Industry BEE Charters </li></ul><ul><ul><li>Mining Charter  </li></ul></ul><ul><...
Taking stock – How do you rate now? Return to Contents 100 TOTAL 10 CSI 10 Enterpr. Dev 20 Procurement 20 Skills Devmt 10 ...
Developing a Strategic Response <ul><li>Could it work to excel in non-ownership areas and qualify as a “good contributor t...
Prioritised Actions <ul><li>In terms of Standard Bank’s RFI </li></ul><ul><ul><li>“ this tender is exclusively for BEE com...
Possible implications <ul><li>Questions </li></ul><ul><li>Do I have to give away shares in my business? </li></ul><ul><li>...
Routes to Preferred BEE status <ul><li>Routes </li></ul><ul><li>Sell share of existing entity – CC or Co. </li></ul><ul><l...
Get Independent BEE Rating <ul><li>Independent Rating Agencies are being accredited in terms of the Broad Based BEE Act </...
How may Umnotho Trust assist? <ul><li>Advice on what it would take to become BEE compliant – or to achieve preferred BEE s...
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The BEE Challenge

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An exploration of diverse issues that need to be addressed simultaneously to achieve true economic empowerment for the previously disadvantaged in South Africa

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The BEE Challenge

  1. 1. Presentation by Dirk Kemp The BEE Challenge
  2. 2. Topics of Discussion <ul><li>Why should you be thinking about BEE? </li></ul><ul><li>What does (and doesn’t) Broad Based BEE mean? </li></ul><ul><li>Dimensions of Broad Based BEE & Scorecards </li></ul><ul><li>Which standards / criteria apply to your business? </li></ul><ul><li>Taking stock – how do you rate at present? </li></ul><ul><li>Developing a strategic response </li></ul><ul><li>Prioritised actions </li></ul><ul><li>Getting an independent rating </li></ul>
  3. 3. Why even think about BEE? <ul><li>Doesn’t BEE only apply in Government contracts? </li></ul><ul><li>How can BEE be made applicable to small owner-managed businesses? </li></ul><ul><li>BEE has become an imperative for growing a business in SA over the next 10 years </li></ul><ul><li>BEE offers several potential advantages to those who get it right – </li></ul><ul><ul><li>Securing existing and gaining new business, </li></ul></ul><ul><ul><li>A means of realising some capital & developing an exit strategy </li></ul></ul>Return to Contents
  4. 4. What does Broad Based BEE mean? <ul><li>Disillusionment with first generation BEE deals led to re-examination – BEE Commission </li></ul><ul><li>Broad Based BEE Act (No 53 of 2003) introduced </li></ul><ul><ul><li>To achieve broader objectives than transfer of ownership </li></ul></ul><ul><ul><li>To introduce a universally applicable system (but with flexibility – to accommodate sectoral variations) and </li></ul></ul><ul><ul><li>To ensure that the impact / effect cascades throughout the economy </li></ul></ul><ul><ul><li>Also established a BEE Advisory Council to review progress and introduce new ideas in future </li></ul></ul>Return to Contents
  5. 5. Dimensions of BBBEE & Scorecards <ul><li>Approach to BEE is multi-dimensional: </li></ul><ul><ul><li>Participation in ownership & control (directorate) </li></ul></ul><ul><ul><li>Participation in management & skills development </li></ul></ul><ul><ul><li>Indirect empowerment – preferential procurement </li></ul></ul><ul><ul><li>Indirect empowerment – enterprise development </li></ul></ul><ul><ul><li>Indirect empowerment – corporate social investment </li></ul></ul><ul><li>Scorecards provide for varying points </li></ul><ul><ul><li>For each dimension </li></ul></ul><ul><ul><li>For women ownership, youth ownership, etc </li></ul></ul><ul><ul><li>Thresholds entitle Co. to recognition as Excellent, Good or Satisfactory Contributor to BEE – impacts ratings of its customers </li></ul></ul><ul><li>Scorecards are to be audited by independent rating agency </li></ul>> 80% An Excellent Contributor to BEE 65% - 79,9% A Good Contributor to BEE 40% – 64,9% A Satisfactory Contributor to BEE Return to Contents
  6. 6. Which Charter / Guidelines apply? <ul><li>Industry BEE Charters </li></ul><ul><ul><li>Mining Charter </li></ul></ul><ul><ul><li>Financial Services Charter </li></ul></ul><ul><ul><li>Petroleum and Liquid Fuels Charter </li></ul></ul><ul><ul><li>ICT Charter </li></ul></ul><ul><ul><li>Transport Charter </li></ul></ul><ul><ul><li>Tourism Scorecard </li></ul></ul><ul><ul><li>Agricultural Sector </li></ul></ul><ul><ul><li>Human Resources (Proposed) </li></ul></ul><ul><li>Otherwise the BEE Codes of Good Practice apply </li></ul>Return to Contents
  7. 7. Taking stock – How do you rate now? Return to Contents 100 TOTAL 10 CSI 10 Enterpr. Dev 20 Procurement 20 Skills Devmt 10 Employmt Eq 10 Management 20 Ownership Score Actual % Target % Weight Criteria
  8. 8. Developing a Strategic Response <ul><li>Could it work to excel in non-ownership areas and qualify as a “good contributor to BEE”? </li></ul><ul><li>If not, consider options in terms of ownership </li></ul><ul><ul><li>Black empowered - >25% owned by PDIs; </li></ul></ul><ul><ul><li>Black women empowered - >=30% owned by  PDIs </li></ul></ul><ul><ul><li>Black owned - >=50% owned by PDIs </li></ul></ul><ul><li>Other dimensions - assess where greatest effort / adjustment will be required in order to achieve max points towards desired “contributor to BEE status” </li></ul><ul><li>Prioritise dimensions requiring greatest effort and develop action plans </li></ul><ul><li>Record everything you do (e.g. skills development) properly </li></ul>Return to Contents
  9. 9. Prioritised Actions <ul><li>In terms of Standard Bank’s RFI </li></ul><ul><ul><li>“ this tender is exclusively for BEE companies in following categories of the Financial Sector Charter, officially accredited . . .” </li></ul></ul><ul><ul><ul><li>Black empowered - >25% owned by PDIs; </li></ul></ul></ul><ul><ul><ul><li>Black women empowered - >=30% owned by  PDIs </li></ul></ul></ul><ul><ul><ul><li>Black owned - >=50% owned by PDIs </li></ul></ul></ul><ul><ul><li>There is no reference to any other dimensions </li></ul></ul><ul><li>Look at implications and </li></ul><ul><li>Consider possible routes to preferred status and </li></ul><ul><li>Weigh up in context of all relevant factors </li></ul>Return to Contents
  10. 10. Possible implications <ul><li>Questions </li></ul><ul><li>Do I have to give away shares in my business? </li></ul><ul><li>Must I reduce my share in future profits of business? </li></ul><ul><li>Can I empower my staff? </li></ul><ul><li>How will this affect my exit strategy? </li></ul><ul><li>Answers </li></ul><ul><li>No </li></ul><ul><li>Yes,but not necessarily by as much as shareholding% </li></ul><ul><li>Yes, but shares must be issued & registered (if options – must be exercised) </li></ul><ul><li>Depends on structure used – it could add a new option to existing exit strategy </li></ul>Return to Contents
  11. 11. Routes to Preferred BEE status <ul><li>Routes </li></ul><ul><li>Sell share of existing entity – CC or Co. </li></ul><ul><li>Sell all (or only part) of existing business to new partnership, CC, Co. or Trust in which acquirer invests </li></ul><ul><li>Consider making it a subsidiary </li></ul><ul><li>If selling all, reduce sale value – take out past profits before sale </li></ul><ul><li>Continue incentivising staff based on performance </li></ul><ul><li>Factors to Consider </li></ul><ul><li>(these apply to all) </li></ul><ul><li>How will business be valued by a potential purchaser in future? </li></ul><ul><li>Can same valuation criteria be applied now? </li></ul><ul><li>Affordability for acquirer </li></ul><ul><li>Effect on incentives </li></ul><ul><li>Tax implications – CGT </li></ul><ul><li>Possible funding arrangements and sources </li></ul>Return to Contents
  12. 12. Get Independent BEE Rating <ul><li>Independent Rating Agencies are being accredited in terms of the Broad Based BEE Act </li></ul><ul><li>So far, very few have been accredited, primarily Empowerdex and Empowerlogic </li></ul><ul><li>Guidelines have been published for comment </li></ul><ul><li>Standard Bank RFI indicates a letter from External Auditor (PAAB) will also be acceptable, verifying legal ownership / voting rights & effective control </li></ul>Return to Contents
  13. 13. How may Umnotho Trust assist? <ul><li>Advice on what it would take to become BEE compliant – or to achieve preferred BEE status? </li></ul><ul><li>Identifying possible options in terms of transactions </li></ul><ul><li>Advising on pro’s and con’s of each option </li></ul><ul><li>Structuring a BEE transaction </li></ul><ul><li>Finding one or more suitable black investors or partners </li></ul><ul><li>Raising funding for the BEE transaction </li></ul><ul><li>Drafting agreements between the parties to give effect to the BEE transaction </li></ul>

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