Current and coming law on ED, and you - Serious Enterprise Development 2011


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Presented during Tshikululu Social Investments' 2011 Serious Enterprise Development workshop.

How do the objectives of enterprise development under B-BBEE codes compare to those in other countries? Dr Woolley will review the basis of ED qualification under the codes; ask how a company
might engage in value-adding ED in a way that aligns with business strategy; and consider what to do, and what not to do, during the implementation of ED.

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Current and coming law on ED, and you - Serious Enterprise Development 2011

  1. 1. Introducing Enterprise developmentDr Robin Woolley 082-332-9201
  2. 2. Ticking Time-Bomb 1 – High GINICoefficient “Gini Coefficient is a measure of statistical dispersion developed by the Italian statistician Corrado Gini, commonly used as a measure of inequality of income or wealth. A low Gini coefficient indicates a more equal distribution, with 0 corresponding to perfect equality, while higher Gini coefficients indicate more unequal distribution, with 1 corresponding to perfect inequality. When used as a measure of income inequality, the most unequal society will be one in which a single person receives 100% of the total income and the remaining people receive none (G=1); and the most equal society will be one in which every person receives the same percentage of the total income (G=0).”
  3. 3. GINI CO- EFFICIENT: Measuring inequality
  4. 4. B-BBEE will not succeed without growth Source: The Brenthurst initiative 1999
  5. 5. The dimensions of B-BBEE – a Maslow’s view Targets Weight 25% shareholding Company ownership 20% 40% - 50% Management & control 10% Once off Your company 68%-3% Employment equity 15% 3% payroll Skills development 15% On-going See overleaf Preferential procurement 20% Your supply 3% NPAT Enterprise development 15% chain 1% NPAT Socio-economic 5% The environment
  6. 6. ED Definition Enterprise Development Contributions means: • monetary or non-monetary contributions • recoverable or non-recoverable contributions • actually initiated and implemented in favour of qualifying beneficiary entities • with the objective of contributing to the development, sustainability and financial and operational independence of those beneficiariesEnterprise development – 1. Beneficiary existsfor profit Note: size and maturity is not a specific disqualification, But look at the definition of ED in the Codes.
  7. 7. Enterprise development – 2. Who qualifiesCategory A EME Contributions or 50% black owned or 30% black womenowned; adjusted using the Benefit Factor, multiplied by 1.25Category B Enterprise Development Contributions adjusted using the BenefitFactor: 50% black owned or 30% black women owned; or 25% black owned with a BEE Status of between Level One and Level Six i.e. > 25% black owned is a qualifying requirement
  8. 8. Enterprise development – 3. What qualifies grant and related contribution amount benefit factor contributionsgrant contribution full grant amount 100%direct cost incurred in verifiable cost 100%supporting ED (including both monetary and non- monetary)discounts in addition discount amount (in 100%to normal business addition to normalpractices supporting business discount)EDoverhead costs verifiable costs 80%incurred in supporting (including bothED monetary and non-(including people monetary)appointed in ED)
  9. 9. Enterprise development – 3. What qualifiescontinued loans and related contribution amount benefit factor contributionsinterest-free loan with no outstanding loan amount 100%security requirementssupporting EDstandard loan to black outstanding loan amount 70%owned entities with turnoverof less than R 35 millionsupporting EDstandard loan provided to outstanding loan amount 60%other beneficiaryenterprises supporting EDguarantees provided on guarantee amount 3%behalf of a beneficiary entitysupporting EDlower interest rate outstanding loan amount prime rate –supporting ED actual rate
  10. 10. Enterprise development – 3. What qualifiescontinued other contributions contribution amount benefit factorshorter payment periods percentage of invoiced percentage being 15supporting ED amount days less the number of days from invoice to paymentEnterprise development – 4. Different from costof sales
  11. 11. Enterprise Development best practice• Supplier support - development Excess• Strategic investment – related value PRODUCTS POSITIONING offerings / M & A activity• Core vs non-core activities PURPOSE• Courtship? – joint venturing PEOPLE PARTNERS• Collaboration PROCESSES• Capex
  12. 12. ED: Verification Process• Use audited financial statements• For Enterprise Development – Obtain evidence to determine the B-BBEE Status of the beneficiary entity and qualifying category – Obtain an independent competent persons report confirming that the beneficiaries meet the definition of "black" as defined. – Inspect Enterprise Development Agreements to ensure that it complies with the criteria. – Confirm that VAT is not included
  13. 13. Conceptualization Process/ Concept/opportunity development Idea Idea Idea time Generation Graduation Implementation Incubation Next 1. Understanding COGP 1. Business Model 1. Deal 1. Virtual 1. Accelerated technical Development Structuring Incubation: Growth compliance Mentorship, Co Development aspects of ED 2. Market Analysis: 2. Financing aching, BDS Customers and 2. Understanding Competitors 3. Entrepreneur / 2. Total a value based Partner Incubation strategic 3. Risk Assessment selection Phase Five approach to ED : structuring 3. Networking tax, IFRS2, legal, 4. Start -up Forums 3. Brainstorming empowerment, for “best fit ideas” 4. Financial Budgets Phase Four 4. Idea filtering 5. Business Plan Phase Three and selection 5. Mapping certainties and uncertainties Phase Two (Scoping) Phase One
  14. 14. Actions Responsibility By WhenLong TermMed TermShort Term Our ED map is …