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Pleasee-mailyoursuggestionsto
pumulani@beehivecapital.co.za.
Spirit
Letter
C
hief among the unintended consequences was that
the BBBEE Act enriched a few connected individuals,
yet what most forget is that the companies being
empowered were, and still are, free to choose their part-
ners. The fact that they chose connected individuals should
be laid solely at the door of the companies looking for em-
powerment partners, unless, of course, they are telling us
that they were coerced to partner with certain individuals.
The positive, unintended consequences were the signifi-
cant deals flow for the financiers, advisors and lawyers who
worked on black economic empowerment (BEE) transac-
tions, and, for a number of years, BEE transactions topped
the lists of mergers and acquisitions in the country.
Subsequent to the enactment of the BBBEE Act of
2004, the General Codes of Good Practice were published
in 2007, but with much less fanfare because the market
was probably suffering from BEE fatigue. Fast-forward to
2013 and the publication by the Minister of the amended
Codes for review.
The major change to the Codes is that Enterprise and
Supplier Development (ED) now makes up at least 40 of
the 108 points available on the BEE scorecard. The first un-
intended consequence of the Codes was that there was a
proliferation of consultants who found ways of making sure
that companies ticked the scorecard without meeting the
PumulaniIN B&W
When the architects of the Broad-Based
Black Economic Empowerment (BBBEE) Act
crafted the original piece of legislation,
they most probably never foresaw the
unintended consequences of the Act,
otherwise they might have been tempted
to draft the Act differently.
Pumulani
Ncube
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of the law

2. The objective is not to criticise any of the ED
initiatives implemented by companies, but
to debate and share knowledge on what ED is
endeavouring to achieve.
spirit of the Codes. The second unintended consequence
was that, because the Codes were seen by some as a‘grudge
purchase’on the part of a company, there was a mushroom-
ing in the number of ED consultants. The final consequence
was that the top end of the ED consulting space was domi-
nated by a duopoly of companies.
One would like to believe that, when designing the ED
piece, the architects of the Codes had in mind the devel-
opment of small and medium enterprises (SMEs) by giving
tribution to the BEE transaction. Whilst the Codes allow for
this, could this be defined as narrow-based empowerment,
as the money meant for SMEs is assisting a limited number
of individuals who will soon be reasonably well off from the
BEE transaction?
One of the subcomponents of the ED Codes awards
points to the company that pays its black suppliers in a
period shorter than the normal 30-day period. Although
not expressly stated,‘black supplier’should possibly mean
black-owned or -influenced SMEs. Awarding
points for an early payment to a black-
owned, multibillion-rand company that
is a monopoly or duopoly is probably
against the spirit of the law. That early
payment made to a monopoly could in-
stead have had a far greater impact on the
SMEs in the company’s value chain.
Judging from the number of transport-
based transactions that we have seen with regard to Fast
Moving Consumer Goods (FMCG), companies should be
more creative in finding business sectors outside of trans-
port to assist the SMEs in their value chain. For example,
FMCG companies could look at ways to assist their SME re-
tailers, thereby helping them to be more efficient and to
build sustainable businesses. Alternatively, because FMCG
companies produce huge volumes of goods, outsourcing
some of the raw materials to SMEs would build sustainable
SME businesses. The same principle applies to mobile com-
panies, which could use these programmes to increase us-
age of their products among SMEs.
ED programmes could be used as both a tool and an
opportunity to drive change in certain industries. One way
would be to gently nudge multinationals, particularly the
Original Equipment Manufacturers (OEMs), to request that
SMEs be involved in their value chain. We have seen some
multinationals escaping the ownership obligations under
the Codes and opting for equity equivalents. Surely, they
can’t seemingly escape the ED pillar?
In most SME surveys, access to funding is given as one
of the biggest challenges facing SMEs, and, yet, when
SMEs get into business they realise that access to mar-
kets is an even bigger challenge to the business. A well-
designed ED Programme will ensure, firstly, that SMEs will
have all the business pillars in place to access funding
from various funders. Secondly, those on the Programme
will ensure SMEs have access to markets, which typically
makes funders more comfortable about funding the SMEs
on the programme.
PumulaniIN B&W
SMEs access to the markets of the corporate implementing
the Codes, thus reducing the 80% mortality rate experienced
by SMEs in the first two years of operation. In other words,
the architects were advocating a broad-based enterprise de-
velopment model. However, over the years, we have seen a
number of interesting transactions and developments in the
ED space which, although it can be said that they tick the
scorecard, are not within the spirit of the Codes. The objec-
tive is not to criticise any of the ED initiatives implemented
by companies, but to debate and share knowledge on what
ED is endeavouring to achieve.
As a point of departure, companies should stop view-
ing the 3% after-tax obligation in respect of ED as a ‘tax’
with regard to which they simply need to find the easiest
way to comply and ‘tick the box’. Companies should view
this as an opportunity to invest in their value chain. From
a supply-chain perspective, they should see this as an op-
portunity to improve efficiencies in their supply chain so
as to increase consistency, quality and delivery times in
respect of products from their SMEs. From a distribution
perspective, companies should consider this an opportu-
nity to access areas or market segments that they couldn’t
ordinarily access or to improve their distribution chain us-
ing SMEs in their value chain.
As part of the financing mechanism to enable a BEE
partner to buy into a company, the BEE partner is required
to make some form of contribution, which, in some instanc-
es, is a significant amount of money in relation to the BEE
partner’s financial capability. Companies have been known
to use the entire ED budget to fund the BEE partner’s con-