Presentation to the Portfolio Committee on Trade and Industry

1. Presentation to the Portfolio Committee on Trade and Industry 24 February 2016

2. Delegates Ms. Zodwa Ntuli Acting Commissioner Mr. Liso Steto Acting Chief Director, BEE Unit Ms. Busisiwe Ngwenya Director, Strategy and Special Projects

3. Important Notice the dti is in the process of finalizing the establishment of the B-BBEE Commission, an entity established in terms of section 13B of the B-BBEE Act 53 of 2003, as amended. As part of this process, we are engaging critical stakeholders on the mandate of the B-BBEE Commission, with the aim of obtaining the views and expectations on the work ahead. The Minister will announce the date on which the B-BBEE Commission will officially open its doors.

4. Purpose The purpose of the presentation to the Portfolio Committee on Trade and Industry is to engage the Members of the Committee and solicit input in respect of the mandate of the B-BBEE Commission

5. Background • B-BBEE Act 53 of 2003 • Framework legislation, with no institutional mechanism for implementation • Codes were published in 2007 for companies to comply • No powers to deal with non-compliance • Lack of alignment of B-BBEE Act with other pieces of legislation • Gaps in verification processes • Misrepresentation and fronting practices • B-BBEE Amendment Act 46 of 2013 • Amendments came into effect on 24 October 2014 • Revised Codes issued and came into effect on 1 May 2015 • Regulationspublished for public consultation on 17 February 2016

6. Institutional Framework

7. Broad-Based Black Economic Empowerment Viable economic empowerment of all black people, in particular women, workers, youth, people with disabilities and people living in rural areas, through diverse but integrated socio-economic strategies that include: • Increasing number of black people that manage, own and control • Facilitating managementand ownership by communities, workers, cooperatives & other collective enterprises • Human resource and skills development • Achieving equitable representation in all occupational workforce levels and categories • Preferential procurement from black owned or managed • Investment in enterprises that are black owned or managed

8. Alignment of Act and Codes Aligning the Act and the Codes • Revised generic codes issued effective from 1 May 2015 • Enterprises below R10m can provide an affidavit – reduced compliance cost for small enterprises • Previously gazette sector codes to be aligned by 31 October 2015 • Tourism, Marketing and Communication, AgriBEE, Forestry, Property, Transport, Financial, Information and Communication Technology sector codes have been submitted 15 November 2015 • Construction and Chartered Accountancy sector charters have since been repealed

9. Enhanced Definitions Providing key definitions • Various definitions such as “fronting practice”, “B-BBEE initiative” and “black people” clarified • Fronting practice - a transaction, arrangement or conduct that directly or indirectly undermines or frustrates the achievement of the objectives or the implementation of any provision of the B-BBEE Act, includes • where a person is discouraged or inhibited from substantially participating in the activities of the enterprise, • economic benefits not flowingto the said empowered person, • using a black person to enter into a legal relationshipto attain a level of B-BBEE status

10. Legislative Alignment & Reporting Introduced the trumping provision • Trumping provision section 3(2) became effective on 24 October 2015 • B-BBEE Act will prevail in instances of conflict with any other law on a matter dealt with in B-BBEE Act Specifying requirements for Monitoring, Evaluation and Reporting • Sector codes clarified, including reporting to sector councils (s9) • Organs of state and public entities reporting in annual reports(13G) • Listed entities and SETAs reporting to the B-BBEE Commission (13G) • Registration of major B-BBEE transactions (13F) above threshold • B-BBEE Commission to be audited by AG (13E)

11. Monitoring Adherence Creating the B-BBEE Commission in terms of section 13B Introducing prohibitions, offences and penalties • 13N normal offences about confidential information and obstructing the administration • 13O prohibits fronting, misrepresentation of status, providing false information to verification agents, verification agent failing to report contravention • Penalties – natural person can be a fine or up to 10 years imprisonment – up to 10% annual turnover for juristic person – Magistrate Court has jurisdiction • Cancellation of contract or award in terms of 13A on account of false information • Exclusion from doing business with the state (13P) for up to 10 years – could be limited to the directors, members or shareholders – registered on tender defaulters register of National Treasury

12. Minister’s Powers & Transparency Clarifying the Minister’s Powers in respect of Codes and Regulations • S9 – power to issue guidelines, approve or repeal sector codes • S10 – clarifies status of codes (generic and sector codes) • S14 – power regarding regulations, guidelines, practice notes Transparent process for organs of state/public entities to set higher criteria • S9 (6) – permission to exceed the qualification criteria for procurement and other economic activities • S10 (2) – allows for exemption from complying with the codes or deviation from the codes – on objectively verifiable facts or circumstances • Equity EquivalentInvestment Program can be pursued by multi-nationals

13. Mandate of the B-BBEE Commission Section 13F outlines the following functions • Oversee, supervise and promote adherencein the public interest • Strengthen collaboration between public and private sector to promote and safeguard the objectives of the Act • Receive complaints and/or investigate complaints in terms of this Act • Promote advocacy, access to opportunities and educational programmesand initiatives • Maintain a registerof major B-BBEE transactions (above threshold) • Receive and analyse prescribed reports on compliance • Promote good corporate governance and accountability by creating an effective and efficient environment • Increase knowledge and public awareness through educating, guiding, declaratory orders, and researching

14. Stakeholder Engagement • In developing Strategy and Annual Performance Plan, it is important that we engage stakeholders on the mandate of the B-BBEE Commission • Commenced with engagements of SOEs, business formations, media, regulatory entities within government • Established relationship and role clarification with the B-BBEE Advisory Council • Introductory letters were sent to identified stakeholders, and meetings requested • Initiated discussions to conclude collaboration agreements with specific regulatory authorities

15. Issues raised by Stakeholders • B-BBEE Commision must be well resourced with adequate budget to employ skilled staff to perform its functions • Urgent need to deal with prevalence of fronting and misrepresentation • Must dispel the impression created that B-BBEE is for the elite few • Prioritise clear and consistent communicationfor the general public and industry to know what needs to be done • Education and awareness programmes and support to entities to be able to comply • B-BBEE Commission to be visible, including through investigations and prosecution • Focus must not be only on ownership, but all elements of B-BBEE • Need to align verification standards for consistency (IRBA and SANAS)

16. Issues raised by Stakeholders • Unreliable verification process due to lack of oversight and effective regulation • Emphasis on skills development and enterprise and supplier development to advance real and sustainable transformation • Skills development must help with creation of a pipeline in critical sectors • Equity equivalent programs must be aligned to priorities to enhance the impact • Clarity on verification certificates, expiry of same and material changes in status after contract is awarded • Township and rural economies must be targeted to broaden empowerment • Active monitoring of sectors to prevent collusive platforms through the sector codes

17. Issues raised by Stakeholders • B-BBEE must benefit the poor and create employment opportunities • Consistency within government in the implementation of B-BBEE Act • Clarity on the trumping provision, black empowerment schemes, and the ‘once empowered always empowered’concept • Alignment of legislation, in particular the B-BBEE Act and the PPPFA, as this hinders procurement initiatives to advance transformation, • Guidance on the exemptionanddeviation to exceed generic codes • Consistency in approaches of the dti, the National Treasury and Auditor General on B-BBEE • Use of partnerships and collaboration in monitoring compliance with the Act

18. Issues raised by Stakeholders • Lack of buy-infrom stakeholders and between boards and CEOs on the application • Focus on the qualitative aspects of B-BBEE, e.g. content stripping and creation of joint CEO where black senior people are appointed • Look at regressing number of black managers and tokenism in decision making positions • Prevent abuse of B-BBEE schemes and promote ownership by employees and collective enterprises • Alignment in respect employment equity between B-BBEE Act and Employment Equity Act, including reporting trends • Need to take substance over form approach to ensure transformation • Influence change in macro-policies to remove barriers to transformation, e.g. credit policies of financial institutions • Need for advisory services and cost effective dispute resolution mechanism

19. Issues raised by Stakeholders • Complex acquisition and deal structures in B-BBEE transactions • Disputes between shareholders resulting in unaffordable legal costs • No economic benefit, diversion of benefits and dilution of value of B-BBEE shares • Minority shareholders’ rights stripped off or manipulated in agreements • Lock-in provisions in transactions resulting in delayed economic benefits • Barriers to empowerment still continue, such as access to finance or markets • Clear disregard of corporate governance

20. Immediate Attention The following are the areas identified for immediate attention: • Alternative Dispute Resolution Mechanism • Advisory services on B-BBEE Transactions • Education and awareness campaigns on the B-BBEE Act • Campaigns for awareness on B-BBEE Act • Partnerships and Collaborations to advance B-BBEE Act • Consistent application of the B-BBEE Act across sectors • Systematic investigations and remedies

21. Conclusion • B-BBEE must be improve equality, create jobs and reduce poverty • Shift to quality, impact and sustainability of B-BBEE transactions • Consistency and transparency in the application is needed to create confidence in the system and policy • More support needed to advance transformation, both financial and non financial • All organs of state and public entities, in all spheres, must implement B-BBEE Act • B-BBEE Act must contribute to creating an inclusive economy

22. Thank You! Questions? Input?