Protea Hotel Balalaika Sandton 20 Maude Street, Sandown, Sandton, Johannesburg

1. Association of BEE Verification Agencies 2nd Business BreakfastThe Implication of the Alignment of the PPPFA on Business Protea Hotel Balalaika Sandton 20 Maude Street, Sandown, Sandton, Johannesburg Thurs, 05th November 2009 07h30 for 08h00 to 10h00

2. Agenda • Registration: 07h00 – 07h30 • Breakfast: 07h30 – 08h00 • Welcome & Presentation: 08h00 – 08h30 • Questions & Answers: 08h30 – 10h00

3. Moderator Mr. Kevin Lester Executive Director Transcend Corporate Advisors (Pty) Ltd

4. Panel • Mr. Andile Tlhoaéle ABVA Chairperson • Mr. Kganki Matabane Business Unity South Africa (BUSA) • Mr. Thami Mazwai CBBO • Mr. Duma Gqubule Kio Advisory Services

5. PRESENTATIONS PROVIDED BY: ABVA hereby thanks: Mr. Kganki Matabane, Executive Director Business Unity South Africa (BUSA) & Mr. Duma Gqubule, Director KIO Advisory Services For providing the presentations at ABVA’s 2nd Breakfast Session

6. BUSA’s views on PPPFA alignment Presented by Mr. Kganki Matabane Executive Director, BUSA CONTENT: • INTRODUCTION • CURRENT REGULATIONS • DRAFT REGULATIONS • CONCERNS • CASE FOR LOCAL CONTENT • SHORT TERM INTERVENTIONS • MEDIUM/LONG TERM INTERVENTIONS • CONCLUSION

7. BUSA • INTRODUCTION • State procurement is critically important in achieving Transformational, Economic and Industrial objectives • Leveraging of Public Procurement Programmes in support of B-BBEE and local production are critical elements to achieving these objectives • Ideal intervention is the amendment or REPEAL of the Act without delay • Preference point system is inherent in the Act • We recognise that an amendment to the Act is a protracted process • Have reviewed the draft Regulations in context of B-BBEE & support for local production

8. BUSA CURRENT REGULATIONS • Discourages B-BBEE compliance by White Business (11% penalty) • Provisions of the Act are in conflict with those of Section 10 of the BEE Act • Section 10(b) of the BEE Act cannot be said to trump the 90/10 or the 80/20 preferential point provisions of the Act, as these are prescribed in the main body of the Act. • Current approach encourages fronting

9. BUSA DRAFT REGULATIONS • Preferential Procurement Regulations will be extended to all organs of state for uniformity purposes • Definition - Black people vis a vis HDIs • Incorporation of the 7 elements • Use of accredited Verification Agencies

10. BUSA CONCERNS ROLE CLARIFICATION -TREASUTY & DTI • New Treasury Regulations would incorporate SCM Regulatory Framework (including preferential procurement) • Section 10(b) of the BEE Act provides that, “every organ of state and public entity must take into account and, as far as is reasonably possible, apply any relevant code of good practice issued in terms of the BEE Act in developing and implementing Preferential Procurement Policy”

11. BUSA CASE FOR LOCAL CONTENT/PRODUCTION • Promotion of SA owned enterprises • Creation of new decent jobs and the intensification of labour absorption. • Local producer contributes 30% or 30 cents more back into the economy for every R1 procured in the public sector

12. BUSA SHORT-TERM INTERVENTIONS • Retain the current point system • Increase the R1m threshold • Section 11 (1) of the Regulations should be clear on the Specific Industries • Find a way of introducing “set asides” • E.g. Dti 10 products • Should two or more bids be equal - share the awards

13. BUSA MEDIUM/LONG TERM INTERVENTIONS • Amendment or the ultimate repealing of the Act • Adopt B-BBEE Act and Codes of Good Practice • Establish a joint working Group between Treasury, Dti and Business • agree the key principles in respect to BBBEE, local procurement and Industrial Policy alignment • Include of “set asides” • Role clarification between Dti and Treasury

14. BUSA CONCLUSION • Submission intended to provide constructive & programmatic inputs • Strengthen both B-BBEE and support for local production • Preferential Procurement is an important instrument in achieving our Country’s Socio-Economic, Transformational and Industrial objective • Context of fiscal constraints and best value for money in public procurement

15. KIO Advisory Services PRESENTATION TO ABVA PREFERENTIAL PROCUREMENT AND B-BBEE

16. KIO Advisory Services PREFERENTIAL PROCUREMENT AND B-BBEE • Can be the most important tool for economic transformation • Was used effectively by the apartheid government for Afrikaner empowerment after 1948 • Two ways to create a black company • Borrow to buy minority stake in white company and pray (Standard Bank, Mvelaphanda) • Preferential procurement get immediate cash flow and retain black shareholding (Business Connexion, Gijima AST, ARM) • Must leverage private and public procurement

17. KIO Advisory Services PREFERENTIAL PROCUREMENT (GOVERNMENT SPEND)

18. KIO Advisory Services PREFERENTIAL PROCUREMENT SCORECARD

19. KIO Advisory Services B-BBEE STATUS AND RECOGNITION LEVELS

20. KIO Advisory Services PREFERENTIAL PROCUREMENT–PRIVATE SECTOR • Ongoing review of BEE must be part of the policy framework. Already know what is not working • Preferential Procurement IS NOT WORKING • Opportunistic point scoring for established business not true transformation • Failed dismally to incentivise procurement from black owned businesses

21. KIO Advisory Services PREFERENTIAL PROCUREMENT–PRIVATE SECTOR • 75% of the points for procurement from all suppliers and QSEs/EMEs • Minimalist compliance focus on existing suppliers not new suppliers • Can get 15 points without procuring a cent from any black-owned business • Can meet the target by procuring from Level 7 contributors to BBBEE with a score of 40 to 45 points and a BBBEE recognition Level of 50%. Target is too low • Need new PP scorecard with higher weightings and targets for procurement from black business

22. KIO Advisory Services PREFERENTIAL PROCUREMENT SCORECARD

23. KIO Advisory Services PREFERENTIAL PROCUREMENT - PUBLIC SECTOR 80/20 preference point system for procurement up to R1m

24. KIO Advisory Services PREFERENTIAL PROCUREMENT - PUBLIC SECTOR 90/10 preference point system for procurement above R1m

25. KIO Advisory Services PREFERENTIAL PROCUREMENT - PUBLIC SECTOR • Public Sector not implementing BEE Act • Not implementing or reporting on set aside policy • Draft PPPFA regulations aligned with BEE Act – will reverse the gains made by the public sector over past 15 years • Organs of state and public entities have exceeded LOW targets in the BEE Codes • The Codes are for private sector • Public Sector Charter must have own scorecard and targets • Public Sector Charter must have legislated reporting requirements for all organs of state and public entities

26. KIO Advisory Services PUBLIC SECTOR PREFERENTIAL PROCUREMENT SCORECARD

27. KIO Advisory Services PREFERENTIAL PROCUREMENT - PUBLIC SECTOR Proposed 50/50 preference point system for procurement up to R100m

28. KIO Advisory Services PREFERENTIAL PROCUREMENT - PUBLIC SECTOR Proposed 60/40 preference point system for procurement above R100m

29. KIO Advisory Services PREFERENTIAL PROCUREMENT - PUBLIC SECTOR • Threshold must be increased to R100m • 50/50 for contracts less than R100m • 60/40 for contracts above R100m threshold • Set asides for black-owned companies • Dual BBBEE evaluation strategy • 50% for scorecard; • 50% for black ownership and black women ownership

30. THANK YOU