Presidential Review Committee

1. Presidential Review Committee October 2011

2. Legislation • BEE Act 2003 • Codes of Good Practice • PPPFA • Sector Charters with license requirements • IPAP (2) • ASGISA commitments • PPP framework

3. Challenges in Legislation The changes, updates, amendments have not necessarily pulled through into the operating policies. The practical assessment of BEE is still driven through tender decisions with an estimated 9000 procurement officers with limited or low knowledge of the Broad-Based Black Economic Empowerment The National Association of BEE Consultants is a non-profit industry body that offers a professional development programme. Participation is low and pass rate by one group as low as 9%

4. Advisory and support services • Verification Agencies audit BEE performance. Limited numbers of VA’s meant that the dti engaged with IRBA to include auditors into the BEE audit industry • Verification Agencies have, despite regulation, offering consulting advice which had driven the tick-box approach to transformation versus the qualified Consultants who drive Transformation and Sustainability • The media reports on Transformation have created the perception that the model is all about redistribution of wealth and unsuccessful BEE deals • This is exacerbated by tender practises and low knowledge level of procurement officers and tender adjudicators

5. SOE results • Varying responses to the drive for BEE • At a recent Public Sector conference, municipalities, SOE’s and government entities indicated that they did not see the 7 December 2011 implementation date as realistic and they needed more time despite a 2 year consultation process • Results range but there is a marginal increase in participation by SOE’s although there remains a tick-box approach in many instances • Pockets of excellence exist such as Transnet’s requirement for Skills Transfer and Supplier Development; Eskom’s ASGISA commitment; City Power’s second-tier procurement reporting • However lack of consistency and uniformity is a problem

6. Transformation What is the difference between an organisation’s own scorecard and the organisation’s role in creating an enabling environment for Transformation?

7. Industry Perception • CSDP • SASDA – set up to drive supplier development • SABEF, BBC, BUSA, NAFCOC – all complain about limited results, lack of access to funding and tender challenges • IDC accused of non-delivery of funding • NEF accused of providing large funding for one or two organisations versus achieving large-scale development objectives

8. Industry Perception • Small black SMME’s at a recent construction sector summit accused Government of establishing CIDB as a means to restrict access for small black construction firms • CIDB indicated that the challenge in the construction sector was that 80% of SMME’s are Level 1 and Level 2 businesses and the critical success was for them to move into Level 4 businesses • This required growth and stimulation of existing business versus developing new businesses • Small businesses need to find a collaborative culture to capture the large contracts

9. Industry Perception • Land Bank introduced a Land Reform process to provide access to land for small emerging farmers • Their unprecedented failure rate led them to the conclusion that Post-Settlement support was the biggest need • Understanding financial scenarios, funding obligations and business management skills were severely lacking, quality issues and labour issues were prevalent • Economies of scale were not right – purchasing discounts for bulk were not achieved and farmers did not collaborate

10. Industry Challenges • Mining recession in South Africa against a global mining boom • ICT sector – network licenses are structured in such as a way as they provide limited benefit or participation by the majority • Top 40 companies should not be pushed to divide their economic stability but incentivised to create a Top 80 • Poor economic empowerment means that 17 years later the priority should be on the poor and not a racial demographic • There remains a culture of simply doing the minimum • Our Youth unemployment is creating angry masses who need to understand what the plan is • Our business sector feels that they were not consulted to work with Government to achieve job growth and so they remain passive

11. Industry Perception • Government has announced beautiful strategies but not set the example of achieving Transformation targets • A commitment has been made to increase jobs without any measurable activity to address the access to opportunity for small businesses • Targets were set for job creation without any consultation with business who should be driving job creation • R25billion job stimulus package as with Presidential Job Fund is met with scepticism because of lack of communication or plans of action • International investors see the myriad of issues and conflicting policies as contradictory and therefore take a minimum-compliance viewpoint instead of solution seeking

12. What is needed • Free market – access to the economy of the most humble citizen • BEE should be the Economic Transformation Policy and lower the barriers to entry and incentivise participation • To make an impact on disaffected communities • Remove white and replace with black implies whites are the problem – the size of the opportunities are the greatest problem and providing access to those opportunities • Access and opportunity are the key issues but delivered in such a way that the individual entities are ultimately independent

13. What is needed? • Transformation is generational – • SMME development will lead to full employment but emphasis needs to be on a policy shift so that savings and investment are not taxed and consumption is taxed • The Grant Thornton 2011 International business survey which surveys over 11 000 respondents in 39 economies globally, showed that South African business owners rank over-regulation and red tape as the second biggest constraint to business growth. The problem of the lack of a skilled workforce ranked first.

14. What is needed? • Is the challenge the regulation or the understanding of regulation? • If small, rural businesses were trained in their own language would they find the regulatory issues so difficult to comply with? • Is the offset of providing a secure, compliant, quality managed environment the priority or do we need to revert to the other extreme of complete de-regulation? • Despite the measures in place to avoid this, we still see challenges with fronting, tenderpreneurship, a black elite which emulates its white counterparts and Black SMME’s that feel that their “Blackness” is sufficient transformation

15. A hands-up vs. hands-out approach • One of the opportunities is for the SOE’s to have an overarching strategy. This would entail looking at the common factors and identifying a practical, simple plan to drive development • Key to the success of any strategy is the ability to implement that strategy • Key to the sustainability of any implementation is the monitoring and evaluation to measure the results, assess the gaps and remediate and innovate continually • The key needs to be to create a culture of independence and not shift the culture of dependence

16. Step One • Education • The lack of understanding, lack of clarity and specifically the number of individuals who still do not understand the Broad-Based approach of BEE is a real restriction to adopting Transformation strategies • An educational roadshow should engage targeted individuals to understand • BEE Legislation • Related legislation • The measurement framework (R47) • Procurement measurement and best practise (for related staff) • Human Resources elements (for related staff) • What is our strategy, our deliver plan and our objectives

17. Step One • Consultation • The priority needs to be to engage with suppliers, communities and employees to understand the challenges, the current scenario and the real or perceived barriers to performance • A Transformation Subcommittee for SOE’s to monitor and track progress and manage Task Team performance • Definition • From these processes, the definition of the real challenges, the way forward mindful of the consultative outcomes to deliver results

18. Step Two • Selection of task teams • A task team that can drive the projects that are agreed, provide ongoing management as well as reporting and measurement of results • Allocation of roles • Role definitions agreed, individuals nominated and appointed • Training • Detailed training to understand the intricacies • Commitments • Task team commitment signed to drive performance and prioritise delivery

19. Step 3 • Delivery • Monitoring and Evaluation • Quarterly reports • Quality audits • Continual stakeholder engagement • Recommendations for alignment, modification and improvements presented 2 x per annum • Measurement of the growth in turnover for businesses, the growth in profits for businesses and the growth in jobs as a result

20. So what are delivering? • Several options exist • Development Centres nationally • Each SOE has offices nationally, in many instances there are a proliferation of physical sites. These provide visibility, accessibility and a multi-purpose opportunity • The Development Centres provide support sites for SMME’s; provide training and support for SMME’s and importantly act as a channel between the SOE contracts and the SMME’s in any given area • The critical mass of having the data on SMME’s and local access to these communities provides us with the information to source support services

21. Development Centres • Development Centres provide the following • Each SMME in an area registers at a Development Centre • The Centre staff capture the information into a key database • This system tells us what documentation, compliance or regulatory issues that the business needs. The SOE may choose to fund the process of bringing these up-to-date • BEE certificate • CIPSC • CIDB • Tax clearance

22. Development Centres • Development Centres can provide • Training • Mentorship (one of the most critical interventions for business success) • Access to tenders • A collaboration point for other SMME’s in the local area • Assistance with funding applications • Quality Management support

23. What does this achieve? • For the SOE, the database of SMME’s is technology driven and allows us the ability to monitor the award of tenders, the performance of suppliers, the development gaps and the value of contracts awarded to targeted groups as well as direct and indirect job creation • Real time reporting allows the task team to extract the supplier information and details by demographic and geographic classification, assess the value of business done with the SOE and what development support they have received • Having the information available allows the Task Team to then negotiate with funding agencies to support bulk funding applications

24. Key considerations • All suppliers access the development programme because the intended goal is business growth which leads to job creation • For small suppliers, could the SOE’s subsidise their compliance and regulatory costs to reduce the barriers to entry? • For suppliers, could the SOE’s subsidise business mentors who are tasked with business growth and sustainability? This in itself creates an SMME development opportunity • Could the supplier commitments be that anyone involved in the programme needs to evidence how they have supported another business

25. Other ideas may include • Procurement policy considerations that prioritise the development of businesses that are local to a project, sustainable and relevant to the area • This would place the obligation on the supplier to factor the pricing for this into his contract, to deliver development against a specified framework and to track results and progress on a quarterly basis • Preference points could be awarded where the supplier commits to involvement in a legacy project and/or penalties exist if quarterly reports don’t meet the required results

26. Can it work? • Lephalale Site Services is a business formed due to the Eskom requirement for ASGISA commitments. The business now • Employs more than 300 people • Has been trained by the country’s best Catering and Facilities Management firm to take over operations • Has developed small, local, suppliers of all fresh produce, poultry and meat to the site which produces 30 000 meals per day • The business has now decided to develop its capability and is now seeking new projects i.e. There is a sustainable business outside of the Eskom contract • The direct outcome is a R300million FM firm

27. Can it work? Transnet tenders now include consideration for • Skills Transfer • Supplier Development Our work with one of the world’s leading rail specialists has seen them prioritise the re-alignment of their local business and the launch of an Academy at their cost to participate fully in skills transfer, development of rail skill and development of rail-specific suppliers

28. What is good for South Africa?

29. The challenges • Businesses that are based in rural areas or are developmental businesses have many barriers to overcome • Logistics (accessibility) • Access to tenders • Access to technology • Compliance and regulation and the financial impact of same • Business training/mentorship and guidance • Funding (most funding processes are business English)

30. The opportunity

31. The opportunity • To provide a framework that creates a positive link between SOE structures and projects, and communities at large • Opportunities to capture retired skill for development purposes • Assistance with teaching small businesses to understand the regulatory environment as opposed to ignore it • REAL access to tenders, funding, development so that businesses have the opportunities • Insistence that participating businesses need to put something back (may be achieved through BEE compliance) • Monitoring and Evaluation to track real results, business growth, the impact of SOE spend on jobs and to identify the development needs

32. Siyakha Consulting Kwa Zulu Natal Western Cape Gauteng Free State Sandton Johannesburg (Tel) 011 706 9006 Contacts: Questions & Answers