Agenda

1. The Codes of Good Practice for Broad-based Black Economic Empowerment and AgriBEE Transformation CharterAGRIBEE INDABA, GALLAGHER ESTATE6 December 2005JEFFREY NDUMODIRECTOR: BEE PARTNERSHIPS, ENTERPRISE AND INDUSTRY DEVELOPMENT DIVISION, DTI

2. Agenda • Transformative Imperative Page 3-4 • Economic implication of Broad Based Black Economic • Empowerment Page 5 • Broad Based Beneficiary Base Page 6 • Broad Based BEE Balanced Scorecard Page 7 • Broad Based BEE Recognition Levels Page 8 • Applications of the Codes Page 9 • Implementation Multiplier Effect Page 10 • Key Principles Page 11-12 • BEE Verification Page 13 – 15 • Status of Transformation Charters Page 16- 17 • BEE Process to date Page 18 • Progress on Phase II Page 19 • AGRIBEE: Clarity seeking issues and concerns Page 20

3. THE TRANSFORMATION IMPERATIVE • Where we came from? • Colonisation and Apartheid systematically dispossessed and disempowered black people • Resulted in significant imbalances in the South African Economy: • 90% of population owns less than 5% percent of Stock Exchange • 40% black SA’s unemployed compared to 10% of white SA’s • Majority of the South African population excluded from the Mainstream Economy

4. Transformation Imperative • To develop a transformation process with political, social and economic dimensions • To create a more equitable economy to support the drive for economic growth Broad-based BEE Strategy Political Commitment Social Upliftment Economic Development

5. Economic Implications of Broad-based BEE Mainstream Economy • Increase the level of participation by black people in mainstream economy • Increase income through resultant economic growth • Increase the real market in the SA economy Mainstream Economy BEE Upliftment Second Economy Second Economy More economic participants Higher Economic Growth A Bigger Market for All

6. Broad-Based Beneficiary Base Equitable Economic Opportunities Broad-based Beneficiaries Base Emerging black middle class & Investors Ownership And Management The Opportunity Barrier Black entrepreneurs Affirmative Procurement Enterprise Development The Business Barrier Black workers and job-seekers Skills Development & Employment Equity The Skills Barrier Employment Equity/Job creation Corporate Social Investment Black unemployed & rural poor The Poverty Barrier

7. BEE Scorecard (Codes of Good Practice) Detailed Code Statements (100~700) to explain the type of initiatives qualifying for BEE recognition Generic Scorecard Weightings: Ownership 20% Management 10% EE 10% Skills 20% Procurement 20% ED 10% CSI 10% Total 100% Weightings determines the relative importance of each BEE element (the higher the weighting, the more score focus by enterprises) Indicators and target provide the description of the standard scoring mechanism for companies Using these mechanisms, a Company can determine its BEE score out of 100

8. BEE RECOGNITION • The higher the BEE Score of a company, the higher the recognition to anybody interacting with the company • Customers (public and private sector) will prefer to interact and procure from companies with higher BEE status (for its own recognition) • Pressure on all enterprises to continuously improve on BEE status

9. APPLICATION OF THE CODES OF GOOD PRACTICEProcurement, Licensing and Other Implementation Levers Other Economic Participants Procurement Licensing Procurement Financing Economic Partnership Economic Partnership First Tier Economic Beneficiaries Government and State Organs Financing Procurement Financing Economic Partnership Monitoring Other Economic Participants

10. IMPLEMENTATION MULTIPLIER EFFECT Suppliers Suppliers Suppliers Suppliers Suppliers Suppliers Suppliers Supplier Suppliers Suppliers Suppliers Retail Suppliers Mining Suppliers Suppliers Suppliers Government Suppliers Banks Tourism Suppliers Suppliers Suppliers Suppliers Chemical Telecoms Suppliers Broad-Based Scorecard converts all enterprises into drivers of BEE through Procurement and Enterprise Development. Suppliers Suppliers Suppliers Suppliers Suppliers Suppliers Suppliers

11. OTHER CONSIDERATIONS AND KEY PRINCIPLES Transitional Period • 12 Months transitional period to allow for conversion from narrow-based to scorecard approach • Limitation on multiplier effect during transitional period • Provide mechanism to facilitate the adoption of scorecard in reporting and decision-making Non Circumvention • Stresses substance over form, to avoid circumvention of the Code • Allows for rating agency to report fronting • Measures compliance level at date of measurement (snapshot). • Measures ‘What is done?’ rather than ‘What is promised or intended?’

12. Key Principles • Organs of State and section 21 companies: Government ownership and s21 Companies which are not broad-based schemes are excluded from the calculation of ownership. Treating government and s21 Companies as neither white nor black ensures that the enterprises are not rewarded or penalized for having Government or s21 ownership. • Pension Funds: The BEE ownership by pension funds are specifically included from the calculation of ownership. Government nonetheless is seeking the achievement of direct ownership (25% + 1 vote) which must include exercisable voting rights and economic interest. • The Code also aims to reduce ‘fronting’ and misrepresentation of black ownership by companies through the stipulation of a standard set of principles and guidelines for its measurement and reporting.

13. Accreditation of Verification Agencies • Outline the detailed requirements for Verification Agencies • Development

14. The Black Economic Empowerment Growth Model The Economic Impact of Fronting (Frontier Barrier) More Transformation Growth in Local Economy Enlarged South African Economy Transformation in Existing Enterprises Government/ Industry More BEE suppliers BEE Initiatives More local Jobs New BEE Enterprises More competitiveness Fronting Entities Government/ Industry BEE Initiatives Dwindling Local Economy Smaller Economy Disillusioned Market Exit Traditional Enterprises New BEE Enterprises Fronting Barrier

15. Current Concerns around Transformation Charters • More than 30 transformation charters currently being negotiated or completed • Charters adopt different weightings, targets and measurement principles • (e.g. FSC includes all non-South African Africans in calculation of EE and Management) • Lead to confusion around how to implement BEE • Using the same sample company (see right) the scores differ significantly across charters • Risks that some companies circumvent BEE by aligning to “easier” charters

16. Status of Transformation Charters • Meet s12 requirements? • Sufficiently consultative • Advances BEE objectives Not binding, can be expressed as a document of intent (Government and verification agencies to use the Codes of Good Practice when interacting with the sector) No Charter processes indicating the intention to align to the Code include Health, Tourism and ICT Yes Apply to be Gazetted under s 12: Binding on signatories to the charter, but not on government or other sectors (Government and verification agencies to use the Codes of Good Practice when interacting with the sector) • Meet requirements for gazetting as sector code? • -No deviation from definitions and principles • Sufficiently comparable to the codes, ito • Elements • Targets • Weightings • Justify any differences • Independent Third Party Review of compliance No Apply to be Gazetted under s 9 Government and verification agencies to use the gazetted Sector Codes of Good Practice when interacting with the sector. Yes

17. Proposed Verification and Monitoring System DTI Verified BEE Information + Fronting Reports Accreditation Body (SANAS) Industry Body Complaint Resolution Process Assessment Code of Conduct Verification Agencies/Process Verify and Confirm BEE Status of Enterprises Measured Entities

18. Broad Based BEE Strategy released (April 2003) BEE Process to date Promulgation of Broad-based BEE Act(Jan 2004) Draft Codes of Good Practice – Phase 1 (Dec 2004) Commentary Process (Closed March 2005) COGP Phase 1 Adopted by Cabinet (12 Oct. 05) Draft Codes of Good Practice – Phase 2 (Dec 2005) Commentary Process (Closes Feb 2006) Ministerial Consultation Promulgation of all the Codes (April/May 2006)

19. Progress on Phase 2 Linkage to Framework (7 Statements) Formulation of other key statements to cover broad-based elements Solicitation of Public Input • Statements affecting phase 1 • Multinationals • Groups of Companies • Warehousing • Organs of State Development Of Initial Positions Code 300: Employment Equity Draft Statements Code 400: Skills Development Code 500: Preferential Procurement Code 600: Enterprise Development Discussion of Draft Statements Code 700: Residual Element Adoption by the Cabinet The final Document Code 900: Practice Note on Fronting Code 1000 Statements 1001~1007: Small And Micro enterprises

20. AGRI BEE: CLARITY SEEKING ISSUES AND CONCERNS • Groups of Companies: Codesdealing with this aspect will be released in due course as part of second phase. Subsidiaries and divisions and business operating in multiple sectors. • Sub-sector Charters: sub-sectors can have their own charters, but should aligned and form part of the agriculture value chain (e.g. Transport sector and advertising and marketing sector). The dti aims to gazette the sector charter (agriculture is a strategic sector recognised by government) • Primary and secondary agriculture: separating the two sectors must be decided by the based on objective reasons rather than subjective ones. But the benefits of the value chain must be emphasised within that separation. One sector charter linking the two while acknowledging the distinct nature of the two if it is objectively sound must preferably be pursued. • Codes of Small and Micro enterprise: definition of the small and micro will be provided. It will use annual turnover and/or number of employees. Small enterprises will be provided dispensation in line with their strength. Micro enterprises will be given dispensation fitting of the economic level. Medium enterprises will form part of the larger companies and will be expected to adhere to the main body of the codes. • Alignment of legislation with BEE Act: the minister of trade and industry and cabinet have emphasised the need to align the BEE Act with other pieces of legislations.

21. S I Y A B O N G A !