Thoughts on South African and international politics and culture

Monday, June 27, 2005

BEE Codes
On Friday, the DTI unveiled the new BEE codes of practice to wide acclaim. These slightly revised codes are meant to entrench a broad-based BEE initiative, as opposed to the status quo of largely enriching a few key members of the business community. However, they once again refute the current belief held by many businesses in South Africa that regard BEE as being singularly about ownership.

The ownership emphasis has been the single most important driver of top heavy BEE deals amongst the black elite, at the expense of the greater non-white society. The BEE codes work on a scorecard of factors, each weighted according to importance, to reach an overall score of 100. Most importantly, ownership is only granted 20 points out of that 100. In other words, if your business does a gives away ownership equity to a BEE partner, but neglects the other facets in the BEE code, the maximum your company can get on the BEE scorecard is 20, giving you a poor BEE rating. This fact is lost on many South African businesses.

All the other facets, bar one, are given 10 point weightings. The second most important item is preferential procurement, which is also given a 20 point weighting, reflecting its critical nature in the path of transformation in South Africa. Preferential procurement states that companies must procure goods and services from empowered companies where possible, and this is the only way to truly filter down BEE benefits to the lower tiers of the economy. It is an incredibly effective tool to force industry-wide BEE initiatives, as opposed to only affecting the top tiers of business.

As I've always stated, although I do think there should be a sunset clause based on a set target, I do agree with BEE principles, and I think the DTI scorecard is a fair, equitable and well shaped idea. Businesses have to get their heads around preferential procurement, becasue it is a key driver in our economy.