"Participation Builds Unity"
"MADE IN AFRICA - FOR AFRICA"
PRESENTS
Where to from here?
Black Economic Empowerment
COURTESY
MONIQUE TERRAZAS - FREELANCE WRITER
(SOUTH AFRICA)
As at June 2004, only three Black Economic Empowerment sector charters have been released – in the oil and gas industry, the mining industry and the financial services industry. The information and communications technology (ICT) industry has issued drafts of its proposed ICT charter and there has also been some activity in the Property, Construction and Media, Advertising and PR sectors.
"It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change."
For all
BEE is not going to go away and businesses, including the smaller companies, can either respond to this as a business opportunity or a business threat. Darwin’s quote applies equally to businesses – those that can adapt and change will be in a position to not only survive, but to take advantage of the opportunities and thrive.
The market is changing
Traditionally, purchasing power was concentrated in the white market, but this market is no longer growing and may even be shrinking. Thus, competition for the same number of traditional households is stiff, while a huge emerging market with disposable income is positioned right next to it. It makes sound business sense to take note of these figures and re-position a business in line with the opportunities.
As the benefits of BEE filter through, more black people will be brought into the mainstream economy. It is further predicted that in a few years, the vast majority of people in LSM 7-10 will be black. This, without a doubt, should make any marketing person or business owner sit up and take notice.
Competitive advantage
The supply side of procurement
So, even though smaller companies may not be tendering for government contracts, the effects of BEE will create a ripple effect through the economy and eventually even the SMME’s will have to change.
Giving 50,1% away
It will never make sense to simply give part of your business away and this certainly is not empowerment. BEE is not only about ownership – direct ownership counts only 20% of the South African Department of Trade and Industry (the dti) proposed BEE scorecard. The bottom line is this: there are more ways of becoming BEE compliant than simply giving away ownership.
The dti’s proposed BEE Scorecard focuses equally (30% of the total score each) on:
The remaining 10% is to be determined by the sector or company and allows for flexibility according to the unique circumstances. This could include corporate social investment, beneficiation of raw materials or the support of rural enterprises.
This flexibility will allow for a company with no black ownership to still score well on the scorecard, by emphasising the other areas, such as skills development and procurement. It may even be possible for such a company to score better than a black-owned company, that does not score in any other area. Thus, the scorecard approach, to some extent, does address the problem of “fronting” and creates a more level playing field.
Other options, therefore, exist. You may consider implementing a learnership programme in your company, claiming the government funding and the tax rebates through your industry Seta. You may start looking for suppliers of paper, coffee or IT equipment who are BEE and score on the procurement side. Even your bank charges, company insurance and cell phone airtime expenses through a BEE company (the financial sector charter and the proposed ICT charter will soon see the banks, insurers and cell phone companies announcing their BEE status), could count towards procurement points.
A one-man business can also contribute through enterprise development. This does not mean you have to invest all your savings in a black entrepreneur. Perhaps you have a spare office that he/she could use free of charge for a year. You may have computer equipment that you can make available to a black entrepreneur. Perhaps you could become a mentor and transfer skills, even if it involves just one person. Perhaps it could be as simple as developing another entrepreneur by paying their invoices within 10 days, instead of 30 days, to help a small company with critical cash flow – the downfall of many small business entrepreneurs.
Ownership is not the only solution, but is remains an option. Moses Kgosana, Chairman of KPMG, says: “BEE does not mean companies must give away 50% of their ownership. It should be a business strategy geared towards building a stronger company. In the first instance, BEE partners should raise the money needed to pay for the shareholding they are receiving. If this is not possible, the deal could be structured differently, for example, the value of the shareholding can be repaid over time from the profits generated. The value of the shareholding could perhaps be offset against the value of a BEE partner bringing in more business or creating a market share. Prospective partners and owners must collaborate to find ways of adding value to the company through BEE."
There are many options and possibilities, and what is required is that each company contributes to the transformation of the country in their own unique way, however small the contribution. With BEE, as with most other things in life, knowledge is power. Change can be scary, but it is inevitable. Armed with good information and a willingness to embrace change, even smaller companies may find that BEE is a great opportunity for those who are flexible and creative.
By Monique TERRAZAS
MAKING SENSE OF BEE BLACK ECONOMIC EMPOWERMENT
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So why, then, should especially the smaller companies pay any attention to BEE? The answer really lies in good business sense. As with any other major policy change implemented by government, the implications are bound to be far-reaching and should be considered in the long-term planning and SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis of any company.
Statistics give us a hint as to the impact of BEE on the business market. It is estimated that there are 4 million economically active white people in South Africa, a figure dwarfed by 11 million economically active black people.
How to approach such a new market? Complying with BEE legislation, even though it may not be required, is one way. A black partner in the business could open up access to markets a traditional white company may not have access to otherwise. This new market will certainly prefer to be serviced in their own language and by a person they can identify with, so employment equity becomes a competitive advantage.
Even the traditional market will change, as companies in all sectors begin to look for ways to meet their procurement targets. Any company on the supply side of the economy can certainly position themselves as, not only being providers of goods or services, but also being BEE providers of those goods and services that clients can add to their procurement points.
If a company agrees then that BEE could be a competitive advantage, how to go about becoming BEE? Should you simply give 50,1% of your company away?
· direct empowerment, through ownership (20%) and management (10%) of enterprises and assets;
· human resource development through skills development (20%) and employment equity (10%); and
· indirect empowerment in the form of preferential procurement (20%) and enterprise development (10%).
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