As a result of a submission to the DTI veiwable here, I was invited to a workshop on the codes for Qualifying Small Enterprises. Here is my summary of the situation right now.
The good news.
The line between Exempt Enterprises (EE’s) and Qualifying Small Enterprises (QSE’s) is going to be a lot higher than in the draft (which was set at R300k). Exempt enterprises will be spared the administrative burden of getting a BEE score, but there is still an incentive to consider. There are bonus points up for grabs for companies that have to meet the Generic (big company) codes for supporting black ownership development in EE’s. This presents a potential opportunity for EE’s if they have a potential client that is looking to chase this element.
The line between QSE’s and companies that will have to apply the Generic codes is also going to be substantially higher than originally thought too. The line will be applicable to all industries, not the different levels originally proposed.
These lines will be based on turnover only – the total staff compliment will not be a factor.
The suggestion that the QSE codes must be able to “stand alone” was well received. This means that a QSE is not going to have to page through the far more complex Generic codes to interpret intentions etc. in the QSE codes. This should improve simplicity.
Code 1200 is likely to remove the ownership condition for measuring top management. This won’t help cc’s that much, but Pty’s will be able to access points for appointing black directors even if they don’t have a shareholding.
The issue of using EBITDA (a relatively complex calculation when compared to nett profit) as a base line for Enterprise Development is being looked at quite closely. Unfortunately, there is no indication as to how this one will finally come out at this time.
The DTI is going to develop user friendly information as to how to go about BEE as well as a self-assessment tool. Originally, it seemed as if each company might be faced with this burden individually.
The measurement principles of the draft codes remain pretty well intact – apart from the drastic change in thresholds, we’ve got a pretty good idea as to what is going to be measured and how we might stack up.
The DTI is aware of some of the “unfair practices” that we are seeing in applying BEE right now and will try to encourage proper application of the codes (as opposed to the brutal ownership only approach we see so much of nowadays).
Each element will be do-able. The trick will be to work out the optimal approach for your particular circumstances.
The bad news.
This has still got to fly past the final decision makers – so one can’t be sure exactly what will come out as there could still be changes. The final drafts should come out about August this year. The DTI representatives we met clearly showed an understanding of our issues; we don’t know how much consideration these concerns will enjoy amongst their superiors.
Ownership is still the real issue. The best, easiest, simplest way to a high score is to deal with ownership. Trying to avoid it is possible, but relatively painful.
One also has to question the wisdom of not dealing with ownership when this is really the ultimate objective. Every time business side steps that target, we are delaying the day all this goes away. On the upside of this one, there seems to be a number of viable strategies to implement ownership aspects to the ultimate benefit of the owners and the business, particularly in the QSE and EE sectors.
There are sufficient subtleties here that it seems that using a consultant to develop the most effective strategy for you as a current white business owner would actually seem to be a good idea.
I question how much thought has been given to an exit strategy. The idea is that when you commence a program that should end one day, you shouldn’t start without taking a close look at how you will end it. (A good example of the dangers – the Iraq war). The end objective goals seem rather vague right now. About 70% black ownership but is that by head count or value? Obviously, the measure is going to be in the formal sector – the informal sector is and probably always will be essentially unmeasurable anyway.
I can see EE’s and QSE’s making good strides – it’s hard to see how big corporates are going to shift the amount of ownership value the government seems to be looking for.
The strategy to encourage white small business owners to take black prospects under their wing to develop entrepreneurship within blacks seems severely handicapped if the 50.1% rule is applied as currently contemplated. Essentially the current thinking seems to be to push bonus support towards the QSE or EE only if the new “student” black shareholder has 50.1%, which leaves the “senior” more experienced owner with a minority share. This is fighting against the natural senior/junior member relationship that would probably enjoy much more support, and ultimately far more black entrepreneurs.
Finally, I continue to have an underlying unease about the fact that we are differentiating according to race. I understand the motivation; I just feel we should be seeking non-racial, economic background based measures. There will come a day that we won’t be able to tell who deserves extra help simply by looking at their race. In some cases we are already there.