BEE: Business to bite the (silver) bullet?

© Akarapong Suppasarn – 123RF.com

Sector codes, including the AgriBEE Sector Code, must now be aligned with the Phase 1 and Phase 2 Codes of Good Practice by 1 May this year. Furthermore, the codes will not be phased in over a period - but they will all come into effect immediately.

But why do businesses, especially Qualifying Small Enterprises (QSEs), with a turnover of between R10 million and R50 million (which is where you will find most farming enterprises) feel as though they will have to bite the bullet and play the sacrificial lamb, while being used as a quick fix for South Africa's social inequalities?

From 'companies with good BEE scorecards' to black ownership

The bottom line is that we are back to square one, says Lindie Stroebel, manager of Agbiz's agri-business intelligence. "There is now a complete move away from 'companies with good BEE scorecards' to black-owned and black women-owned enterprises. We are moving backwards and we are not making a meaningful contribution to changing previously disadvantaged people's lives in South Africa."

Stroebel points out that an important issue for white-owned businesses with regard to the revised and amended codes is the advanced recognition of all businesses that have a greater than 51% BEE shareholding. "This implies that only white-owned, medium-sized businesses and all large businesses are subject to transformation in terms of the codes. I believe that this is grossly unfair - especially in the agricultural sector," says Stroebel.

BEE started off with the mere ownership of companies that put you in the green with government for BEE purposes. That did not work. It simply encouraged a "fat cat" syndrome, Stroebel says. "Your black partner, who did not really participate in your business, but who was merely popping in at the office every now and then to provide you with BEE points, did not care. He or she shared in the wealth after all. The BEE target to empower previously disadvantaged people was missed by a mile."

From narrow-based to broad-based BEE

The move from narrow-based to broad-based BEE, however, was a step in the right direction, she believes. "The various successful development and upliftment programmes, many of which were initiated by the agricultural community, have made a difference where it mattered most - at grass roots level. It gave people hope. Now we are back to black ownership and this will not change the face of South Africa."

Agbiz produced a publication last year that contained numerous case studies of its members' value-adding social development and upliftment programmes. The publication testifies to many success stories, according to Stroebel.

But why then the Amendment Act and the revised codes? The year 2013 marked ten years since the promulgation of the B-BBEE Act, Stroebel explains. She points out that government wrongly believes that the implementation of BEE until 2013 has been "too soft" and that stronger, more radical measures are necessary to change South Africa's socio-economic face. And government strongly believes that there must be consequences from now on for non-compliance.

"While successful projects in rural areas, initiated by the agricultural sector to uplift people and change their lives for the better, will still count towards the BEE scorecard, black ownership is once again the star of the show.

"It's not the concept of BEE that leaves agri-businesses frustrated. There is consensus that the decades of restricted and unequal participation in the South African economy should be addressed. However, with the narrow emphasis on black ownership, their social development programmes are not getting the recognition they deserve.

"The unemployment statistics among young people is scary, really scary," says Stroebel. The figures indicate that close to 6 million of black young people between the ages of 25 and 34 are unemployed (and most probably unemployable, due to a lack of decent schooling). BEE should reach out to these people and not only to potential owners of a company or a beneficiary of land reform. We should get these youngsters skilled and employed and change the face of South Africa's fabric in this way," she says.

"Considering the nature of agriculture, there is no difference between the ability of a white-owned EME (small businesses) and a 100% or 51% black-owned EME to contribute to B-BBEE and transformation via the elements of the scorecard, rather than via ownership. Without understating the importance of the ownership element, the enhancement of 100% and 51% black-owned enterprises grossly undermines the importance of the other elements.

"The weighting points on the scorecard for socio economic development in the Codes of Good Practice changed from 10 points to 5 points, because the emphasis moved from the social aspect to new business development. Considering the geographical location of the agri-industry and the vast need for, and gross neglect by local authorities of social development in rural areas, this legislation is not providing for the objectives as set out in the National Development Plan (NDP). Therefore it is currently being negotiated to increase it to 15 points in the AgriBEE scorecard.

"The NDP objectives most certainly would have implied a different direction for B-BBEE targets specifically aimed at social development. Encouragement in this regard could result in a significant contribution by agriculture in the rural areas. These elements should rather have been encouraged in the amended codes," she says.

Stroebel points out the danger that many of these value-adding programmes may be discontinued because they would cost money as they do not receive sufficient recognition on the BEE scorecard. And will the 100% black-owned, or 51% black women-owned companies conduct skills development and upliftment programmes? Most unlikely because, quite simply, they don't have to.

"Considering the nature, as well as the geographical location of the agricultural sector, the other elements will have to be emphasised in order to achieve transformation. This implies that human capital development via management control and skills development, as well as indirect empowerment, via enterprises, will not take place in regions where farming enterprises are mostly black-owned. And neither will supplier and social development.

"The black community and employees in those regions will be grossly neglected due to this legislation. The suggestion is to incorporate clearer incentives for black-owned EMEs to participate and contribute - especially in areas of both skills development and socio-economic development.

"We believe that these changes could stop BEE in its tracks in many smaller companies when they discover just how difficult obtaining a BEE score has become. As stated before, the new codes will result in many agri-businesses, which have been working hard to obtain their current BBE status, drop down a level or two. Furthermore, the cost of compliance has increased significantly for QSEs." Stroebel says.

Another major issue is that agriculture will now also be expected to source inputs from companies with 100% black and 51% black women-ownership, in order to make a contribution to their own scores. "Such firms do not exist in South Africa's rural areas, especially due to the level of speciality that exists in the input sector. Therefore, it is not merely unfair but it is also totally impractical. It is suggested that a phasing-in process be incorporated, perhaps through enterprise development, otherwise it will simply be impossible to comply," says Stroebel.

What furthermore awaits you is Big Brother. A proposed B-BBEE commission has to be appointed by 31 March this year. This, however, is unlikely to take place on time, Stroebel believes. The commission will be established as an entity within the administration of the dti, headed by a commissioner appointed by the minister.

The commission will report to parliament and it will be required to provide an institutional environment for the monitoring and evaluation of B-BBEE. It will, inter alia, oversee, supervise and promote adherence to the Act. It will receive and investigate complaints relating to B-BBEE, such as the misrepresentation of its B-BBEE status by an enterprise and fronting. And there will most certainly be dire consequences if you are in the wrong. The Act provides for imprisonment and/or penalties.

Your BBE status will be inspected annually. This is another problem faced by agriculture. "Seasonality may result in a particular good year, which may not necessarily be the case the following year. The ups and downs that are so much part and parcel of agriculture have unfortunately not been taken into account. One year you might be classified as an EME and another as a QSE. Your score will vary every year and your costs of getting accreditation will therefore be very high.

Another concern is that, if you are not BEE compliant, you will also not be able to obtain a water licence, for instance, Stroebel says.

"It takes two to tango," she concludes. The ideal is that government and the business sector should cooperate. Each should have its checklist of responsibilities. But at the moment only the business sector is going to be weighed and measured. It is a finger-pointing approach instead of a collaborating one. The responsibility for change now rests squarely on businesses.

When can we expect a contribution from government in this regard? "The upcoming BEE changes will prove to be a considerable challenge - especially for agri-businesses and the farming community. We will have to apply our minds and think strategically to crack this tough nut," Stroebel predicts.