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BLACK ECONOMIC EMPOWERMENT
Definitions of Black Empowerment Entities BEE enterprises are categories of enterprises with representative levels of participation, ownership, management or control by black South Africans, described in the Act. A “black enterprise” is one that is 50,1% owned by black persons and where there is substantial management control. Ownership refers to economic interest while management refers to the membership of any board or similar governing body of the enterprise. A “black empowered enterprise” is one that is at least 25,1% owned by black persons and where there is substantial management control. Ownership refers to economic interests. Management refers to executive directors. This is whether the black enterprise has control or not. A “black woman-owned enterprise” is one with at least 25,1% representation of black women within the black equity and management portion. A “community or broad-based enterprise” has an empowerment shareholder who represents a broad base of members such as a local community or where the benefits support a target group, for example black women, people living with disabilities, the youth and workers. Shares are held via direct equity, non-profit organisations and trusts. A “cooperative or collective enterprise” is an autonomous association of persons who voluntarily join together to meet their economic, social and cultural needs and aspirations through the formation of a jointly owned and democratically controlled enterprise. Developed by the AgriBEE Reference Group A balanced scorecard for Broad-Based Black Economic Empowerment Introduction To achieve our BEE objectives we need to have a consistency of approach, appropriate flexibility to respond to different economic and enterprise conditions and the ability to measure our progress. The negotiations around the Mining Charter provided a useful and pragmatic approach to these needs that will now be applied more generally. Government will use a ‘balanced scorecard ’ to measure progress made in achieving BEE by enterprises -and where sector-specific charters are developed, the terms set out in those charters will apply. The use of a common scorecard by different stakeholders provides a basic framework against which to benchmark the BEE process in different enterprises and sectors. The scorecard also allows Government departments, state-owned enterprises, and other public agencies to align their own procurement practices and individual BEE strategies. It further facilitates the process of setting measurable targets for BEE, for BEE ratings and other measurement purpose. Furthermore, it allows for a measure of flexibility so that it can be adapted to the particular circumstances of specific sectors or enterprises, while at the same time bringing a measure of standardisation to the definition and measurement of BEE. Core components of BEE The scorecard will measure three core elements of BEE:
The process of BEE must result in an increase in the ownership and control of the economy by black people. This means that a significant proportion of black people ’ ownership of assets and enterprises must be a controlling interest, reflecting genuine participation in decision-making at board, executive management and operations levels, and the assumption of real risk. In the scorecard, direct empowerment focuses on ownership of enterprises and assets through shares and other instruments that provide the holder thereof with voting rights and economic benefits, such as dividends or interest payments. Control means:
This emphasis on control does not detract from the important role that passive ownership of assets through pension and provident funds, unit trusts, and other collective investment schemes can play in BEE. However, passive ownership by black people is in itself not sufficient to bring about a real transformation of our economy. Without active participation in managing worker-owned funds, and similar investment instruments, investors have very little control over the direction of investment decisions made by fund managers. Passive ownership of enterprises can also lead to a form of ‘fronting ’ and this needs to be guarded against. Human resource development and employment equity
This component of the scorecard focuses on the development of the employees of an enterprise or sector as well as employment equity. Enterprises are required to comply with the provisions of the Employment Equity Act to bring about an equitable representation of black persons in all occupations and at all levels of the organisation over a period of time. The involvement of black persons in operational, professional cadres and executive decision-making is a critical aspect of BEE. Given the legacy of systematic labour market discrimination and inferior education, accelerated skills and advanced professional skill development is also important. Indirect empowerment
In order to grow our economy, more enterprises are needed to produce value-added goods and services, to attract investment, and to employ more of our people in productive activities. Thus, a core component of the BEE strategy is the creation and nurturing of new enterprises by black people. Preferential procurement by both the State and the private sector is an effective and efficient instrument to drive BEE as it provides emerging black enterprises with opportunities to expand their output. The scorecard, therefore, includes a preferential procurement element. A second element of indirect empowerment is enterprise development. This can take two forms:
Investment in black-owned and black-empowered enterprises is a crucial step in the provision of financial and intellectual capital to such enterprises. The key elements to be taken into account when making these types of investment are that there must be real economic benefit flowing to the recipient enterprise to enable it to be set up and run on a sustainable basis; effectively, there must be resultant operational capacity from the investment into the enterprise; and, there must be active participation by black people in the recipient enterprise. Joint ventures with black enterprises may involve processes such as outsourcing parts of the established enterprise ’s projects or jointly contracting for certain projects that will result in a transfer of skills to the black enterprise. The measure of the effectiveness of joint ventures is whether or not the black enterprise is able to perform the core elements of the joint projects on a stand-alone basis without compromising the competitive advantage contributed by either enterprise. The residual 10% in the scorecard. In order to allow sectors and enterprises to tailor the scorecard to their circumstances, a residual 10% of the scorecard is left to sectors and enterprises to determine. Government encourages sectors and enterprises to consider including some of the following in their scorecards:
[INSERT THE BEE SCORECARD] Indicators The indicators outlined in the scorecard are provided as a guide. In practice, enterprises and sectors may use these ratios, analysis tables or mini-scorecards to provide the most accurate reflection of progress in each of the core components of BEE. Conversion factor The conversion factor enables the scorecard to reflect progress made against the specific BEE targets that the enterprises and sectors have established. Targets will be set at sectoral level where an agreement on sector charters has been made. With regard to enterprises, codes of good practice will be issued on appropriate benchmarks or targets. The targets set out in the Mining Charter will be used as guide. By way of illustration, the conversion factor in this scorecard is calculated as 100% target ratio. For example, if an enterprise established a target for the procurement of 5%, i.e. black-owned and empowered enterprises will provide 5% of total procurement, then the component factor for preferential procurement will be 100/5, which is equal to 20. When that enterprise achieves this target, it will receive a score of 5% times 20 which is 100%, for achieving its target. If the enterprise only procures 3% from black enterprises in the first year, it will receive a score of 3% times 20, or 60%. Weighting The weighting of each component reflects the relative importance that Government places on these components. The six core components of BEE are weighted to bring the scorecard to a maximum of 100%. The weightings total 100 in order to bring the scorecard to a standardised maximum score. Total score The total score will be calculated by the sum of the individual component scores and will be reflected as a score out of 100%. Ranking enterprises using the scorecard Using the scorecard as a guide, Government will rank and categorise enterprises for the purposes of preferential procurement, restructuring of state-owned enterprises, financing and other kinds of support. The precise weighting and score will depend on the actual transaction and will be adjusted according to the economic, commercial and financial situation. Government will use the total score to rank enterprises according to their progress in achieving broad-based black economic empowerment. The following are samples of categories for preferencing:
These rankings will be used to guide the direction of Government support towards its BEE objectives. Preferential procurement policies and the qualifying criteria for Government incentives and support schemes will be reviewed and, where appropriate, amended on a case-by-case basis to reflect these rankings. Government will also encourage the private sector to develop similar ranking systems in sector and enterprise charters and to use these rankings in their procurement systems. Extract from: South Africa’s Economic Transformation: A Strategy for Broad-Based Black Economic Empowerment. Downloads
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