If you interact in any way with South Africa, then it is probable that you have been impacted by Broad-Based Black Economic Empowerment (BBBEE). BBBEE is a necessary equaliser that attempts to level the playing field of equal economic opportunity, after years of apartheid oppression. However, as it so often happens with good intentions – the purpose does not always result in the desired goal. We are all familiar with the codes benefitting the rich, and making them richer, we’ve seen the BEE deals that have harmed companies more than they have helped them, all in an effort to reach a status that allows tenders to be won. The new codes have sought to iron out the flaws in the previous codes, but the truth is that they may actually push the goal of BEE compliance further away from the companies looking to achieve a competitive status. Everyone is a bit confused as to what the impact will be, how it will affect small business, in an economy that needs to grow in spite of legislation and compliance. The crux of the problem comes down to the affordability and the attainability of compliance. How will you be affected? Keith Levenstein, CEO of EconoBEE, breaks it down for us. – LF
GUGULETHU MFUPHI: Moving onto a local topic that might affect several businesses in the country, nine industry sectors, in particular that makes up more than half of South Africa’s economy at risk of becoming none BEE compliant. When evaluated against amended BE codes due to be introduced in May next year.
Now, this is according to Keith Levenstein, he’s the CEO of EconoBEE. He’ll tell us more about that and explain more about the BEE codes. Keith, good to have you with us, perhaps if we take a look at the revision of the BE codes. What were the key objectives that need to be, met in order to revise these codes and the deadline and it does seem as though that might be missed as well.
KEITH LEVENSTEIN: Yes, Gugu that is a potential problem. The codes themselves came out in October 2013, and they come into effect in May 2015, which seems like there is enough time, only about 18 months, but it seems like there is enough time. The codes addressed various issues of problems with the previous codes but in many cases, they perpetuated the same problems that the old codes have, so, in affect they haven’t really solved too many problems. However, the major impact of these new codes is, amongst others, they’ve changed, or the Minister has changed the points-to-levels-table. We all know that there used to be a level four and a level five and they still have those exact same levels, but the number of points you need to earn, in order to reach that particular level, has gone up quite dramatically.
In addition, and this is where we see a problem, the old level eight, which was the lowest, possible compliant level, was points between 30 and 40 points. The new codes have pushed that up from 40 up to 55 points, which means that many companies who previously were level seven and eight, which arguably weren’t very good, but even then they were compliant and they had an incentive to try to improve. Those companies are going to, simply, drop right off the table.
GUGULETHU MFUPHI: Now that’s a serious issue, which might affect small business owners like Alec, who is with us in Cape Town. Alec, how do you evaluate the system?
ALEC HOGG: Well, that’s exactly the point because what it is saying to small businessmen is don’t get bigger, stay small, don’t expand and it is very hard to tell an entrepreneur to do that because if you start a new business and you are desensitised to expand. That means you’re not going to hire more people. If you do hire more people, and you do go over a certain threshold, then you have to comply with the limits that are, for many small businesses, just impossible. Keith, are you finding that this is the kickback that you are getting from small business owners?
KEITH LEVENSTEIN: Unfortunately, Alec, yes. This is a situation that we are finding people complaining about it. Many people have said to me that maybe they should stay or get their company to be below the ten-million Rand level, which means that they are automatically compliant, because above that, it does become quite difficult for those companies to be compliant. Sadly enough and, as you know, Alec, I’m a proud supporter of BEE but, sadly enough, many large companies have actually said to me that they don’t know if they can comply, therefore they’re not going to, which really harms transformation. My objective, quite simply is, let’s try to improve transformation, rather than have these really difficult activities. I’d love to see your business grow, Alec. I don’t want to see you remain small for very long.
ALEC HOGG: The unintended consequences of legislation.
KEITH LEVENSTEIN: Yes, that is always a problem that we look at a lot, with regard to, particularly the codes, which is the only area that I happen to have any knowledge on. The Minister might say something of the code, specifically; he might say something without realising what those unintended consequences are, and they should be fully aware of what those consequences are. It is not a matter of saying, “Unintended or I didn’t realise it.” Surely, the Department or the Government should be aware that if we make things too difficult, you’re simply going to decide that you don’t want to comply in the first place. Even if you do want to, you end up not doing so. The old codes had this wonderful psychological points-to-levels-table, where a company was a level eight, if they were 30 to 40 points and then level seven was 40 to 45.
So many companies would get to the level eight, and the following year they would decide, ‘can they try and become a level seven’, because our competitive nature in the world is, ‘let’s get better’ and because that level seven was only a five-point spread. Many companies advanced beyond that level seven to become a level six, which really gave so many people so much motivation. Nowadays, the new level eight is 40 to 55 points, which is a huge gap. Many companies, multi nationals also, are probably never ever going to be anything more than level eight and there is no motivation, no excitement, to say to them, ‘try and get better’. Obviously, there are many companies who will become compliant and get to the first or second levels, but the vast majority is going to be stuck at the level seven or level eight, if they make a real, big effort. I’d rather have seen that the code said, ‘anyone from 20 points upwards’, and that is motivation rather than anything else.
GUGULETHU MFUPHI: Keith, so then for an entrepreneur and business owner, like the Alec’s of the world, what are the proposed solutions for them now going forward?
KEITH LEVENSTEIN: There are various ways, Gugu, of becoming compliant. It might be slightly difficult and us small businesses, mine included, has a far more lenient scorecard in order to follow, in order to become compliant. Just to alert you, the first point that you made, when we started the interview, those nine sector codes, as well as the small businesses, we don’t yet, actually have, our own scorecard. The Minister has yet or the BE codes have yet to Gazette how the rules are going to work. Now we have all these companies in transport, agriculture, tourism, as well as us, small businesses, who don’t actually know what our scorecard is going to look like. Which means I can estimate and I can guess, but if I don’t do it right, come the beginning of May next year, we are either not going to have earned the points that we should have, and we’re going to end up being non-compliant as well.
I think there will be opportunities for us all to get a good scorecard, myself, yourself, and Alec, alone, but the big problem that I see is, we’ve only got seven or eight months, to be compliant. Because many companies have a year-end of February next year, and unless they can be verified, using the old codes and try and beat the system, which I don’t like beating any system, unless we can beat the system before May of next year. Those companies are going to be verified in October/November, based on what they are doing today and I can’t tell them, exactly what they need to do today. As transport, finance, and tourism are big industries.
GUGULETHU MFUPHI: Key industries, in South Africa. It does sound as though our small businesses are walking blindfolded, in the dark, unfortunately, but Keith always good to have you with us. Thank you so much for joining us today. That was Keith Levenstein. He’s the CEO of EconoBEE. Well, that’s all from us here, in South Africa. A very interesting show we’ve had today, Alec, focusing on renewable energy but what’s also come, to light, is also the focus on SMME’s. Now, not only from tax incentives but also BE codes.
ALEC HOGG: And it’s as Mathew Lester was saying, that’s what the NDP (the National Development Plan) is all based on’. If we can’t get small businesses, if we can’t get people to create small businesses, we won’t get the employment targets that are going to make us into a successful country. Big companies don’t employ people. They tend to contract their workforces. You need to get small businesses to make sure that you get new people into the system. In addition, with the NUMSA strike, it’s the small businesses that are being hammered there and they are the ones who want to go out of business, so, somehow, I think we’re getting our priorities a little bit wrong. In the NDP we say, ‘we need small businesses’, but we’re putting lots of obstacles in their way and I know I live there every day.
GUGULETHU MFUPHI: Well, you taught us a thing or two today, ‘unintended consequences’.
