“My company is BEE compliant, I swear officer!”
Jenni Lawrence, MD at Grant Thornton Verification Services raises alarming concerns around the new BBBEE legislation's approach towards who may verify a company's BEE status and how easily this can be done. To add to the inefficiencies, asymmetric regulations and penalties dependent on turnover and ownership apply and are probably already acting as a huge disincentive to desperately needed entrepreneurship in South Africa. – CP
ALEC HOGG: Grant Thornton says further confusion in the BEE verification sector is bringing uncertainty. Jenni Lawrence is with us in the studio to talk a bit more about that. We've had some fascinating discussions Jenni, about the whole new BEE codes and the confusion that reigns, etcetera. It does appear, certainly from the information that you sent us ahead of this interview. Things are getting worse, rather than better. It is more opaque rather than more transparent.
JENNI LAWRENCE: Well, it looks that way from the start, and we're hoping that the DTI is going to provide some clarification before the new codes actually come into effect. They were Gazetted last year, but come into effect from the 1st May 2015. One of the big areas that is causing some confusion is the self-certification of certain sized entities.
ALEC HOGG: What does that mean?
JENNI LAWRENCE: Well, that basically, means that someone can go and write a letter saying 'my turnover is under five-million or under R10m and my company is 100 percent black owned." They can have that stamped at the Police Station and that is their BEE Certificate.
ALEC HOGG: I like that.
JENNI LAWRENCE: Yes.
GUGULETHU MFUPHI: It sounds as though it is inefficiencies, for SME's who are always complaining about regulations.
ALEC HOGG: Yes, but I guess the problem is some people might not tell the absolute truth about that. Is that what you're suggesting?
JENNI LAWRENCE: Well, that's the concern. The concern is that it is open to huge amounts of fraud. I don't know when last you've had something stamped at a Police Station but it is not the policeman's job, to check that what you are saying is the truth. He just stamps the letter.
ALEC HOGG: Yes, but you're swearing there, and we're a God-fearing nation (I thought).
JENNI LAWRENCE: You may be…, well, yes, it is a concern and the other concern is when companies are relying on those certificates, for making procurement or tender decisions how reliable are those certificates? That's open up to fraud as well, and from a verification point of view, we wouldn't be able to accept those certificates, towards our clients' procurement scores.
ALEC HOGG: Jenni, this whole thing is craziness. You've guys, of course; have got a vested interest, as have other services firms who are doing the BEE Verifications of it. Surely somebody, maybe somebody somewhere said 'okay, we know this is a lot of nonsense. We know there's massive fronting. We know that it really is an impractical law to apply, so let's just try and make it easier to handle'.
JENNI LAWRENCE: Well, the DTI has since said that they're going to look into doing this 'in-house'. That was something that sent a collective shiver down our spines.
ALEC HOGG: I don't believe it, so the DTI are going to actually, do the verifications there, so…
JENNI LAWRENCE: Well, that was a statement made by the Deputy Director of the DTI, Mr. Masina, at a Black Industrial Stakeholder Session. This has since been refuted and it suggests that this might now be done in-house at the CIPC. Although I'm not sure how equipped they are to confirm turnover for these entities, they can certainly confirm ownership but there was some indication that something would be in place by the end of the year.
GUGULETHU MFUPHI: So to verification companies, like yourself, there's a significant threat there.
JENNI LAWRENCE: Well, for smaller verification agencies there is a threat. It is obviously going to reduce income because they won't be able to issue these certificates but, I think in some cases, some companies are still going to want to have these certificates issued by a verification agency. The majority of our work doesn't actually come from the smaller entities. We deal, mainly with generic entities but, yes, for the smaller verification agencies, it is definitely going to have an impact.
ALEC HOGG: Let's just understand this now. On the one hand, they're saying that if you go to the Police Station and you swear, "I have a business. It is 100 percent black owned and it turns over less than R10m per year" you can get a stamp and that is your BEE Certificate. On the other hand, for the other companies, they are going to have to go through the DTI. We know how efficient Government is in many other areas. Why are they going to be so efficient in this respect?
JENNI LAWRENCE: I don't think that's going to happen. I think this statement was taken out of context. I think that, possibly EME Entities, those under R10m and QSE's (under R50m) who have ownership of 50 percent or more black ownership will be able to have a self-certification either through the Police Department, or the CIPC – whichever is agreed upon.
ALEC HOGG: Jenni, you guys from Grant Thornton, you have a lot of entrepreneurs on your books.
JENNI LAWRENCE: We do.
ALEC HOGG: Are you finding that this is becoming a problem now that people are seeing these BEE regulations as an unnecessary bit of red tape to expanding or growing a business?
JENNI LAWRENCE: Well, it has always been seen as a bit of an administrative burden and nightmare. It's an additional cost. There's additional compliance requirement but over the years, companies have got used to doing it, and I think many companies see it as a social requirement, in this country, and certainly as a competitive requirement, in order to do business here.
ALEC HOGG: So if you're a white person, you start a business today, just know that because you're a white person and not a black person, you have to give part of your business away.
JENNI LAWRENCE: Potentially, yes.
ALEC HOGG: You say 'potentially'.
JENNI LAWRENCE: Well, you don't have to. You could have a lower score and therefore be less competitive.
ALEC HOGG: And then get no business from Government, corporates or whatever, from everybody else who plays the game.
JENNI LAWRENCE: Potentially.
ALEC HOGG: I don't understand this. Look, we might not like it but most of the capital in this country – well, I suppose Indian guys have got a higher GDP income now than white people do – but still there's a lot of capital in white hands. If you are saying to them 'don't start a business because you've got to give it away', what do we do?
JENNI LAWRENCE: I think it is concerning and it is concerning that that is a viewpoint that's growing. I think what is also concerning is in terms of the new codes, for qualifying smaller enterprises, which are the companies with the turnover of between R10m and R50m, if they have more than 50-percent black ownership, they are not required to comply with any of the requirements that other qualifying small enterprises are. Those include things like Skills Development. They've got targets to train their staff, to spend money on training their staff. Socioeconomic Development, Enterprise Development – are those companies not going to contribute towards the economy of South Africa anymore?
ALEC HOGG: Of course, they aren't because somebody, who is well connected, is going to get rich. Craziness, anyway when you start doing laws and social engineering you'll find that people like Sasol go and put $23.bn into the United States rather than here. Our thanks, to Jenni Lawrence who is Managing Director of Grant Thornton, Verification Services.