BROAD BASED BLACK ECONOMIC EMPOWERMENT AND THE CODES OF GOOD PRACTICE PHASE 1 & 2

1. BROAD BASED BLACK ECONOMIC EMPOWERMENT AND THE CODES OF GOOD PRACTICE PHASE 1 & 2 VENUE: CAPE TOWN -PARLIAMENT DATE: 07 March 2006

2. Agenda Background and Context Codes of Good Practice on B-BBEE Phase 1 Codes of Good Practice on B-BBEE Phase 2 Dispensation for QSE’s and Micro’s (Code 1000 -1700 : Statement 1000 -1700) Ownership Additional Clarification

3. Colonisation & Apartheid systematically disempowered black people • Result: significant imbalances in SA economy • 90% of population owns less than 5% of JSE • 40% of black South Africans unemployed vs. 10% of white South Africans • Majority of SA population excluded from SA economy The Transformation Imperative

4. Mainstream Economy Economic Prerogative of Broad-Based BEE Mainstream Economy • Increase the level of participation by black people in mainstream economy • Increase income through resultant economic growth • Increase the real market in the SA economy BEE Upliftment Second Economy Second Economy More economic participants Higher Economic Growth A Bigger Market for All

5. Equitable Economic Opportunities Emerging black middle class & investors Ownership And Management Broad-Based Beneficiary Base The Opportunity Barrier Preferential Procurement Enterprise Development Black entrepreneurs The Business Barrier Skills Development Black workers, professionals, graduates, school-leavers The Skills Barrier Employment Equity/Job creation Corporate Social Investment Black unemployed & rural poor The Poverty Barrier • Broad-based BEE must be inclusive • Result in economic growth Accounted for with substance over form

6. 2003 - Broad-Based BEE Strategy and Scorecard • Defines Government’s Broad-Based Strategy • Provide the generic balanced scorecard BEE Legislative Framework 2004 - Broad-Based BEE Act • Enabling framework for the promotion of BEE • Empowers minister to issue codes of good practice on BEE • Establishes the BEE Advisory Council 2005 – 2006 The Codes of Good Practice (partially complete) • Provide certainty on B-BBEE implementation in the economy • Further interpretation of the BEE Act • Determine qualification criteria for licensing • Criteria for entering into PPP’s with private sector Industry Transformation Charters (To be negotiated) • Outline industry-specific BEE weightings and targets • Establish the residual elements of the scorecard • Standardise industry BEE initiatives and reporting

7. Implementation Levers to promote B-BBEE Broad-Based Black Economic Empowerment Strategy 2005-2006 Codes of Good Practice on B-BBEE Use of Balanced Scorecard in: Granting of Licences, Concessions to Private Enterprises, Sale of State Assets, Public Private Partnerships (PPP) and Procurement. Sector Transformation Charter Funding to promote B-BBEE

8. Agenda Background and Context Codes of Good Practice on B-BBEE Phase 1 Codes of Good Practice on B-BBEE Phase 2 Dispensation for QSE’s and Micro’s (Code 1000 -1700 : Statement 1000 -1700) Ownership Additional Clarification

9. Codes of Good Practice aims to address these Concerns and Risks around the B-BBEE Process • Lack of full understanding and appreciation of the principles of broad-based BEE • Inconsistent application of BEE • Extensive debates could result in delays – biggest is slow or no progress on BEE • Disparity in Charter Definitions and Targets • Lack of Implementation Guidelines can result in ‘Fronting’ or ‘Sham’ transactions promoted 3

10. Codes of Good Practice • (1) In order to promote the purposes of the Act, the Minister by notice in the Gazette has issued the codes of good practice on black economic empowerment that include— • (a) the further interpretation and definition of broad-based BEE and the interpretation and definition of different categories of black empowerment entities; • (b) qualification criteria for preferential purposes for procurement and other economic activities; • (c) indicators to measure broad-based BEE ; • (d) the weighting to be attached to broad-based BEE indicators referred to in paragraph (c); • (e) guidelines for stakeholders in the relevant sectors of the economy to draw up transformation charters for their sector; and • (f) any other matter necessary to achieve the objectives of this Act.

11. Codes of Good Practice • 10. Every organ of state and public entity must take into account and, as far as reasonably possible, apply any relevant code of good practice issued in terms of this Act in: • (a) determining qualification criteria for the issuing of licences, concessions or other authorizations in terms of any law; • (b) developing and implementing a preferential procurement policy; • (c) determining qualification criteria for the sale of state-owned enterprises; and • (d) developing criteria for entering into partnerships with the private sector.

12. Framework for Broad-Based BEE KEY PRINCIPLES

13. BEE RECOGNITION LEVEL

14. Ownership (Code 100 : Statement 100) • Entrench a key objective of the Act, i.e. to increase the number of black people that manage, own and control enterprises and productive assets. • Provide recognition and measurement criteria for black ownership • Provide financial sustainability through the use of the model of net economic interest • Provide for the empowerment of black women, black designated groups, new entrants and broad based ownership schemes

15. Ownership OTHER PRINCIPLES

16. Ownership Scorecard

17. Scorecard encourage participation by women and broad-based schemes and new entrants • Companies entering into transaction with broad-based schemes and new entrants rewarded with bonus points

18. Behavioral Impact of the Codes The Code: • Significantly increases the participation by black women, broad-based schemes and black employees • spreads the BEE ownership base, reduces the number of deals involving the top six (6) BEE consortiums • results in more than half of the companies providing forms of vendor financing to facilitate entry by broad-based BEE shareholders

19. Management Control (Code 200 : Statement 200) KEY PRINCIPLES

20. Management Control Scorecard (continues)

21. Agenda Background and Context Codes of Good Practice on B-BBEE Phase 1 Codes of Good Practice on B-BBEE Phase 2 Dispensation for QSE’s and Micro’s (Code 1000 -1700 : Statement 1000 -1700) Ownership Additional Clarification

22. Employment Equity KEY PRINCIPLES

23. Employment Equity Scorecard

24. Skills Development KEY PRINCIPLES

25. Skills Development Scorecard

26. Skills Development Scorecard (continues)

27. Preferential Procurement Scorecard

28. Allowable Exclusions: • Salaries • Third party costs • Loans and Donations • Certain imports • Rates & Taxes, levy and • post retirement funding and • Medical aid contributions,etc. • Imports accepted to a maximum • of 25% of the total procurement Total Spend Statement 500 – Preferential Procurement Cost of Sales Operational Expenditure Capital Expenditure TOTAL MEASURED PROCUREMENT SPEND BEE Spend Non-BEE spend

29. Enterprise DevelopmentKEY PRINCIPLES

30. Enterprise DevelopmentKEY PRINCIPLES (continues)

31. Enterprise Development Scorecard

32. Residual ElementKEY PRINCIPLES

33. Residual Element Scorecard

34. Agenda Background and Context Codes of Good Practice on B-BBEE Phase 1 Codes of Good Practice on B-BBEE Phase 2 Dispensation for QSE’s and Micro’s (Code 1000 -1700 : Statement 1000 -1700) Ownership Additional Clarification

35. Framework for Measuring BEE in QSEs Other Companies (Exceed Revenue or Employee limits) Generic Scorecard, with all seven elements (Statement 000~900) QSEs can elect to implement the entire QSE scorecard (with enhanced recognition) QSE Scorecard, Select five of the seven elements (Statement 1000~1700) Qualifying Small Enterprises (As per Statement 1000) All elements weigh 20% Indicators adapted to QSEs Micro Enterprises Micro Exemption, Automatic Level 4 Recognition

36. QSE Identification and Classification Table

37. QSE Scorecard – Ownership & Management Control

38. QSE Scorecard – Employment Equity & Skills Dev.

39. QSE Scorecard – Preferential Procurement , Enterprise Development and Residual

40. Agenda Background and Context Codes of Good Practice on B-BBEE Phase 1 Codes of Good Practice on B-BBEE Phase 2 Dispensation for QSE’s and Micro’s (Code 1000 -1700 : Statement 1000 -1700) Ownership Additional Clarification

41. Ownership – Additional Clarification • Four (4) additional Codes statement have been released during Phase 2 to provide further guidance on the measurement of ownership, these statements include: • Statement 102: Warehousing Funds • Statement 103: Multinational Companies • Statement 104: Public Entities and other Organs of State • Statement 105: s21 Companies

42. implication implication Statement 102 – Warehousing Fund Warehousing Funds Identification of Intended Black Participants • Minister approved fund • Established to hold an Equity • Interest in an Enterprise purchased • from exiting black Participants • Fixed duration • Obligation ultimately transferring • ownership to Intended Black Participants • Tri-partite agreement • Between vendor, warehousing fund • and intended black participants • Ultimate black participants need to be • identified • Final purchase price agreed before • warehousing arrangement recognised as • black ownership • Black ownership only recognised based • on specified principles of ownership in • Statement 100 • Create exit mechanism for black • investors • Ensure companies do not lose BEE • status when negotiating a BEE • transaction with new black participants

43. Ownership – Warehousing Fund - (Code 100 : Statement 102) the recognition of ownership Contributions Arising from Investments by BEE Targeted Warehousing Funds PRINCIPLE: An Enterprise may be awarded ownership points for notional black participation arising from the ownership by a Warehousing Fund. Providing liquidity and exit mechanism for black investors Exiting Black Investors Warehousing Fund New Black Investors Measured Entity

44. Ownership – Option for Multinational Companies (Code 100 : Statement 103) Equity Equivalent = 25% Multinationals Sale of Shares Sale of international interest SA Multinationals Sale of assets and operations • Companies have an option of either doing one of the following Options or they can apportion it using a combination of the options provided

45. implication implication Statement 104 / 105 – Public Entities, Organs of State and Section 21 Co. Broad-Based Scorecard Notional Ownership Points • B-BBEE score of Public Entities, State Organs and s21 allocated notional ownership points • Based on contributions to other 6 • scorecard elements • All Public Entities • Organs of State • s21 • Measured in terms of B-BBEE scorecard • No business entity excluded from B-BBEE • Except exempted micro-enterprise • Public entities and s21 allocated notional ownership points based on converted score from remaining 6 BEE elements • Formula: A = B / 80 * 20

46. Ownership – Public Entities, Organs of State and Section 21 Co’s (Code 100 : Statement 104 / 105)

47. THANK YOU Contact Details BEE Unit: The Director Attention : Mr. Jeffrey Ndumo The Department of Trade and Industry Private Bag X84, Pretoria 0001 Tel No. : (012) 394 – 1631/4 Fax No. : (012) 394 – 2631/4 e-mail address : bee-cgp@thedti.gov.za Jndumo@thedti.gov.za