To be relevant, Broad-based BEE Act must change

Filomena Scalise

The importance of having the Broad-based Black Economic Empowerment (BEE) Act updated has become supremely important given two examples. One in the mining industry and the other in the fishing industry. There are different laws that govern transformation in the different sectors. However, the measurement basis for all of them are very different, which results in unintended consequences for businesses. Unfortunately, these unintended consequences have a negative impact on job creation and economic growth because companies actually get very discouraged.

In the mining industry, the mining charter – that is part of the Minerals and Petroleum Resources Development Act (MPRDA) – regulates how the mining companies measure their transformation in order to get and maintain their mining licences. One of the big disconnects in the revised mining charter of 2010 is that instead of using the overall broad-based BEE contribution of the company in preferential procurement, ownership is the only criteria used.

Purchases from BEE entities are the only way to get points on your procurement scorecard. According to the mining charter, a BEE entity is an entity of which a minimum of 25 percent plus one vote of share capital is directly owned by Historically Disadvantaged South Africans (HDSA) as measured in accordance with the flow-through principle.

This, unfortunately, creates a situation where current suppliers to the mining industry that have very robust broad-based BEE contributions, to be kicked out of the procurement processes of the industry.

Recently one of the big mining houses sent a letter to its suppliers to ensure that it met this definition of 25.1 percent ownership by a certain date in 2012 or the company would stop buying from non-qualifying suppliers. This mining company must be commended for its proactive stance to drive transformation forward to meet its mining charter obligations. The unfortunate part of this is that the suppliers who have a good broad-based BEE contribution are going to lose their business if they don’t have 25.1 percent ownership.

This rule will be more acutely felt by the listed companies whose direct black ownership may range between 10 and 20 percent of share capital, without any consideration of black ownership in pension funds. The negative impact is that there would be job losses, because if they lose those contracts they can’t afford to keep their employees who deal with these mining companies. The simple solution to prevent this is alignment of the Mining Charter to the broad-based BEE codes of good practice.

In the fishing industry there is a similar case in the Supreme Court of Appeal. I read with interest the judgment of the Oceana Group vs the Minister of Water and Environmental Affairs (as a first respondent) and the Minister of Agriculture, Fisheries and Forestry (the fourth respondent). The court application was questioning the fourth respondent about the legality of the Policy for the Transfer of Commercial Fishing Rights published in 2009. The core of the policy states that for the fishing rights to be transferred, the level of transformation will be assessed on the basis of ownership and management control. The other elements of the broad-based BEE codes are ignored by the department.

The judgment explores the history of transformation in the industry by reviewing different legislation pertinent to the industry and its policies. The core of the case is actually the broad-based BEE codes of good practice that look at all the elements of broad-based BEE versus the narrow BEE view of ownership and management. The judge was persuaded by the arguments of the respondents why they could not use the broad-based codes as “it would undermine the long-term rights allocation and management process and the progress made to date with transformation and create new and difficult practical problems”. The judge stressed the policy states that the BEE codes may be taken into account in the application process but are not mandatory.

With the amendment of the act, the appeal by Oceana is strengthened.The amended act will actually force the different departments to use the measurement principles that are contained in the codes for their transformation policies. This means that all the broad-based elements shall be used unless there is justification for departure from the codes. The targets, the weightings and the thresholds of qualification criteria can be set by the industry, however, using the measurement principles of the broad-based BEE codes. - Vuyo Jack