BEE amendments target ‘complex fronting’

Amendments are needed to Broad-Based Black Economic Empowerment (BBBEE) legislation to ensure that South Africa's economy is more inclusive, Trade and Industry Minister Rob Davies said on Monday.
"We cannot run an effective economy that draws its leadership and entrepreneurial capacity only from a small minority of the population," he said in Johannesburg at a breakfast briefing hosted by the New Age newspaper.
The proposed amendments to the BBBEE Act would define the practice of fronting, including "complex fronting", and introduce a commissioner with the power to impose penalties.
Complex fronting involved companies drawing up complicated contracts which deprived black managers of the appropriate authority for their positions.
Davies said the codes by which compliance was assessed also needed to be revised to encourage symbiosis between large and small companies.
"[President Jacob Zuma] has said: 'Where are the black industrialists?' and of course we have one or two, but what we are looking at is to create many more real players in the productive economy."
The categories of the scorecard used to measure BBBEE compliance would be reduced from seven to five under the proposed amendments.
The categories of employment equity and management control would be merged into a single category, as would preferential procurement and enterprise development.
Davies said the amendments also sought to introduce sub-minimum requirements for the priority elements of ownership, skills development and the enterprise and supply development categories,
"If you don't score sub-minimum and you are a large business, we will reduce your overall score by two places," he said.
Qualifying small enterprises would be downgraded by one place for failure to meet the 40 percent requirements.
"We cannot any longer regard people as significant contributors to BEE if they are not involved in the broad categories of BEE..."
The proposed bill, which was in the public consultation phase, would also do away with the necessity for small, black-owned companies to have their status verified by agencies.
At present, small companies had to pay a verification agency for a certificate as proof of their BEE rating, but Davies said this placed an "inordinate and unnecessary burden" on these enterprises.
As such, a 100 percent black-owned, small enterprise would automatically be regarded as level one.
"Essentially, I think the slogan might be that we want to turn BEE essentially from supporting passive shareholding to something that supports a much more active and productive empowerment of black people across the economy," Davies said.
He warned that the proposed legislative changes would not be a "magic wand", and that other initiatives were needed to support BBBEE.
Some companies held a "tick box mentality", and were more interested in being seen to be compliant than actively seeking the long-term economic benefits to society presented by BBBEE, Davies said.
Source – Sapa