Association of BEE Verification Agencies 2nd Business Breakfast

The Implication of the Alignment of the PPPFA on Business

Protea HotelBalalaika Sandton

20 Maude Street, Sandown, Sandton, Johannesburg

Thurs, 05th November 200907h30 for 08h00 to 10h00

Agenda

Registration: 07h00 – 07h30

Breakfast: 07h30 – 08h00

Welcome & Presentation: 08h00 – 08h30

Questions & Answers: 08h30 – 10h00

Moderator

Mr. Kevin Lester

Executive Director

Transcend Corporate Advisors (Pty) Ltd

Panel

1. Mr. Andile Tlhoaéle ABVA Chairperson

2. Mr. Kganki Matabane Business Unity South Africa (BUSA)

3. Mr. Thami Mazwai CBBO

4. Mr. Duma Gqubule Kio Advisory Services

PRESENTATIONS PROVIDED BY:

ABVA hereby thanks:

Mr. Kganki Matabane, Executive DirectorBusiness Unity South Africa (BUSA)

&Mr. Duma Gqubule, Director

KIO Advisory Services

For providing the presentations at ABVA’s 2nd Breakfast Session

BUSA’s views on PPPFA alignment

Presented by Mr. Kganki MatabaneExecutive Director, BUSA

CONTENT:

1. INTRODUCTION

2. CURRENT REGULATIONS

3. DRAFT REGULATIONS

4. CONCERNS

5. CASE FOR LOCAL CONTENT

6. SHORT TERM INTERVENTIONS

7. MEDIUM/LONG TERM INTERVENTIONS

8. CONCLUSION

BUSA

INTRODUCTION •State procurement is critically important in achieving Transformational, Economic and Industrial objectives

•Leveraging of Public Procurement Programmes in support of B-BBEE and local production are critical elements to achieving these objectives

•Ideal intervention is the amendment or REPEAL of the Act without delay

•Preference point system is inherent in the Act

•We recognise that an amendment to the Act is a protracted process

•Have reviewed the draft Regulations in context of B-BBEE & support for local production

BUSA

CURRENT REGULATIONS

Discourages B-BBEE compliance by White Business (11% penalty)

Provisions of the Act are in conflict with those of Section 10 of the BEE Act

Section 10(b) of the BEE Act cannot be said to trump the 90/10 or the 80/20 preferential point provisions of the Act, as these are prescribed in the main body of the Act.

Current approach encourages fronting

BUSADRAFT REGULATIONS

Preferential Procurement Regulations will be extended to all organs of state for uniformity purposes

Definition - Black people vis a vis HDIs

Incorporation of the 7 elements

Use of accredited Verification Agencies

BUSACONCERNS

ROLE CLARIFICATION -TREASUTY & DTI

• New Treasury Regulations would incorporate SCM Regulatory Framework (including preferential procurement)

• Section 10(b) of the BEE Act provides that, “every organ of state and public entity must take into account and, as far as is reasonably possible, apply any relevant code of good practice issued in terms of the BEE Act in developing and implementing Preferential Procurement Policy”

BUSACASE FOR LOCAL CONTENT/PRODUCTION

Promotion of SA owned enterprises

Creation of new decent jobs and the intensification of labour absorption.

Local producer contributes 30% or 30 cents more back into the economy for every R1 procured in the public sector

BUSA

SHORT-TERM INTERVENTIONS

Retain the current point system

Increase the R1m threshold

Section 11 (1) of the Regulations should be clear on the Specific Industries

Find a way of introducing “set asides” E.g. Dti 10 products

Should two or more bids be equal - share the awards

BUSAMEDIUM/LONG TERM INTERVENTIONS

Amendment or the ultimate repealing of the Act

Adopt B-BBEE Act and Codes of Good Practice

Establish a joint working Group between Treasury, Dti and Business

agree the key principles in respect to BBBEE, local procurement and Industrial Policy alignment

Include of “set asides”

Role clarification between Dti and Treasury

BUSACONCLUSION

Submission intended to provide constructive & programmatic inputs

Strengthen both B-BBEE and support for local production

Preferential Procurement is an important instrument in achieving our Country’s Socio-Economic, Transformational and Industrial objective

Context of fiscal constraints and best value for money in public procurement

KIO Advisory Services

PRESENTATION TO ABVA

PREFERENTIAL PROCUREMENT AND

B-BBEE

KIO Advisory ServicesPREFERENTIAL PROCUREMENT AND B-BBEE

Can be the most important tool for economic transformation

– Was used effectively by the apartheid government for Afrikaner empowerment after 1948

Two ways to create a black company

– Borrow to buy minority stake in white company and pray (Standard Bank, Mvelaphanda)

– Preferential procurement get immediate cash flow and retain black shareholding (Business Connexion, Gijima AST, ARM)

Must leverage private and public procurement

KIO Advisory ServicesPREFERENTIAL PROCUREMENT(GOVERNMENT SPEND)

KIO Advisory ServicesPREFERENTIAL PROCUREMENT SCORECARD

KIO Advisory ServicesB-BBEE STATUS AND RECOGNITION LEVELS

KIO Advisory ServicesPREFERENTIAL PROCUREMENT–PRIVATE SECTOR

Ongoing review of BEE must be part of the policy

framework. Already know what is not working

Preferential Procurement IS NOT WORKING

– Opportunistic point scoring for established business

not true transformation

– Failed dismally to incentivise procurement from

black owned businesses

KIO Advisory ServicesPREFERENTIAL PROCUREMENT–PRIVATE SECTOR 75% of the points for procurement from all suppliers and QSEs/EMEs

– Minimalist compliance focus on existing suppliers not new

suppliers

– Can get 15 points without procuring a cent from any black-owned

business

– Can meet the target by procuring from Level 7 contributors to

BBBEE with a score of 40 to 45 points and a BBBEE recognition

Level of 50%. Target is too low

– Need new PP scorecard with higher weightings and targets for

procurement from black business

KIO Advisory ServicesPREFERENTIAL PROCUREMENT SCORECARD

KIO Advisory ServicesPREFERENTIAL PROCUREMENT - PUBLIC SECTOR

80/20 preference point system for procurement up to R1m

KIO Advisory ServicesPREFERENTIAL PROCUREMENT - PUBLIC SECTOR

90/10 preference point system for procurement above R1m

KIO Advisory Services

PREFERENTIAL PROCUREMENT - PUBLIC SECTOR Public Sector not implementing BEE Act

Not implementing or reporting on set aside policy

Draft PPPFA regulations aligned with BEE Act – will reverse the gains made by the public sector over past 15 years

Organs of state and public entities have exceeded LOW targets in the BEE Codes

– The Codes are for private sector

Public Sector Charter must have own scorecard and targets

Public Sector Charter must have legislated reporting requirements for all organs of state and public entities

KIO Advisory Services

PUBLIC SECTOR PREFERENTIAL PROCUREMENT SCORECARD

KIO Advisory Services

PREFERENTIAL PROCUREMENT - PUBLIC SECTOR

Proposed 50/50 preference point system for procurement up to R100m

KIO Advisory Services

PREFERENTIAL PROCUREMENT - PUBLIC SECTOR

Proposed 60/40 preference point system for procurement above R100m

KIO Advisory Services

PREFERENTIAL PROCUREMENT - PUBLIC SECTOR Threshold must be increased to R100m

50/50 for contracts less than R100m

60/40 for contracts above R100m threshold

Set asides for black-owned companies

Dual BBBEE evaluation strategy

– 50% for scorecard;

– 50% for black ownership and black women ownership

THANK YOU