REVIEW OF TOURISM B-BBEE CODES

28 FEBRUARY 2014

BACKGROUND The DTI Minister issued the Amended Generic Codes of Good Practice on the 11th October 2013

under section 9 (1) of the B-BBEE Act No. 53 of 2003. And the B-BBEE Amendment Act signed into law on 27 January 2014.

The codes will come into operation within twelve months of the gazetting thereof, being Friday, 10th October 2014 and will replace the generic Codes of Good Practice gazetted in February 2007.

The generic codes guide the development and gazetting of Sector Transformation Codes.

Sectors are required to revise their codes to align them with the amended generic codes.

The Tourism B-BBEE Charter Council is responsible for formulating the draft revised Tourism B-BBEE Codes for recommendation to the Tourism Minister. And

Consult industry stakeholders on the draft and incorporate inputs to produce a final draft for the Minister’s consideration, and finally gazetting by the DTI Minister once approved.

DISTRIBUTION OF TOURISM ENTERPRISES (SOTT)

by Turnover Band (size) and Number Of Employees

78%

22%

0,%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Less than R2.5million

R2.5 - R35million

More than R35million

The vast majority (78%) are Band 1 enterprises (annual turnover less than R2.5 million per annum)The vast majority (78%) are Band 1 enterprises (annual turnover less than R2.5 million per annum)

On average Band 3 enterprises employ substantially more people than Band 1 and Band 2 enterprisesOn average Band 3 enterprises employ substantially more people than Band 1 and Band 2 enterprises

Band 1 = EMEs, Band 2 = QSEs & Band 3 = LEs Band 1 = EMEs, Band 2 = QSEs & Band 3 = LEs

DISTRIBUTION OF TOURISM ENTERPRISESby Province and Sub-Sector

The Western Cape has the largest number of tourism enterprises, followed by Gauteng and KZN. These three provinces account for more than three quarters (77%) of the total number of tourism enterprises.

The Western Cape has the largest number of tourism enterprises, followed by Gauteng and KZN. These three provinces account for more than three quarters (77%) of the total number of tourism enterprises.

The Accommodation and Hospitality & Related Services Sub-sectors account for the vast majority of enterprises. B&Bs and guesthouse establishments fall into the latter category.

The Accommodation and Hospitality & Related Services Sub-sectors account for the vast majority of enterprises. B&Bs and guesthouse establishments fall into the latter category.

45% 47%

8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Accomodation Hospitality andRelated Services

Travel DistributionSystems

INDUSTRY SUB-SECTORS

Accommodation

– Hotels, Resort properties and

timeshare, B&B, Guesthouses, Game

lodges;

– Backpackers & Hostels.

Hospitality and Related Services

– Restaurants & Conference venues –

(Not attached to hotels);

– Professional Catering, Attractions,

Consulting & professional services

companies.

Travel Distribution Systems

– Tour wholesalers, Tour operators,

Travel agents, Tourist guides,

– Car rental companies; (Overlap

with Transport?)

– Coach operators; (Overlap with

Transport?)

5

TOURISM B-BBEE COUNCIL MANDATE

Provide guidance on sector-specific matters effecting B-BBEE in

entities within the sector,

Compile reports on the status of broad-based black economic

empowerment within the sector, and

Share information with sector members, approved accreditation

agencies and the Minister.

Minister is the final point of call on policy related matters in the sector,

including the review of the Tourism B-BBEE Codes.

6

NEW DEVELOPMENTS

The thresholds for Exempted Micro Enterprises, Qualifying Small Enterprises and Large Enterprises (Generic Codes) have been adjusted as follows:

EME increased from R5 million to R10 millionCurrent Tourism B-BBEE Thresholds: EMEs = R0 to R2,5 million

QSE: R5 million -R35 million to R10 million - R50 millionCurrent Tourism B-BBEE Thresholds: QSE = R2,5 million to R35 million

Large entities: R50 million and above Current Tourism B-BBEE Thresholds: Large Enterprises = R35 million and above

OWNERSHIP ISSUES Qualifying Small Enterprise (QSE) to comply with Ownership as a compulsory element and

either Skills Development (SD) or Enterprise and Supplier Development (ESD).

In contrast, Large Enterprises (LE) required to comply with all the Priority Elements, namely Ownership, SD and ESD. Non-compliance with the 40% sub-minimum requirements of any of the priority elements will result in the following outcomes for both LEs and QSEs: Entity’s B-BBEE status level will be discounted by one level down until the next applicable verification period in which the measured entity can demonstrate compliance with the 40% sub-minimum requirements.

Enhanced recognition for QSEs happens for 100% black owned entities, which will enable it to qualify for a Level One B-BBEE Status. 51% black owned QSEs qualify for Level Two B-BBEE Status. Proof of B-BBEE compliance for these entities is in the form of sworn affidavits similar to EMEs. This has eliminated costs of verification for both the EMEs and QSEs.

Proof of B-BBEE compliance for EMEs is a sworn affidavit on an annual basis confirming the EMEs total annual revenue and level of black ownership. Any misrepresentation on the matter constitutes a criminal offence as set out in the B-BBEE Act as amended.

…DEVELOPMENTS

TOURISM SUB-SECTORS Accommodation- 45% of the sector as per SOT T report. Travel & Distribution Systems-8% of the sector as per SOTT report Hospitality & Related Services-47% of the sector as per SOTT report

RATIONALE BEHIND CURRENT TOURISM SECTOR CODE THRESHOLDS: The decision to have lower thresholds was based on the prevalence of small

businesses in the sector, noting that the R5million proposed by the generic codes would result in the bulk of the sector (up to 90%)being exempted. Notably, two positions were put to a vote, R1million and R2.5million, with 9 out of eleven members voting in favour of the former.

OTHER COMMENTS

Over 80% of Tourism businesses fall under the “less-controversial” categories of Accommodation and Hospitality & Related Services.

At the same time the Transport Sector Charter caters for the following transport related categories which may potentially overlap with the Travel Distribution Systems sub-sector:

Bus Commuter & Coach Services Sub Sector Taxi Industry Sub-Sector

In general, issues still remain with enterprises such as Shebeens (retail or restaurants), attractions (definition problems) and Shuttle Services (transport or Tourism)

BBBEE Amendment Act 2013 provides that “an enterprise in a sector in respect of which the Minister has issued a sector code of good practice in terms of section 9 may only be measured for compliance with the requirements of broad-based black economic empowerment in accordance with that code” (s.6).

LEGAL IMPLICATIONS

Section 3.2.3 of the revised Generic Codes states: “A measured entity in a sector in respect of which a sector code has been issued in terms of Section 9 of the BBBEE Act as amended may only be measured for compliance in accordance with that code”.

Above “non-optionality” clause now provided for in the B-BBEE amendment act of 2013 (signed 27th Jan 2014)

The Current Tourism B-BBEE Codes/ Charters are still valid until they are amended or repealed by the Minister.

Reporting on compliance with the broad-based black economic empowerment. Section 6(4) of the BBBEE Amendment Act provides that enterprises operating in a sector in respect of which the Minister of Trade and Industry has issued a sector code of good practice in terms of section 9, must report annually on their compliance with the broad-based black economic empowerment to the sector council which may have been established for that sector.

The NDT will develop a database of tourism B-BBEE entities in order to monitor and report on the implementation of tourism B-BBEE.

PROCESS GOING FORWARD

The Council and its Subcommittees have embarked on a process to identify areas of alignment to bring the

Tourism B-BBEE Codes in line with the gazetted DTI Generic B-BBEE Codes of Good Practice.

The Council has developed the stakeholder consultation plan for this purpose

The Council will consult with all stakeholders in the tourism sector across all the nine provinces about the

proposed changes once the Minister has approved the Draft Codes.

The Council has sought the services of a B-BBEE expert to assist with the Codes alignment.

PROCESS GOING FORWARD

In assisting the Council to align the Codes, the expert will deliver the following:

A report containing recommendations on all aspects of the tourism sector codes to be reviewed in line with the principles of alignment as set out by the DTI.report on the implications of the new DTI B-BBEE Codes of Good Practice, per element, against the corresponding elements in the current Tourism B-BBEE Codes across all tourism sub-sectors (Accommodation, Travel and Distribution Systems and Hospitality and Related Services). Draft Tourism scorecard incorporating changes proposed by the Council and in line with the alignment principles as set out by the DTI, clear weightings and targets, application and key measuring principles on each element of the scorecard, with clear rationale provided.Test and give assurance on the extent to which the proposed reviewed elements of the tourism sector codes will produce the desired outcomes on application and on the three tourism sub-sectors (Accommodation, Travel and Distribution Systems and Hospitality and Related Services) respectively. Present the final reviewed tourism sector codes to the Director, Sector Transformation, and subsequently to the Tourism B-BBEE Charter Council

TIME LINES

March – April 2014: Technical analysis of the Tourism B-BBEE Codes Developing Draft Tourism B-BBEE Codes

May – June 2014: Minister approves the Draft Tourism B-BBEE Codes Council consults tourism stakeholders to solicit inputs on the Draft Codes

August – September 2014: Council incorporates public comments into the Draft Codes Council finalises the Codes and submit to Minister for approval

October 2014: Minister gazettes the Amended Tourism B-BBEE Codes

END