amended agribee presentation · background changing policy environment •2007 b-bbee codes of good...

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AMENDED AGRIBEE CODES:Key Changes and Implications for your

business

Cape Agri Employers’ Organisation,

Boschenmeer, 21 June 2016

Stephen Hobson

Agrifusion (Pty) Ltd

Structure

• Background & introductory comments

• Main changes in amended Generic Codes

• Status of amended AgriBEE

• Implications and strategy per element (AgriBEE)

• Concluding comments & way forward

Agrifusion (Pty) Ltd 2

Background

Changing policy environment

• 2007 B-BBEE Codes of Good Practice

• Dec 2012 initial AgriBEE sector codes

• 1 May 2015 Amended B-BBEE Codes

• Amended AgriBEE

– Was 60 day commentary period to 20 Jan 2016

– to be gazetted by end June 2016?

• Can still be measured on “old” AgriBEE if year end before date of gazetting


Compliance

• Measured by means of a scorecard

• Compliance voluntary – but must report compliance level annually to AgriBEE Council

• Included– Organs of state & “public entities”

– Enterprises doing business with the above

• General shift from Supplier (2007) to Boardroom (2013) to Legislating (2016)


Compliance

• Voluntary for private sector, BUT– Competitive marketing advantage

– Pressure via preferential procurement

– Any business with state or anyone doing business with state

– Any preferential financing (dti, IDC, Land Bank etc)

– Licensing and registration (water rights, export permits, liquor licenses)

– Right thing to do!


AgriBEE

• Scope very wide and includes any business which derives the majority of its turnover from:

– Primary production of agricultural products;

– Provision of inputs and services to businesses engaged in the production of agricultural products;

– Beneficiation of agricultural products whether of a primary or semi-beneficiated form;

– Storage, distribution and/or trading and allied activities relating to non-beneficiated agricultural products.


Amended Codes: Major changes

• 7 to 5 elements – OK but not necessary

• Priority elements – ownership problematic

• Recognition levels – major problem

• Turnover thresholds – OK but QSE’s all elements

• Treatment of black owned businesses - big advantages


Elements condensed from 7 to 5

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2007 Codes Amended Generic Amended AgriBEEElement Weight Element Weight AgriBEE

(Large)AgriBEE

(QSE)

Ownership 20 Ownership 25 25 25

Management Control 10 Management Control

(& Employment Equity)15 19 15

Employment Equity 15

Skills Development 15 Skills Development 20 20 30

Preferential Procurement

20Enterprise and Supplier Development (& PreferentialProcurement)

40 40 25Enterprise Development

15

Socio-economicDevelopment

5Socio-economicdevelopment

5 15 15

TOTAL 100 105 119 110

Priority Element

Priority Element

Priority Element


Priority elements

• Ownership (effectively need 10% BEE)

• Skills (need min of 8 points)

• Enterprise & Supplier Development (incl. Preferential Procurement) – min 16 points

• So only Management Control & Socio Economic excluded

• Large – comply with all 3 to avoid 1 level penalty

• QSE – 2 but ownership compulsory!


Amended status & recognition levelsResult: automatically drop 2 to 3 levels


Contribution level

2007 Codes Amended Codes Recognition level

1 ≥ 100 points ≥ 100 points 135%

2 ≥ 85, < 100 points ≥ 95, < 100 points 125%

3 ≥ 75, < 85 points ≥ 90, < 95 points 110%

4 ≥ 65, < 75 points or EMEs ≥ 80, < 90 points or EMEs

100%

5 ≥ 55, < 65 points ≥ 75, < 80 points 80%

6 ≥ 45, < 55 points ≥ 70, < 75 points 60%

7 ≥ 40, < 45 points ≥ 55, < 70 points 50%

8 ≥ 30 , < 40 points ≥ 40 , < 55 points 10%

Non-compliant

<30 points <40 points 0%

Revised Turnover thresholds

• Turnover levels amended

– EME: increased from R5m to R10m

– QSE: increased from R35m to R50m

• Amended QSE. Much more onerous. Need to comply with all elements


Black owned businesses

• Huge advantages for >51% black owned businesses with turnover under R50m

• Do not have to comply with Codes - only sign affidavit (empowering supplier issue?)

• If 100% - level 1

• > 50% - level 2

• Big preferential procurement advantages


Summary of problematic “policy” issues

• Narrow based vs broad based.

• Lack of inclusivity – unintended consequences

• Total exemption for black businesses <R50m

• Racial break down for sub components

• Priority elements, penalties & changed recognition levels

• Preferential procurement & Empowering suppliers


Overview of implications and strategies per element

• Ownership

• Management Control

• Skills Development

• Enterprise and Supplier Development

• Socio Economic Development

Updated for AgriBEE – but based on final draft


Ownership (25 points)

• Objective: to increase black ownership

• Target: 25%, women 10%

• Key levels: 10%; 25%; 51%

• Sale of equity; sale of assets; equity equivalents (multinationals)

Priority


Some changes

• Net value priority element implies minimum 10% black ownership

• Some changes to Broad based Ownership schemes (BBOS), Trusts, private equity.

• Black owned (>50% to 51%)

• Modified flow through (MFT) – only once in entire ownership structure


Ownership strategies

• Ownership now key for reasonable score

• Complex & emotive – but get advice & do it properly

– Concept & business rationale

– Approach: Sale of shares, sale of assets, equity equivalents

– Valuation and how funded

– BEE structures. Use of modified flow through (MFT)

– Composition of BEE grouping (entrepreneurs, employees, broad based, institutional / private equity)

– Legal entitiesAgrifusion (Pty) Ltd 17

Ownership strategies

• Employee share schemes

• Broad based ownership schemes – but some risk

• Sale of assets (including sale of land)

• 51% black owned Joint Ventures (JV’s)

• Effective ways of structuring using MFT

• Beware fronting (10% of turnover or up to 10 yrsimprisonment)


Management Control (inclEmployment Equity

• Objective: increase participation & levels of control of black people at board and management levels

• Combined Management Control (9 points) & Employment Equity (10 points)

• Targets based on overall demographic representation. Issue or national vs regional

• For EE broken down further in race groups (only for senior, middle & junior mngt)


Skills Development

• Facilitates the development of the skills of black people through education and training

• Priority element: reach at least 8 / 20 points

• Target increased from 3% to 6% of payroll;

• Learnerships, apprenticeships, internships

• But per racial sub groups for all categories

• Bonus points for training & employing previously unemployed

Priority Element


Skill Development strategies

• Concentrate on non monetary

• Widened from Employees to Black People

• Cost effective approaches using SARS incentives and WSP contributions

• Focus for points

– Disabled learnerships

– Learnerships

– Employee training


Overview: Enterprise & Supplier Development (ESD)

• Combined PP and ED (total 40 points) and now has 3 sub elements namely:

– Preferential procurement (25 points)

– Supplier Development (10 points)

– Enterprise Development (5 points)

• Priority: 40% sub minimum on “total targets” = 16 points

– PP: 40% of 25 =10

– SD: 40% of 10 = 4

– ED: 40% of 5 = 2

Priority Element


Empowering supplier• Empowering Supplier status, needs to be verified: BEE compliant, good citizen,

comply with all regulatory requirements & must meet 3 (QSE 1) of the following requirements.

– At least 25% of cost of sales excluding labour cost and depreciation must be procured from local producers or local suppliers in SA, for service industry labour cost are included but capped at 15%.

– Job creation – 50% of jobs created are for Black People provided that the number of black employees since the immediate prior verified B-BBEE Measurement is maintained.

– At least 25% transformation of raw material/beneficiation which include local manufacturing, production and/or assembly, and/or packaging.

– Skills transfer – at least spend 12 days per annum of productivity deployed in assisting black EMEs and QSEs beneficiaries to increase their operation or financial capacity.”

– At least 85% of labour costs paid to SA employees by Service Industry entities

• EME’s = Empowering supplierAgrifusion (Pty) Ltd 23

Preferential Procurement strategy

• Closely linked & reinforces SD & ED strategy

• Create & purchase from >51% black owned suppliers

• Note: EME’s (including white) 100% BEE & automatically “empowering

• Must maximise SD points to get benefit of phasing targets for PP

• Focus on various multipliers & bonus points


Enterprise and Supplier Development

• What you do to help other black business to become sustainable & financially viable

• Overall target increased from 3% to 4.5% of NPAT

• Consists of SD and ED

• Turnover <R50 million

• 51% black owned

– 51% of exercisable voting rights

– 51% of economic interest.

– The entity must have earned all the points for Net value.

Priority


SD & ED strategy

• SD & ED makes sense, is great opportunity for black entrepreneurs & can benefit your business

• Understand distinction between SD & ED

– SD entity must be in your supply chain ie must be part of your TMPS

– SD beneficiary may be a ED beneficiary but not vice versa

• Establish / support black suppliers & buy from them

• Joint ventures with >51% black owned companies

• Can access ED & SED money & big preferential procurement advantages


SD & ED strategy (cont)

• Focus on cost effective interventions from matrix

– Grants, direct costs; discounts; overheads

– Loans: Interest free; Lower interest rate; Standard loan; Guarantees provided

– Equity investments

– Human resource capacity - Professional services at no cost or discount; time of employees

– Other - Shorter payment periods

• Use “enhanced” recognition multipliers

• Proposed ESD fund?

– Max points if contribute appropriate amount

– Can apply to fund to implement ESD in your enterprise


Socio Economic Development• Monetary / non-monetary contributions towards

beneficiaries / groups who are at least 75% black to facilitate sustainable access to the economy

• Some change in definition – but not substantial


SED strategy

• Focus is outside your business

• Normal CSI and charitable

• Encourage economic participation – not only handouts

• Bigger weighting for AgriBEE

• Target increased to 1.5% of NPAT


Concluding comments

• Await gazetting of amended AgriBEE – if possible do another verification on existing AgriBEE

• For amended AgriBEE score 3 to 4 levels lower

• Difficult to be BEE compliant especially if no black Ownership

• But are solutions and “reasonable” score is possible

• Plan ahead & implement appropriate strategies

• Get advice – is a solution for every challenge!


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Susta inab le B EE So lut ions

Frans van WykDirectorE mail: [email protected]: +27 (82) 7742536

Stephen HobsonDirectorE mail: [email protected]: +27 (82) 3313083

Address:Corner of Andringa and Dorp

Street, Stellenbosch

Web:www.agrifusion.co.za

Broad-based Black Economic Empowerment

Strategic planning

•Develop a practical knowledge of BEE requirements

•Understand your current and potential BEE compliance and the impact of different initiatives on your scorecard

Verification support

•Assistance in preparing your audit file for verification

Tailored solutions

•Specific solutions per element, tailored to the needs of your business, such as: Ownership; Enterprise development; Supply chain; Skills development

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Approach


http://www.agrifusion.co.za/

amended agribee presentation · background changing policy environment •2007 b-bbee codes of good...

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