saia alignment impact

SOUTH AFRICAN INSURANCE ASSOCIATION

FINANCIAL SECTOR CODE ALIGNMENT

Leila Moonda

Agenda

AGENDA

7:00 Registration

7:30 Breakfast is served

8:00 Introduction – Adam Samie

8:15 Changes to the FSC and its impact – Leila Moonda

9:30 Break

9:45 Discussion and Questions

10:30 Decisions and Mandate

Introduction

President Jacob Zuma says black economic

empowerment should not last forever but, to move

beyond the need for empowerment, South Africa needs

to level the economic playing field and draw the black

majority into all levels of the economy, including as

owners and managers."We can’t talk about BEE forever. We will become

prisoners of our past. We need to get over this

(stage) and talk about small businesses"

Gazetting and Implementation

• Revised DTI BEE Codes Gazetted on the 11th October 2013

• 12 Month Transition Period, which has been extended to 30th April 2015

• Sector Codes have to be aligned by the 30th April 2015

• FSC processes need to be finalised by the 30th October 2014

DTI Rationale for changes

• DTI study shows that 33% of surveyed large enterprises had zero Black Ownership and only 9% of enterprises had more than 90% Black Ownership; – This reflects poorly on the level of penetration

of Black Ownership within large enterprises. • Ownership, Employment Equity and Skills

Development elements showed slow progress on transformation

• Averages per sector range between Level 4 and level 5 (largely due to EMEs & QSEs) - more effort needs to be done across all sectors of the economy, to achieve meaningful transformation.

• The overall economy improved from Level 8 ( 2007) to Level 4 ( 2013). – The biggest contributors to this

improvement are the EMEs and QSEs • QSE’s showed more transformation

than Large Enterprises

DTI Rationale for changes

FSC vs DTI Scorecards

Element FSC Points DTI Points

Ownership 14 25

Management Control 819

Employment Equity 15

Skills Development 10 20

Preferential Procurement 1640Empowerment Financing and

Enterprise Development 15 + 5

Access to Financial Services 14 0

Socio-Economic Development 3 5

Total 100 109

8 56

DTI General Principles

• 5 Scorecard elements = 109 points. • All companies except Exempted Micro

Enterprises to comply with all elements• Scorecard points & Qualification criteria for

awarding of B-BBEE status levels adjusted• Enhanced the recognition status of black

owned EMEs and QSEs

• Employment Equity and Management Control merged into one element: Management Control ( MC)

• Preferential Procurement and Enterprise Development merged into one element : Enterprise and Supplier Development (ESD)


• Introduced minimum requirements for priority elements: Ownership, Skills Development, and Enterprise and Supplier Development (ESD)

• Entities who do not meet the thresholds in priority elements, the overall Score will be discounted by 1 level

Priority Elements

• An EME / QSE that is 100% owned by black people qualifies as a level 1 contributor;

• An EME / QSE that is more than 51% owned by black people qualifies as a level 2 contributor;


• The thresholds for EME’s and QSE’s have been adjusted:– EME increased from R5 million to R10

million– QSE: increased to R10 million - R50

million– Large entities: R50 million and above


Revised B-BBEE Recognition Levels

Level Current Points

New Points Recognition Level

1 100 + 100 + 135%

2 85 - 99 95 – 99 125%

3 75 - 84 90 – 94 110%

4 65 – 74 80 – 89 100%

5 55 - 64 75 – 79 80%

6 45 - 54 70 – 74 60%

7 40 - 44 55 – 69 50%

8 30 - 39 40 – 54 10%

Non-compliant <30 <40 0%

4 65 - 74

55 - 69

Impact

Companies can go from Level 4 to non-compliant over night

What can we agree to

• Employment Equity and Management Control merged into one element: Management Control ( MC)

• Skills Development and Enterprise & Supplier Development as priority elements

• An EME / QSE that is 100% owned by black people qualifies as a level 1 contributor;

• An EME / QSE that is more than 51% owned by black people qualifies as a level 2 contributor;

No Choice


• The thresholds for EMEs and QSEs:

– EME increased from R5 million to R10 million

– QSE: increased to R10 million - R50 million

– Large entities: R50 million and above

• Scorecard points & Qualification criteria for awarding of B-BBEE status levels adjusted -No Choice


• For companies exempt from Empowerment Financing merging Procurement and Enterprise Development = Enterprise and Supplier Development

• All companies except Exempted Micro Enterprises to comply with all elements.

– Except for allowable exclusions

New Ownership ScorecardDescription Points Target

Exercisable Voting Rights in thehands of black people

4 25%+ 1 Vote

Exercisable Voting Rights in the hands of black women

2 10%

Economic Interest to which black people are entitled

4 25%

Economic Interest to which black women are entitled

2 10%

Economic Interest in the hands the following Designated Groups – Designated Groups, ESOPS, BBOS, Co-opsNew Entrants

32

3%2%

Net Value 8

Total 25

Net Value 8

Sub-minimu

m

Ownership Net Value Sub-minimum

Year Net Value

Target

40% sub-minimum

1 2.5% 1.0%

2 – 3 5.0% 2.0%

4 – 5 10.0% 4.0%

5 – 6 15.0% 6.0%

7 – 8 20.0% 8.0%

9 – 10 25.0% 10.0%

Minimum debt-free Black Ownership percentage to

avoid the discount

Challenges - Ownership

• Sub – minimum - 40% of the 8 points allocated to Net Value.

• Makes Ownership compulsory at 10% debt-free in 9 years

• If sub-minimum not met overall BEE level discounted by 1

• FSC allows equity equivalents for all companies• FSC allows ownership exemption• Once empowered always empowered is unique to

the FSC• High – Water principle is unique to the FSC

Recommendation - Ownership

• Ownership to remain as agreed to by the Ministers of Finance and Trade and Industry – with minor changes

• Ownership not set as a priority element, instead we need to recommend another element to be the 3rd priority element

Management Control Scorecard

Description Points Target

Exercisable voting rights of Black board members as a percentage of all Board members

2 50%

Exercisable voting rights of Black female board members as a percentage of all Boardmembers

1 25%

Black Executive directors as apercentage of all executive directors

2 50%

Black female Executive directors as apercentage of all executive directors

1 25%

Same as current targets

Management Control Scorecard 2


Black Executive Management as a percentage of all executive directors

2 60%

Black female Executive Management as a

percentage of all executive directors

1 30%

Black employees in Senior Management as a

percentage of all such employees

2 60%

Black female employees in Senior

Management as a percentage of all such

employees

1 30%

Increased targets

from 40% / 20%


Management Control Scorecard 3


Black employees in Middle Management as a percentage of all middle management

2 75%

Black female employees in Middle Management as a percentage of all middle management

1 38%

Black employees in Junior Management as a percentage of all junior management

1 88%

Black female employees in Junior Management as a percentage of all junior management

1 44%

Black employees with disabilities as a percentage of all employees

2 2%

Total 19 (?)


Increased targets

from 80% / 40%

Decreased targets

Management Control

• Can be aligned to the revisions in the DTI Codes in terms of targets

New Provisions

The targets for Senior, Middle and Junior Management should be broken down into criteria for the different race groups as per the Employment Equity Act requirements and weighted accordingly.

Targets for African, Indian, Coloured (Chinese) people and womenApplies to Skills Development criteria

as well

Skills Development


Skills Development Expenditure on Learning Programmes specified in the Learning Programme Matrix for black people* as a percentage of Leviable Amount

8 6%

Skills Development Expenditure on Learning Programmes specified in the Learning Programme Matrix for black employees with disabilities as a percentage of Leviable Amount

4 0.3%

Number of black people*participating in Learnerships, Apprenticeships and Internships as a percentage of total employees

4 2.5%

Number of unemployed black people participating in Learnerships, Apprenticeships and Internships as a percentage of total employees

4 2.5%

Number of black people absorbed by the ME / industry at the end of the learnership programme

5 100%

* Not restricted to employees

Target Double

d


New

Challenges – Skills Development

• Skills target doubled to 6% but includes external training expenditure for unemployed black people

• Mandatory sectoral training does not qualify as skills development contribution

Recommended changes

• Skills development as a priority element = 40% sub-minimum requirement = 8 points

• Broaden learnerships to include apprenticeships and internships

• Informal and work based training (Category F and G) is recognisable but capped at 15% of the total value of Skills Expenditure.

• Introduces a 15% cap for non-core training costs such as accommodation, catering etc.

• Skills Development pre-requisites • Mandatory sectoral training to count

ESD: Scorecard


B-BBEE Procurement Spend from all Empowering Suppliers based on the B-BBEEProcurement Recognition Levels as a percentage of Total Measured Procurement Spend

5 80%

B-BBEE Procurement Spend from Empowering Suppliers who are QSE’s based on the applicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend

3 15%

B-BBEE Procurement Spend from Empowering Suppliers who are EME’s based on the applicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend

4 15%

Target up 70%

Target Double

d

ESD: Scorecard


B-BBEE Procurement Spend from Empowering Suppliers that are at least 51% black owned based on the applicableB-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend

9 40%

B-BBEE Procurement Spend from Empowering Suppliers that are at least 30% black women owned based on theapplicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend

4 12%

Bonus Points

B-BBEE Procurement Spend from Designated Group Suppliers that are at least 51% Black owned

2 2%

Target up from

12%

Target up from

8%

Empowering Supplier

ESD: Scorecard


Annual value of all Supplier Development Contributions made by the Measured Entityas a percentage of the target.

10 2% of NPAT

Annual value of Enterprise Development Contributions and Sector Specific Programmesmade by the Measured Entity as a percentage of the target.

5 1% of NPAT

Bonus Points: Graduation of one or moreEnterprise Development beneficiaries tograduate to the Supplier Development level.

1

Bonus Points: For creating one or more jobsdirectly as a result of Supplier Developmentand Enterprise Development initiatives bythe Measured Entity.

1

Current Target Split

Challenges - Procurement

• Increased targets– Spend with QSEs / EMEs 30% up from 15%– Spend with Black Owned suppliers 40% up

from 12%– Spend with Black Women Owned suppliers 12%

up from 8%• The exclusion of imports is subject to the

Measured Entity having developed and implemented an Enterprise Development and Supplier Development plan for imported goods and services

Challenges – Enterprise Development

• Merged with Procurement – presents a problem for companies doing Empowerment Financing where ED is merged with Empowerment Financing

• Empowering Supplier definition• Definition of Beneficiaries has

changed – only >50% black owned with a turnover below R50 mil

Recommended Changes

• For companies exempt from Empowerment Financing– Merge Enterprise Development and

Procurement– Expand the scorecard to distinguish

between enterprise development contributions and supplier development contributions

– Redefine ESD beneficiaries to only include black owned and black women owned QSEs and EMEs

Recommended Changes

• For companies required to do Empowerment Financing– Enterprise Development continue to be

part of Empowerment Financing– No change to existing Enterprise

Development requirements

Socio Economic Development

Indicator Weight(Points

)

Target

Average annual value of all Socio-economic Contributions made by the Measured Entity as a percentage of the target

5 1% of net profit

after tax

TOTAL 5

No Changes

Socio-economic Development

• Adopt changes as per the revised Codes of Good Practice

• Keep the target at 0.6%, with the 0.4% being allocated to Consumer Education

Thank YouLeila Moonda011 726 5381

[email protected]

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