Black Economic Empowerment Strategy: briefing

Meeting report

ECONOMIC AND FOREIGN AFFAIRS SELECT COMMITTEE
27 May 2003
BLACK ECONOMIC EMPOWERMENT STRATEGY: BRIEFING

Chairperson: Mr Tolo

Document handed out:
Government's Strategy for Broad-based BEE
Black Economic Empowerment Strategy
Broad Based Black Economic Empowerment Bill - 28/05/03 as certified by state law advisors prior to tabling in Parliament

Officials in attendance:
Ms P Buthelezi, Chief Director, Enterprise & Industry Development Division (EIDD), Black Economic Empowerment: Department of Trade and Industry
Mr Lionel October, Deputy Director-General, EIDD: Department of Trade and Industry)

SUMMARY
The Department of Trade and Industry spoke on the Black Economic Empowerment Strategy under the following headings:
- The Transformation imperative
- Initiatives since 1994
- Broad-based BEE Strategy
- Policy Instruments
- Balanced Scorecard
- Financing BEE

MINUTES
Ms Buthelezi briefed the committee on the BEE Strategy. The presentation focused on six main points:

The Transformation imperative
Ms Buthelezi said this is the most important phase of the BEE given the legacy of systematic dispossession and disempowerment during colonialism and apartheid. Transformation in this regard has political, social and economic dimensions. She stressed the need for a more equitable economy that would support the drive for accelerated growth. She indicated that there is a need for participation by all racial groups in the economy of the country to ensure economic growth. She cautioned against believing that BEE retards economic growth. She said that BEE and economic growth are complementary and that there could be no economic growth if some sectors of the population are afforded an opportunity to participate in the economy of the country.

Initiatives since 1994
The presenter said that economic inequality is a structural problem in South Africa. it took decades to entrench this problem and that it would take some time before the current government could dismantle the problem. it has been realised that the economy of the country has not been functioning at it optimum level due to this problem. In order to alleviate the problem various policies and programmes on integrated human resources development strategy, tourism transformation and small enterprises development have been put into place.

Broad-based BEE Strategy
The presenter highlighted the need for a clear definition of BEE. She said that the DTI has used a refined definition of BEE supplied by a group of back business people. BEE is seen as a process that directly contributes to the economic transformation of SA and brings about significant increases in the numbers of black people who, manage, own and control the country's economy, as well as significant decreases in income inequalities. She cautioned against seeing BEE as simply transferral of ownership from one person to another.

The following key principles of BEE were pointed out:
- BEE is an inclusive process
- BEE is part of the growth strategy
- Economic growth, development and BEE are complementary

Policy Instruments
The presenter said that enabling legislation would be tabled before parliament soon so as to ensure the success of BEE. She invited members to propose some guidelines between now and the passing of the Act. She also indicated that an Advisory Council would be established to advise the President on BEE matters. A task team has been established to deal with BEE matters pending the establishment of the advisory board. Licencing and related regulatory instruments and sector charters and enterprise partnerships would also be established.

Balanced Scorecard
Ms Buthelezi said that the scorecard would be illustrative and not definitive given the differences found in different industries. The mining industry has already developed a scorecard. The main objectives of the scorecard are:
- to have a consistent approach to BEE issues and
- to have an ability to measure progress

The scorecard would measure direct empowerment through ownership and control of enterprises and assets and indirect empowerment through preferential procurement and enterprise development.

Financing BEE
The presenter said that the question how BEE would be financed is very relevant given the need to maintain economic stability and address market failures. She said that the Industrial Development Corporation, National empowerment fund and Khula would finance BEE initiatives.

Questions and answers
Why did Khula initially fail and how will this be redressed?

There is a need to have an overall finance mechanism for the BEE strategy. The reason for Khula's initial failure was that it never worked directly with the small businesses but liaised with them through banks and this caused a delay in delivery. Khula is now restructuring in such a manner that they can now be directly involved with the small businesses seeking financial assistance.

How does a small business choose a company to approach for financial assistance?

The small business should have a clear understanding of the strategy, background and mission of the company. The small business should also indicate its economic value potential.

There are a lot of aspiring black business people, but because of the lack of collateral they cannot set up their business. What is the DTI definition of 'collateral'? Why is it necessary, especially since people from disadvantaged backgrounds will not be able to have the collateral?

It is sometimes necessary for a financial institution to require guarantees, in the form of capital, from an aspiring black business seeking financial assistance, and this would be the collateral. There are some financial institutions that do not stipulate collateral as a criterion for taking out a loan. So lack of capital is not a precondition to obtain a loan.

Is there a role for the NCOP in this BEE strategy?

Yes, the NCOP most definitely has a role. Besides the use of legislation and regulation, there should also be partnerships for the strategy to be a success. It is important to have the commitment of the provinces on issues of empowerment and especially for the DTI to be informed of empowerment problems experienced by the various provinces. Many of the regulations and procurement as set out by government must be done on a provincial level.

The meeting was adjourned.