What are the key black empowerment challenges for 2008? did a whip-around of analysts and policy-makers to take the BEE pulse
‘Charters must align with codes’
Reg Rumney — Rhodes University
The main development to watch in 2008 will be the implementation of the department of trade and industry’s codes of good practice. So says Rhodes University’s Reg Rumney.
He says the existing sectoral charters need to be aligned with these codes and already teething problems are springing up.
The labour and community sectors have walked out of talks to align the financial services charter with the codes. The controversy pivots on the ownership criterion: the charter sets a low equity target of 10%, while the codes are much more ambitious, looking for a 25% target.
Rumney says the banks have lower ownership criteria because they are expected to finance BEE deals and have additional targets, such as extending banking to the unbanked.
He says there will have to be flexibility when aligning the codes and charters, otherwise the process will not work and the charters will in effect become useless.
Rumney says another issue to watch is the alignment of procurement practices with the codes. He says verification is another big issue, especially with no verification agencies approved yet for business.
This means that even companies that have verification certi- ficates, don’t really have any legal standing in terms of BEE.
Rumney believes the market and interest rate hikes are going to have to influence BEE deals this year because they raise sustainability issues.
He says if share prices go south a lot of deals could come unravelled and, if we have further interest rate hikes, the cost of doing the deal might become too much.
Rumney says that in 2007 a lot of noise was made about further legislation, but the questions which should be asked are: what legislation and will it be helpful?
‘There’s a lack of certainty’
Iraj Abedian — Pan African Advisory Council
The Pan African Advisory Council’s Iraj Abedian says he expects high interest rates and a volatile market will have the biggest effect on BEE this year.
As an example he points to the fact that a BEE deal in the retail sector, which last year would have been a no-brainer, might be more of a risk this year. He says there is also uncertainty about when interest rates will come down.
Lack of certainty on the political front will also have an impact with potential policy changes creating doubt. Abedian says that when it comes to BEE, political connections do matter and therefore understanding new alliances will be crucial to selecting the right BEE partners.
Additional areas Abedian singled out to watch are the alignment of sectoral charters with codes of good practice and the potential lack of flexibility in the codes.
The system will be ‘severely strained’
Polo Radebe — Identity Development Fund
Identity Development Fund’s Polo Radebe says with companies expected to be compliant with the codes of good practice after February 9, the system is going to be severely strained. “It is going to be interesting to see the readiness of measuring mechanisms,” she says.
Radebe says the holes in the verification process are going to look much wider once compliance with the codes is expected, because we are not quite ready to implement them yet.
“We will get to see, only now, where the potential challenges are,” says Radebe.
She says an interesting area to watch is the enterprise development initiatives. Radebe says she expects specialised services for enterprise development to begin to appear, which will be a very positive move. “We need to look at how do we best use our supply chains to give opportunities to small business,” says Radebe.
She says the alignment of sectoral charters and the codes of good practice will present some problem areas, but she expects the debate will focus on targets and weighting rather than the principles of the codes.
“The codes have inbuilt flexibility so that they can be adapted to each sector,” says Radebe.
Radebe, who has left the department of trade and industry, is regarded as one of the architects of the BEE codes.
‘The cost of deals is going to go up’
Sandile Hlope — KPMG
KPMG’s Sandile Hlope says that by March the 12-month grace period built into the codes will be up and companies will be expected to have verification certificates. However, no verification agencies have been approved yet.
He says the pressures of this problem are already beginning to be felt in the auditing business. Hlope says he expects many more deals to take place this year, with a high level of focus placed on enterprise development.
“I don’t think the deals will slow down for a lack of cash in the system, but the cost of doing the deals will go up,” he says.
Hlope says South Africa is awash with cash and the recession that is hitting the United States will mean more capital will flow into developing countries like South Africa.
He says there will also be a big push to get the sectoral charters aligned with the codes of good practice.