Implementation of AgriBEE Sector Code and Impact of the B-BBEE Amendment Bill

Implementation of AgriBEE Sector Code and Impact of the B-BBEE Amendment Bill John Purchase Cattleman s Conference 2013 7 March 2013

Broad-based Black Economic Empowerment Amendment Bill

Key Principles to the Act Align the Act with other legislation and policy impacting on B-BBEE and with the Codes, viz. PPPF Act, NGP, IPAP, etc. Elevate the General principles of the Codes, including the concept of the balanced scorecard and definitions Establish the B-BBEE Commission to create an institutional environment for monitoring and evaluation B-BBEE Provide for the regulation of the verification industry by IRBA Deal with non-compliance and circumvention by introducing offences and penalties, especially in terms of fronting Trumping provision : B-BBEE Act to be the overarching framework for B- BBEE (mitigate conflict in law); 3

(2) Subject to section 12A, an enterprise in a sector in respect of which the Minister has issued a sector code 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. ABC comments and proposals: Currently enterprises have the option (as per Article 3.3 of Code Series 000: Framework for measuring Broad-based Black Economic Empowerment) of measuring compliance using either the generic Codes of Good Practice or the Sector Code. This option is effectively being closed down. Agbiz does not agree with this limitation as it creates practical problems where enterprises have adopted compliancy strategies according to the Generic Codes, in the absence of a Sector Code, and once a Sector Code is then published, a whole new strategy has to be developed as goal posts have shifted. The Agbiz call is that the current option be maintained as it creates a level of flexibility that is necessary, while still meeting all the minimum requirements. Also, if read with (3) below, sectors will simply opt out of following the Section 9 Sector Code route and follow the Section 12 Codes of Good Practice route. This will go against the original intention of the Sector Code route which was established for sectors with particular characteristics and peculiarities that the sector would wish to address in its transformation initiatives.

(3) Enterprises operating in a sector in respect of which the Minister has issued a sector code in terms of section 9, must report annually on their compliance with B-BBEE to the Sector Council. Agbiz comments and proposals: This proposed inclusion has huge potential implications and is not supported. It effectively changes the initial intention and spirit of the B-BBEE Act of one of voluntary participation (Good Practice-based) by the private sector (although basically enforced through preferential procurement, EE, etc.), to one of forced compliance (punitivebased). The principle should remain that a B-BBEE rating is compulsory for organs of state and the businesses directly and indirectly transacting, or licensed, with or by such institutions. The state procurement mechanism (~20% of economic activity) should be used to incentivise B-BBEE

It raises many questions as to what happens then if an enterprise does not report annually, what sanction will be instituted, how will this be enforced, to what level of enterprise will it be compulsory, etc. The cost implications of such a determination, especially for micro, small and medium sized businesses will be prohibitive and not be related to the potential benefit for these organisations, especially given the costs of such certification. It is not clear what the commission will do with such a number of audits/certifications. The last census of agriculture indicated around 1 100 000 emerging and commercial farming enterprises. The infrastructure to deal with this inflow of information needs to be calculated. Sectors will be very reticent to now follow a Section 9 Sector Code route as they will in effect be forcing enterprises that may not even belong to industry associations that agree to a Section 9 Sector Code, into a system they do not necessarily agree with due to additional costs and red tape involved. For sectors that have already negotiated and implemented a Sector Code, this means a very significant moving of the goal posts that was not on the cards when the respective Sector Codes were negotiated. This may even result in a constitutional challenge.

An additional aspect to the Section 9 Sector Codes is the issue of being legally binding on a sector. Legally binding needs to be clearly and fully defined in terms of what is legally binding and on who is it binding. Is it on the sector as a whole, or on individual enterprises only? Again, if something is legally binding, what is the sanction and penalty if an enterprise is not compliant with the legally binding aspects thereof? Proposal: Participation and reporting should only be compulsory for organisations transacting directly and indirectly with businesses wishing to promote B-BBEE, as well as be compulsory for state institutions. The market mechanism should be entrusted with isolating businesses that do not participate in B-BBEE. Proposal: Clarity on the legally binding definition is required.

The Draft AgriBEE Sector Codes

INTRODUCTION Background The Mandate of the AgriBEE Charter Council The Major Stakeholders The Major Milestones so far The Scope of the AgriBEE Sector Code as gazetted The Content of the AgriBEE Sector Code as gazetted Differences Between the CoGP and the AgriBEE Sector Code AgriBEEElements AgriBEE Beneficiary Base AgriBEEScorecard Weightings AgriBEE Scorecard (for Large Enterprises) AgriBEE Scorecard (for Qualifying Small Enterprises) The process towards Section 9 (1). Questions and Answers.

BACKGROUND INFORMATION 1. The AgriBEE Transformation Charter in terms of Section 12 of the Act In terms of Section 12 of the Act, The Minister must publish in the Gazette for the general information and promote a Transformation Charter for a particular sector of the economy, if the Minister is satisfied that the Charter has been developed by major stakeholders in that sector; and advances the objectives of this Act. It is a Statement of Intent. 2. The Draft AgriBEE Sector Code in terms of Section 9 (5) of the Act. In terms of B-BBEE Act 53 of 2003, section 9 (5), the Minister must, before issuing, replacing or amending a Code of Good Practice in terms of section 9 ( 1) - publish the Draft Code of Good Practice or amendment in the Gazette for public comments; and grant interested persons a period of at least 60 days to comment on the Draft Code of Good Practice or Amendment, as the case may be. Thus the gazetting of the Draft AgriBEE Sector Code for 60 days public comment.

BACKGROUND INFORMATION 3. The AgriBEESector Code in terms of Section 9 (1)of the Act. Section 9 (1) of the Act states that, In order to promote the purposes of the Act, the Minister may by notice in the Gazette issue Codes of Good Practice on Black Economic Empowerment that may include: 1. The further interpretation and definition of Broad-Based Black Economic Empowerment and the interpretation and definition of the different categories of black empowerment entities; 2. Qualification criteria for preferential purposes for procurement and other economic activities. 3. Indicators to measure Broad-Based Black Economic Empowerment. 4. The Weighting to be attached to Broad-Based Black Economic Empowerment indicators referred to in paragraph(c); 5. Guidelines for stakeholders in the relevant sectors of the economy to draw up transformation charters for their sectors; and 6. Any other matter necessary to achieve the objectives of this Act.

2. THE MANDATE OF THE AgriBEE CHARTER COUNCIL To align the AgriBEE Transformation Charter (Section 12) with the Codes of Good Practice in terms of a section 9 of the BBBEE Act no. 53 of 2003 i.e. gazette of the AgriBEE Sector Code in terms of Section 9 (1). To provide guidance with respect to the implementation of the AgriBEE Sector Code. To monitor the implementation of the AgriBEE Sector Code in the Agricultural sector as well as to review it. To compile reports on the status of B-BBEE in the agricultural sector.

2. MANDATE OF THE CHARTER COUNCIL CONT To share informationwith sector stakeholders and approved accredited verification agencies. To facilitate communication and popularisation of the AgriBEE Sector Code. To advise the Ministerof DAFF with regard to the matters of transformation in the agricultural sector - AgriBEE. To report to the Minister of Trade and Industry and the BEE Advisory Council on the status of Broad Based Black Economic Empowerment within the Agricultural sector.

3. MAJOR STAKEHOLDERS 1. Mr.(Rev)O.Mbangula NationalAfricanFamersUnionSA 2. DrT.deJager AgriSA 3. ProfessorJ.delaRey TransvaalAgriculturalUnionSA 4. Mr. E. Mohlahlo Landless People Movement 5. Dr J. Purchase Agricultural Business Chamber 6. Mr. Len Hansen South African Agricultural Processors Association 7. Mr.K.Masemola FoodandAlliedWorkersUnion(FAWU)

3. MAJOR STAKEHOLDERS CONT 8. Mr. N. Phungo Youth in Agriculture and Rural Development (YARD) 9. MsN.Sambu WomeninAgricultureandRuralDevelopment (WARD) 10. Mr.J.Maphutha thedti 11. MsQ.Filani DRDLR 12. Mr.S.Skosana DWEA 13. MsM.Mohapi DAFF 14. Mr.Z.Bulbulia ThePresidency:OfficeontheStatusofDisabled Persons

4.THE MAJOR MILESTONES SO FAR 1. Launch of the AgriBEE Framework July 2004 : From the reference document the AgriBEE Framework was launched on 26 July 2004in East London as basis for transformation in the sector. 2. The AgriBEE Indaba: The AgriBEE Steering Committee submitted the Draft Transformation Charter to Minister, Thoko Didiza, on the 28 October 2005 being satisfied that they had consulted widely and that what is in the Charter aretheviewsofthesector. 3. Provincial Road shows: Parallel to the work of the Steering Committee, there were provincial road shows which were facilitated through a service provider company as part of recommendations from the AgriBEE Indaba. 4. Presentation of the Charter to the Portfolio Committee in Parliament: On 28 November 2006 the Minister presented the Charter to the Portfolio Committee on Agriculture and Land Affairs. The Portfolio Committee also commended the work that was done for developing the Section 12 Transformation Charter and gave their support for the gazetting of the Charter intermsofsection12oftheact.

4. MAJOR MILESTONES SO FAR CONT 5. Inauguration of the AgriBEE Charter Council- 05 December 2008. 6. Finalization of the Draft AgriBEE Sector Codes by the AgriBEE Charter Council 11 October 2010. 7. Gazetting of the AgriBEE Transformation Charter- 20 March 2008. 8. Draft submission to the Minister of Agriculture, Forestry and Fisheries for signing of the application letter for the gazetting of the Draft AgriBEE SectorCode9(5) SigningBytheDG,ZitaLanga,01August2011andfinally signed by the Minister Ms. T Joemat-Pettersson MP, on the 15th of August 2011. 9. 1 st, 2 nd, 3 rd, and 4 th Submissions of the Draft AgriBEE Sector Code on the 25th Aug 2011, 20 September 2011, 20 January 2012 and 14 February 2012 respectively. 10.GazettingoftheDraftAgriBEESectorCodeintermsofSection9(5)of the Actfor60dayspubliccomments. 11. 12 September 2012: Signing off by AgriBEE Charter Council for final gazetting.

5.The scope of the AgriBEE Sector Code The scope of the AgriBEE Sector Code shall include any enterprise which derives the majority of its turnover from: The primary production of agricultural products; The provision of inputs and services to enterprises engaged in the production of agricultural products; The beneficiation of agricultural products whether of a primary or semi-beneficiated form; and The storage, distribution, and/or trading and allied activities related to non-beneficiated agricultural products.

5. The scope of the AgriBEE Sector Code Cont... 1.EXEMPTED MICRO ENTERPRISE (EME). Turnover: Less than R5m Turnover BEE Deemed recognition level: Level 4. EME Compliance: EME s are encouraged to prioritize Skills Development and Socio-economic Development in the agricultural sector. To Improve Status: Qualifies for promotion to a B-BBEE Status of Level 3 Contributor if it is more than 50% owned by black people or 50% by black women. In order to maximize EME points: EME s can be measured in terms of the QSE Scorecard it is allowed as per the Codes of Good Practice.

5. The scope of the AgriBEE Sector Code Cont... 2. QUALIFYING SMALL ENTERPRISE (QSE). Turnover: More than R5m but less than R35m. Elements: Must, at least, choose 5 elements out of 7 elements as opposed to the Codes where QSE s select ANY 4 elements out of 7. The Reason: The agricultural sector is dominated by QSE s and not large enterprises. 3. MEASURED ENTERPRISES: 100% compliance All Seven Elements

6. The Content of the AgriBEE Sector Code Differences between the Codes of Good Practice and the AgriBEE Sector Code NO EMPOWERMENT AGRIBEE VARIANCE GENERIC INDICATOR INDICATIVE SCORECARD SCORECARD 1 Ownership (Land and Equity) 20 points 0 20 points 2 Management Control 10 points 0 10 points 3 Employment Equity 10 points - 5 15 points 4 Skills Development 20 points + 5 15 points 5 Preferential Procurement 20 points 0 20 points 6 Enterprise Development 10 points - 5 15 points 7 Rural Development, Poverty Alleviation and SED 10 points + 5 05 points

Transforming the Commercial sub-sectors Addressing challenges of the commercial & developing sectors Addressing challenges of developing sector AgriBEE Elements Ownership Management Employment Equity Skills Development Preferential Procurement Enterprise Development Socio-economic Development 24 Direct participation in Economic Activities (Shareholders & Management Team) Development of Human Capital (Current & prospective employees) Development & Investment in Affirmable Enterprises (Suppliers & communities)

AgriBEE Beneficiary Base Equitable Economic Opportunities The Opportunity Barrier Preferential Procurement Employment Equity Ownership & Management The Business Barrier Skills Development The Skills Barrier The Poverty Barrier Enterprise Development RD, PA & CSI Emerging black middle class & investors Black entrepreneurs Black workers, professionals, graduates, school-leavers Black unemployed & rural poor

7. THE PROCESS TOWARDS SECTION 9(1) Enforceable. 1. National Roll-out for the popularization of the Draft AgriBEESector Code All Provinces. 2. Consideration and Incorporation of public comments and inputs The Dtiand the AgriBEECharter Council. 3. Gazettingin terms of Section 9(1) of the BBBEE Act 53 of 2003 i.e. The AgriBEE Sector Code. Gazetted on 28 December 2012 4. Implementationof the AgriBEESector Code by ALL 3 Spheres of Government (Agricultural Sector), all Large Enterprises, Qualifying Small Enterprises, and Exempted Micro Enterprises. 5. Monitoring compliance through the AgriBEE IT Portal 6. Reporting to the Minister of DAFF and the Dti/ Advisory Council.

7. THE PROCESS TOWARDS SECTION 9(1) Enforceable. 1. National Roll-out for the popularization of the Draft AgriBEESector Code All Provinces. 2. Consideration and Incorporation of public comments and inputs The Dtiand the AgriBEECharter Council. 3. Gazettingin terms of Section 9(1) of the BBBEE Act 53 of 2003 i.e. The AgriBEE Sector Code. Gazetted on 28 December 2012 4. Implementationof the AgriBEESector Code by ALL 3 Spheres of Government (Agricultural Sector), all Large Enterprises, Qualifying Small Enterprises, and Exempted Micro Enterprises. 5. Monitoring compliance through the AgriBEE IT Portal 6. Reporting to the Minister of DAFF and the Dti/ Advisory Council.

Conclusion AgriBEEhas moved from Intent to Transform to Regulated Transformation. Sector Code as close as possible to generic CoGP. Reasons: (i) Level playing field (ii) Predictability (iii) Smooth transition. Agribusinesses, including banks, will in effect now have to force clients (farmers) to provide scorecards. Allbusiness with government (procurement, licenses, permits, etc.) will require a scorecard. Uncertainty about forced reporting in B-BBEE Amendment Bill and sanction on non-compliance. New CoGP touted by Minister Davies impact?