The Banking Council
File Ref : 16532
SUBMISSION TO TRADE AND INDUSTRY PORTFOLIO COMMITTEE ON BROAD-BASED BLACK ECONOMIC EMPOWERMENT BILL (B 27-2003) AND SOUTH AFRICA'S ECONOMIC TRANSFORMATION: A STRATEGY FOR BROAD-BASED BLACK ECONOMIC EMPOWERMENT

Broad-based Black Economic Empowerment Bill


Preamble

We welcome the emphasis on the need for the development of advanced skills. Black economic empowerment must encompass, as a central element, the development of appropriate skills to enable black people to secure a sustainable stake in the economy of our country.

We agree with the notion that the economy of our country will not perform to its full potential because of the low level of income earned and generated by the majority of its people. This emphasises our view that black economic empowerment is an economic imperative, over and above the socio-political need.

We further endorse the view encapsulated in the Bill that steps are necessary to enable the participation of the \majority of our people in the economy, for the long-term sustainability and growth of such economy. We would want to emphasise that such participation must be on a sustainable basis, such that we are able to dispense with special measures for black economic empowerment in the medium to long-term.


Definitions

We welcome the inclusion in the definition of "black people" the term "permanent residents." We are of the view that this is important for, particularly the financial sector.


Objectives of Act

We welcome the emphasis on broad-based empowerment. We are of the view that sustainable black economic empowerment must result in the economic empowerment of ordinary people through various mechanisms that broaden the base of empowerment. This does not detract from individual ownership of institutions, but we are firmly of the view that sustainable empowerment must include bringing into the economy the most marginalized of our people.


Codes of Practice

We welcome the indication that Codes of Practice will include guidelines for the drawing of sector charters. The financial sector was proactive in starting a process for drawing up a charter and is well advanced in this regard. However, we believe it is important for government to provide guidelines to those sectors that might be contemplating a charter. We must emphasise that government should not prescribe the form of such charters, but provide guidelines.

We also welcome the intention to have a system for reporting on the implementation of black economic empowerment. We are of the view that such reporting should be as simple as possible and should be along the lines contemplated in governments' strategy for broad-based black economic empowerment. Specifically, such reporting should be on the basis of the ranking contained on page 24 of the strategy document.

We would suggest that the period for comment on Codes of Practice be extended to 60 days.
Status of Codes of Practice

We have no problem with this section. However, we believe that the Bill also puts an onus on government to review its procurement practices. We would suggest that government adopts a standard practice for preferential procurement that is based on the ranking on scorecards as envisaged in the strategy document.

We believe this should be the only criterion for adjudicating on whether an institution has met its black economic empowerment requirements. All departments, at all levels of government, should adopt this practice.

Transformation Charters

We agree with this section. We are happy to note substantial progress in the drawing up of a transformation charter for the financial sector.

South Africa's Economic Transformation: A Strategy for Broad-Based Black Economic Empowerment

Introduction

We agree with the assertion, in clause 1.6, that the need to address racial discrimination is both a socio-political and economic growth imperative.
We fully endorse the view, in clause 1.7, that our country's economic transformation strategy must be part of governments' strategic approach to globalisation. We would add that such economic transformation strategy must be contextualised in the macro-economic policy of government.

We welcome the confirmation, in clause 1.9, that black economic empowerment is already unfolding in our country, and that this strategy is aimed at adding impetus to this and providing clarity and certainty on policy.
Dismantling Apartheid, stabilising the economy and extending basic services
We recognise the confirmation that we have, as a country, achieved macroeconomic stabilisation. We commend government for taking the difficult decisions to bring us to this stage and believe this has created a solid platform on which to build sustainable black economic empowerment.
Deracialising the South African Economy and laying the foundation for Broad-Based Black Economic Empowerment

We welcome the emphasis in the document on the numerous pieces of legislation enacted by government to promote black economic empowerment. This recognises the fact that this strategy document aims to build on this. We would suggest that the unfolding strategy recognises that effective implementation of existing legislation is an essential element of any ongoing strategy, and we should avoid additional regulatory burdens.

Defining Broad-Based Black Economic Empowerment

We welcome a definition, in clause 3.2.3, which includes human resource development; employment equity, enterprise development, preferential procurement, investment and ownership transfer with control. This encompasses the broad range of black economic empowerment and promises a sustainable approach.

Key Principles

We agree with the principles enunciated in the document. We firmly believe the area of good governance is critical for the financial sector and welcome the emphasis on this. We are enthusiastic about the recognition that black economic empowerment must be part of our growth strategy. This is a critical element, without which black economic empowerment becomes a zero-sum game. We cannot, as a country, achieve sustainable economic empowerment for the majority without increasing our growth rate from the current 2-3% to a sustained rate of 6% and above.

Policy Instruments to Achieve BEE

We welcome the assertion, in clause 3.5.2 that legislation will be enabling. We are firmly of the view that punitive legislation will not lead to black economic empowerment. We are convinced the private sector in our country is committed to sustainable black economic empowerment. Enabling legislation that creates certainty in the policy environment will facilitate this and give it impetus.

We welcome the strategy of a "balanced scorecard". This enables different businesses to achieve black economic empowerment within the context of particular conditions pertaining to such businesses, and lends some flexibility to the strategy.

We are enthused by the view, in clause 3.5.3.2, that the scorecard allows government departments, state-
owned enterprises and other public agencies to align their procurement practices and BEE strategies. We would strongly recommend that the rankings contemplated via the scorecard be the sole criterion for adjudicating a firm's black economic empowerment performance. We would recommend that government have such a standard approach towards procurement at all levels of government.

We support the need for a strong and effective voice for black business as an essential element of institutional support for BEE. We are active in Business South Africa and are playing a critical role in the efforts at unity between black business and "established" business. We will continue to devote resources and capacity to this.

We support the establishment of a BEE Advisory Council and welcome it being elevated to the level of the President. We recommend that the appointees to the Council be people with a sound knowledge of the economic and socio-political imperatives for BEE. We further recommend that government attempt to include appropriate stakeholders onto such Council.

Financing of BEE

We welcome the recognition that BEE must have a credible financing component in order to proceed. This element of BEE is obviously of critical importance to the financial sector. We are committed to playing a central role in financing BEE across the economy. However, we are under no illusion that this is a difficult task and government will have to play a critical role in taking on areas of risk that the financial sector cannot be expected to bear. We agree with government that it is not the role of government to take on commercial risk. However, we believe government does need to bear non-commercial risks of various types and we welcome the indication in the document that government will consider instruments to do this. We offer our services to work with government to structure appropriate mechanisms and instruments to make optimal use of all capacity and resources available to the country. We must emphasise that the ability of the financial sector to finance BEE must not detract from the need for the sector to sustain growth in the sector. The sector must also maintain, and strengthen, its internationally recognised standing, while extending services sustainably to more people.

We welcome the indication in the document that institutions like the IDC, NEF and others will play a critical role in financing BEE.


Appendix "A"

We agree with the view in the document that the total score on the scorecard should be used to rank enterprises. We further endorse the preferencing used by government in the document:
Total score of 65% and above - good contributor to broad-based BEE
Total score of 40% to 64.9% - satisfactory contributor to broad-based BEE
Total score of below 40% - limited contributor to broad-based BEE

Cas Coovadia
18 June 2003