abbreviations · abbreviations b-bbee broad-based ... 1 introduction ... summit participants...
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ABBREVIATIONS
B-BBEE Broad-Based Black Economic Empowerment
DFI Development Finance Institution
the dti The Department of Trade and Industry
IDC Industrial Development Corporation
IPAP Industrial Policy Action Plan
SOE State-Owned Enterprise
SOEPF State-Owned Enterprise Procurement Forum
NDP National Development Plan
NT National Treasury
PPPFA Preferential Procurement Policy Framework Act
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DEFINITIONS
Black people: African, coloured and Indian persons who are natural persons and:
• Are citizens of the Republic of South Africa by birth or descent; or
• Are citizens of the Republic of South Africa by naturalisation before the commencement date of the
Constitution of the Republic of South Africa Act of 1993; or
• Became citizens of the Republic of South Africa after the commencement date of the Constitution of the
Republic of South Africa Act of 1993, but who, had it not been for the Apartheid policy, would have
qualified for naturalisation before then.
• The definition of “Black people” now includes South African Chinese people as per the Pretoria High
Court ruling on 18 June 2008.
B-BBEE: The economic empowerment of all black people – including women, workers, youth, people with
disabilities, people living in rural areas and unemployed people – through diverse but integrated socio-economic
strategies that include, but are not limited to:
• Increasing the number of black people who manage, own and control enterprises and productive
assets;
• Facilitating enterprises and productive asset ownership and management by communities, workers, co-
operatives and other collective enterprises;
• Human resources and skills development;
• Achieving equitable representation in all occupational categories and levels of the workforce;
• Preferential procurement; and
• Investing in enterprises that are owned and managed by black people.
the dti Codes of Good Practice: the dti Codes of Good Practice on Black Economic Empowerment gazetted on 9
February 2007
Exempted Micro Enterprise (EME): An entity with an annual turnover of less than R5 million.
Generic Scorecard: The balanced scorecard issued in line with the dti Codes of Good Practice, 2007.
Qualifying Small Enterprise: An entity that qualifies for measurement under the Qualifying Small Enterprise
Scorecard with a turnover of between R5 million and R35 million, which qualification does not result in the
circumvention of the Codes.
Sector Charter: A B-BBEE Sector Charter, gazetted in terms of Section 12 of the B-BBEE Act, means that it:
• Has been developed and agreed upon by major stakeholders in the industry
• Is published for information purposes only and used as a statement of intent by industry players
• Is fully binding between and among businesses operating in the industry.
A Sector Charter gazetted in terms of Section 12 has no bearing on state organs and departments.
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TABLE OF CONTENTS
1 INTRODUCTION ..................................................................................................................................................... 6
1.1 BACKGROUND ................................................................................................................................................... 6
1.2 A SHORT HISTORY OF ECONOMIC EMPOWERMENT IN SOUTH AFRICA .......................................................................... 7
1.3 EXECUTION OF THE B-BBEE STRATEGY ................................................................................................................... 7
1.3.1 B-BBEE OBJECTIVES ......................................................................................................................................... 7
1.3.2 B-BBEE LEGISLATION ........................................................................................................................................ 8
1.3.3 PRESIDENTIAL B-BBEE ADVISORY COUNCIL ......................................................................................................... 8
1.3.4 CODES OF GOOD PRACTICE ................................................................................................................................. 9
2 A DECADE OF ECONOMIC EMPOWERMENT (2003 – 2013) ............................................................................ 11
2.1 SETTING THE SCENE ............................................................................................................................................. 11
2.2 ADDRESS BY THE MINISTER OF TRADE AND INDUSTRY .............................................................................................. 11
2.2.1 THE B-BBEE AMENDMENT BILL ......................................................................................................................... 12
2.3 ADDRESS BY THE PRESIDENT OF THE REPUBLIC ...................................................................................................... 12
2.3.1 ACHIEVEMENTS AND IMPACTS OF B-BBEE IMPLEMENTATION ................................................................................ 13
2.4 PRESIDENTIAL B-BBEE ADVISORY COUNCIL........................................................................................................... 14
2.4.1 AMENDMENT OF B-BBEE ACT ........................................................................................................................... 15
2.4.2 FRONTING ........................................................................................................................................................ 15
2.4.3 MONITORING AND EVALUATION OF B-BBEE ......................................................................................................... 15
2.4.4 REGULATING OF THE VERIFICATION INDUSTRY ..................................................................................................... 15
2.4.5 ESTABLISHMENT OF B-BBEE COMMISSION ......................................................................................................... 16
2.4.6 THE PATH TOWARDS THE CREATION OF BLACK INDUSTRIALISTS ............................................................................ 16
2.5 REMARKS BY THE BLACK BUSINESS COUNCIL (BBC) ............................................................................................... 18
2.6 REMARKS BY THE EMPLOYMENT EQUITY COMMISSION ............................................................................................. 18
3 A BOLD NEW TRAJECTORY FOR B-BBEE......................................................................................................... 19
3.1 B-BBEE ACHIEVEMENTS AND PERFORMANCE ......................................................................................................... 19
3.2 THE REVISED B-BBEE CODES OF GOOD PRACTICE ................................................................................................ 20
3.2.1 OWNERSHIP ..................................................................................................................................................... 21
3.2.2 MANAGEMENT CONTROL ................................................................................................................................... 21
3.2.3 SKILLS DEVELOPMENT ....................................................................................................................................... 21
3.2.4 ENTERPRISE AND SUPPLIER DEVELOPMENT ......................................................................................................... 22
3.2.5 SOCIO-ECONOMIC DEVELOPMENT ...................................................................................................................... 22
3.2.6 SUMMARY OF REVISIONS ................................................................................................................................... 22
3.2.7 IMPLEMENTATION CHALLENGES .......................................................................................................................... 24
3.3 OVERVIEW OF PANEL DISCUSSION ......................................................................................................................... 24
3.4 PROGRESS ON THE IMPLEMENTATION OF SECTOR CHARTERS ................................................................................... 25
3.5 PROGRESS ON THE IMPLEMENTATION OF THE DTI INCENTIVE SCHEMES ...................................................................... 25
3.6 OVERVIEW ON THE STATE OF THE ECONOMY .......................................................................................................... 27
4 SUMMIT DELIBERATIONS ................................................................................................................................... 27
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4.1 COMMISSION 1 - ALIGNMENT OF PREFERENTIAL PROCUREMENT POLICY FRAMEWORK ACT (PPPFA) AND B-BBEE ...... 28
4.1.1 BRIEF BACKGROUND TO THE TOPIC – PPPFA AND B-BBEE................................................................................. 28
4.1.2 ISSUES RAISED DURING DISCUSSION .................................................................................................................. 28
4.1.3 RECOMMENDATIONS ......................................................................................................................................... 30
4.2 COMMISSION 2 - STATE OWNED ENTERPRISES (SOES) AND SUPPLIER DEVELOPMENT ............................................... 30
4.2.1 BRIEF BACKGROUND TO THE TOPIC .................................................................................................................... 31
4.2.2 ISSUES RAISED DURING DISCUSSION .................................................................................................................. 31
4.2.3 RECOMMENDATIONS ......................................................................................................................................... 32
4.3 COMMISSION 3 - BLACK INDUSTRIALISTS AND LOCALISATIONS/DESIGNATED SECTORS ................................................. 33
4.3.1 BRIEF BACKGROUND TO THE TOPIC .................................................................................................................... 33
4.3.2 ISSUES RAISED IN THE DISCUSSION .................................................................................................................... 33
4.3.3 RECOMMENDATIONS ......................................................................................................................................... 34
4.4 COMMISSION 4 - ACCESS TO FINANCE .................................................................................................................... 34
4.4.1 BRIEF BACKGROUND TO THE TOPIC .................................................................................................................... 34
4.4.2 ISSUES RAISED DURING DISCUSSION .................................................................................................................. 35
4.4.3 RECOMMENDATIONS ......................................................................................................................................... 35
5 COMMON ISSUES EMANATING FROM ALL COMMISSIONS ............................................................................ 36
6 SUMMIT RECOMMENDATIONS – THE NEXT EMPOWERMENT PHASE ......................................................... 37
6.1 SHORT-TERM ....................................................................................................................................................... 37
6.2 MEDIUM - LONG TERM .......................................................................................................................................... 37
6.3 RECOMMENDED FOR ACTION BY THE GOVERNMENT ................................................................................................. 38
7 SMME EXHIBITION .............................................................................................................................................. 39
8 CONCLUSION ....................................................................................................................................................... 39
9 APPENDICES ....................................................................................................................................................... 40
9.1 APPENDIX 1: INDUSTRIAL DEVELOPMENT INCENTIVE ADMINISTRATION DIVISION - INCENTIVES OFFERED ....................... 40
9.2 APPENDIX 2: LIST OF EXHIBITORS .......................................................................................................................... 43
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1 INTRODUCTION
The following report is based on the National Summit on Broad-Based Black Economic Empowerment (B-BBEE),
which was held on 3 and 4 October 2013. This report is intended to provide a detailed account of the proceedings of
the summit, highlighting successes and challenges deliberated upon as well as recommendations for the future
implementation of Government’s developmental objectives regarding inclusive economic and socio-economic growth
of black people in the South African economy.
1.1 Background
Broad-Based Black Economic Empowerment (B-BBEE) legislation was introduced in South Africa 10 years ago. The
promulgation of this legislation was seen as a development imperative aimed at creating an enabling environment for
economic transformation. It is against this background that the Government, led by the Department of Trade and
Industry (the dti) in collaboration with the Presidential B-BBEE Advisory Council (hereafter referred to as the
Advisory Council), held the first National Summit on B-BBEE from 3 to 4 October 2013 at Gallagher Estate in
Midrand, Johannesburg. The summit, which was attended by more than 2 000 delegates, was held under the theme
of A Decade of Economic Empowerment. Summit participants included Government, various political party
representatives, the Portfolio Committee on Trade and industry, private sector (corporate entities, qualifying small
enterprises and exempted micro enterprises), labour and civil society.
It has been 10 years since the promulgation and implementation of the B-BBEE Act No. 53 of 2003 and various
successes have been recorded, including a significant number of B-BBEE deals, the establishment of an institutional
framework for the verification industry, the institutionalisation of the Presidential B-BBEE Advisory Council, the
promulgation of the Codes of Good Practice in 2007 and the establishment of Sector Charter Councils, as well as the
gazetting of sector codes. the dti, as the lead department, has worked tirelessly to market and communicate the
implementation of the legislation, with national, provincial and local stakeholder engagements involving grassroots,
corporate entities and the Government. The department established a programme to monitor and evaluate the
legislation, implementation framework and the strategy.
However, challenges do exist and mechanisms have been put in place to address these. The summit took stock of
the challenges and provided an outline of further implementation of the B-BBEE over the next 30 years in terms of
Government’s planning frame, as outlined in the National Development Plan (NDP).
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1.2 A Short History of Economic Empowerment in South Africa
The political freedom attained by the majority of South Africans from the apartheid regime as expressed in the first
democratic elections in 1994 was a key moment in the history of our country. However, the political liberation was not
accompanied by similar gains in the economic sphere. For many years, the economy of the country was firmly in
white hands, with the majority of black South Africans denied access through complex mechanisms that created
conditions that perpetuated the status quo.
In an attempt to reverse this situation, the Government through the dti introduced the concept of B-BBEE, which was
seen as a process that would bring about transformation of the South African economy for the majority of its people. It
was envisaged that through this economic and socio-economic process, the number of black people who managed,
owned and controlled the economy would increase significantly. Furthermore, it was anticipated that this process
would lead to a significant reduction in inequalities in society. At that time, there was significant focus on the creation
of a black middle class, building on and strengthening the already existing levels between 1994 and the early 2000s.
History abounds with accounts of political and social instability fuelled by inequalities in societies. The formulation and
execution of the B-BBEE concept and strategy was intended to mitigate the risks associated with such inequalities.
The apartheid past of South Africa had created a mixed economy with a negative legacy and this had to be
addressed. At the time, South Africa had one of the highest GINI co-efficients in the world, at 0.66. The successful
implementation of the strategy would reduce this inequality measure.
1.3 Execution of the B-BBEE Strategy
1.3.1 B-BBEE Objectives
The democratic Government of South Africa introduced the B-BBEE concept with a view to achieving certain
objectives, as broadly outlined -below. Specifically, the strategy was in pursuit of nine objectives, as follows:
• The empowerment of more black people as owners and managers of enterprises. A black-owned enterprise
was defined as one that has 51% ownership by black people, with substantial management control of the
business.
• Achievement of a substantial change in the racial composition of ownership and management structures as
well as in the skilled occupations of existing and new enterprises.
• Promotion of access to finance to fuel black economic empowerment.
• The empowerment of rural and local communities through enabling access to economic activities, land,
infrastructure, ownership and skills.
• Promotion of human resource development of black people through mentorships, learnerships and
internships.
• An increase of the extent to which communities, workers, co-operatives and other collective enterprises own
and manage existing and new enterprises, including an increase of their access to economic activities,
infrastructure and skills.
• Creation of an environment that ensures that black-owned enterprises benefit from the Government's
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preferential procurement policies.
• Development of the operational and financial capacity of B-BBEE enterprises, especially small, medium and
micro enterprises (SMMEs) and black-owned enterprises
• An increase the extent to which black women own and manage existing and new enterprises, and facilitate
their access to economic activities, infrastructure and skills training.
1.3.2 B-BBEE Legislation
The B-BBEE Act No. 53 of 2003 was enacted for the following purposes:
• Establish a legal framework for the promotion of black economic empowerment
• Empower the Minister to issue Codes of Good Practice and to publish transformation charters
• Establish the Black Economic Empowerment Advisory Council
• Provide for all matters related to the Act
The Act promotes the constitutional right to equality and effective broad-based participation by all in the economy,
increases employment and leads to equitable income distribution. Furthermore, the Act establishes a national policy
to promote economic unity of the nation, protect the common market and promote equal opportunity and access to
government services. The Act prescribes actions to be taken by the Minister and expands on the functions and terms
of reference of the bodies to be established as outlined in the preceding paragraph.
1.3.3 Presidential B-BBEE Advisory Council
The Advisory Council was established according to the Act in 2009. As per the Act, it is chaired by the State
President and has 19 members appointed by the President. Members include ministers from the dti and departments
of Labour, Economic Development, and Women, Children and People with Disabilities. The Secretariat function is
located at the dti and works closely with the Presidency to administer the work of the Advisory Council.
The Advisory Council is responsible for providing leadership and direction in the implementation of B-BBEE in the
country. The functions of the Council are to:
• Advise Government on -B-BBEE;
• Review progress in achieving B-BBEE;
• Advise on draft transformation charters, if requested to do so; and
• Facilitate partnerships between organs of state and the private sector that will advance the objectives of this
Act.
The Advisory Council has divided its work programme into four sub-committees to address different aspects of the
B-BBEE outcomes:
• Ownership, Management Control, B-BBEE deal structuring, chaired by Mr Sandile Zungu;
• Skills Development and Employment Equity, chaired by Ms Chantyl Mulder;
• Enterprise Development, Procurement, Access to Finance, and Socio-Economic Development, chaired by
Ms Ellen Tshabalala; and
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• Instruments to promote B-BBEE (Legislation, Fronting, Verifications, Charters), chaired by Ms Tsakani
Ratsela.
The work of the sub-committees has entailed deliberations on the various themes, in some cases led by research
findings commissioned by the sub-committees themselves. In addition, the sub-committees have engaged various
institutions, including academic institutions, and received presentations from various quarters.
The Advisory Council made key recommendations to the Summit that will be expanded on later in this report.
1.3.4 Codes of Good Practice
The B-BBEE Codes of Good Practice (hereafter referred to as the Codes) were published in 2007. The aim of the
introduction of the Codes was to provide a standard framework for the measurement of B-BBEE across all sectors of
the economy. In particular, the codes were aimed at achieving the following objectives:
• Broadening the base of beneficiaries;
• Redefining B-BBEE from focusing on ownership and deal-making to entrepreneurship, operational
involvement and skills development;
• Ensuring financial sustainability of financial transactions;
• Creating uniform standards and measurements; and
• Clarifying policy position on sector charters, multinationals and small business.
The codes require that all entities operating in the South African economy make a contribution towards the objectives
of B-BBEE.
The codes are characterised by two broad elements. Firstly, they encourage all entities, both public and private, to
implement B-BBEE initiatives and, secondly, they cover seven components of the B-BBEE scorecard, as defined.
These components are:
• Ownership
• Management control
• Employment equity
• Skills development
• Preferential procurement
• Enterprise development
• Socio-economic development (including industry-specific and corporate social investment initiatives)
These components were outlined in the 2003 B-BBEE strategy. The strategy further allocated points to each
component to make up the generic scorecard. The points were allocated as shown in Table 1:
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Table 1: B-BBEE Scorecard: Points and Compliance per Element
Element Weighting Compliance Targets
Ownership 20 points 25% +1
Management control 10 points (40% to 50%)
Employment Equity 15 points (43% to 80%)
Skills Development 15 points 3% of payroll
Preferential Procurement 20 points 70%
Enterprise Development 15 points 3% (NPAT)
Socio-Economic Development 5 points 1% (NPAT)
TOTAL 100 points
As per the B-BBEE Act, the codes are binding on all public companies and state-owned enterprises (SOEs) and
entities. The Government, in particular, is required to apply the codes when making decisions on procurement,
licensing and concessions, public-private partnerships (PPPs) and the sale of state-owned assets or businesses.
Private companies must apply the codes to qualify to do business with any government enterprise or organ of state in
any of the aforementioned categories of business transactions.
Companies are also encouraged to apply the codes in their interactions with one another, since preferential
procurement will affect most private companies throughout the supply chain.
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2 A Decade of Economic Empowerment (2003 – 2013)
Ten years into the implementation of the B-BBEE policy and legislation, it seemed an opportune time to reflect on
how far the country had come in its pursuit of B-BBEE. Government took a decision to hold a national summit in this
regard; the first of its kind to engage the topic of B-BBEE in South Africa. The theme adopted was A Decade of
Economic Empowerment.
The high-level summit held at Gallagher Estate on 3 and 4 October 2013 was hosted by Minister of Trade and
Industry Dr Rob Davies, MP. In addition to looking back over the past 10 years of the B-BBEE framework, the summit
launched the B-BBEE Amendment Bill, unveiled the revised Codes of Good Practice and charted the next era of
broad-based black economic transformation in South Africa.
2.1 Setting the Scene
A high-level political team addressed the first session of the two-day summit, with the President of the Republic of
South Africa providing the keynote address. Inputs from the Director-General of the dti, Mr Lionel October, Minister
Davies and a member of the Presidential BEE Advisory Council, Mr Sandile Zungu, preceded the President’s speech.
In his welcoming address, Mr October gave an overview of the purpose and intended outcomes of the summit.
2.2 Address by the Minister of Trade and Industry
In his opening remarks, Minister Davies traced the genesis of the summit from the start of the current political
administration, when the decision to hold such a summit was made. In his address, he said large companies are
lagging in terms of the implementation of B-BBEE and still “battling to embrace and implement meaningful
transformation”. This finding was based on a 2012-13 study commissioned by the dti and the Advisory Council. The
study revealed that the overall economy was at level four in terms of compliance with the legislation. Minister Davies
highlighted the determination of Government to move away from narrow share ownership by black people to
meaningful and genuine empowerment that leads to the creation of sustainable black companies.
The Minister noted that passive shareholding deals did not work and resulted in the least real empowerment of
people. He further noted the lack of meaningful relationships between big and small companies and said too little has
been achieved in this area. Fronting through the use of complex transactions was identified as a major problem.
With regard to the Codes, which were introduced five years ago with seven categories, the Minister articulated his
lack of satisfaction that many players were not earning points in important areas. He noted that other players were
earning points without fully and honestly implementing the Codes. Procurement, skills development, ownership and
enterprise development were singled out as areas of particular sub-optimal performance.
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The Minister also noted under-representation of black people in industrialisation. In this regard, the department would
like to see how the B-BBEE framework could be used to improve the representation of black industrialists.
2.2.1 The B-BBEE Amendment Bill
To address the challenges to the implementation of this national imperative, the Minister outlined the new B-BBEE
amendment Bill, which has been drafted to introduce corrective measures. The objects of the Bill are to:
• Establish a B-BBEE Commission, which will act as a watchdog for B-BBEE implementation and the
introduction of a verification regulator;
• Create a monitoring, evaluation and reporting framework for the public and private sectors;
• Create a statutory offence for fronting and other related offences;
• Introduce penalties ranging from a maximum of 10 years to 10% company turnover and prohibition not to
trade with state organs for 10 years;
• Trumping provision to be applicable on conflicting provisions specific to B-BBEE only; and
• Strengthen the application of codes to organs of state and sector codes to affected sectors.
In summary, the Amendment Bill provides for a new statutory definition of fronting, a new office to deal with fronting,
the regulation of verification agencies, and alignment of charters with the B-BBEE codes. At the time of the summit,
the Bill had been passed by National Assembly, but still had to go through the National Council of Provinces.
2.3 Address by the President of the Republic
In his keynote address, the President of the Republic, Mr Jacob Zuma, provided a context for the economic policies
of the country as being founded upon the Freedom Charter. He emphasised it was clear that drastic steps needed to
be taken to reverse the racial nature of the economy that had been inherited by the democratic government in 1994,
and that “transformation was not going to happen by osmosis”.
He reminded the delegates that the current administration seeks to effect the following outcomes through its
economic policies:
• Create decent employment
• Eliminate poverty
• Deal with extreme inequality
In seeking these outcomes, the Government aims to achieve positive results in broadening ownership, restructuring
the economy, achieving equitable regional development and limiting a negative industrial impact on the environment.
The notion that B-BBEE was only about a few deals involving big business and of benefit to a few individuals had to
be dispelled. B-BBEE should have maximum impact on all South Africans.
The President indicated that the country was proud of the successes gained through the pillars that informed the
economic transformation agenda and highlighted achievements since 1995. The following achievement can be noted:
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• A 40% increase in per capita income, from R27 500 in 1993 to R38 500 in 20012
• 43% increase in disposal income per capita
• Total employment has increased by 3.5% since 1994
These combined statistics point to an increase in the black middle class, one of the early intentions of the B-BBEE
strategy and legislation. There was a view at the time that B-BBEE was predominantly focused on building and
strengthening a middle class, rather than being a grassroots poverty alleviation mechanism that would help all people
to access opportunities. In this respect, an achievement can be noted.
However, challenges in the economic landscape of the country are still to be found. Unacceptable levels of poverty,
unemployment and inequality (particularly with regards to income) are major challenges that still face the country.
Black participation in the economy has not reached the levels envisaged in the B-BBEE policy, i.e. ownership and
management control. The current situation is one that is characterised by black participation amounting to mere share
ownership. The President stressed that gross black ownership of South African assets on the Johannesburg Stock
Exchange as at 2010 amounted to only 6,8%. He bemoaned the fact that despite a focus by Government on
manufacturing support, there are no black industrialists in the country. He outlined his vision as one where the
countryside would be full of factories owned by black entrepreneurs who were taking advantage of government
policies and programmes, such as those contained in the Industrial Policy Action Plan (IPAP).
President Zuma called for a legislative framework for B-BBEE that leads to the creation of black industrialists. This
call echoes that made by several stakeholders, including the Advisory Council.
2.3.1 Achievements and Impacts of B-BBEE Implementation
The President lauded the early groundbreaking work done by organisations such as the Black Management Forum
towards the B-BBEE Act of 2003 and the Codes of Good Practice (2007). The 10 years of B-BBEE policy
implementation have seen some significant achievements, which the President expanded upon. These include:
• R600 billion worth of B-BBEE transactions
• 500 publicly announced B-BBEE ownership transactions worth at least R533 billion
• Representation of black people and women in senior management positions in the private sector has
increased from less than 10% in the 1990s to more than 40% today
• The Black Business Supplier Development Programme, which was launched by the dti in 2010, has
approved applications worth R797 million
• Black-owned SMMEs have been supported to the tune of R451 million in one financial year (2012/13)
• The National Empowerment Fund has approved transactions worth more than R5 billion, with 60% of its
beneficiaries being SMMEs and support given to the creation of 44 000 jobs
• In excess of 200 co-operatives have been supported through a special incentive programme, with the
creation of more than 200 jobs and 700 temporary job opportunities.
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The President assured the delegates that active B-BBEE will continue to be an important policy of the ANC
Government, driving real and meaningful economic transformation and growth. Furthermore, other legislation such as
the Gender Equity Bill and the amendment Employment Equity Act will go a long way in improving the loopholes in
employment equity. He singled out the position of SMMEs as the backbone of the country’s economy and that these
would be supported, particularly in alignment with the National Growth Path (NGP) sectors of mining, agriculture, the
green economy, tourism, infrastructure development and manufacturing.
The President spoke briefly about the B-BBEE Amendment Bill, which Parliament had passed earlier in the year (in
June 2013). He emphasised how this would be used to address the scourge of fronting, which is a major obstacle to
the implementation and attainment of the ideals espoused in the B-BBEE national strategy. He further alluded to the
fact that in the amendment, the areas of skills development and education would be given additional attention, with a
focus on managerial and technical skills for emerging entrepreneurs.
The President stressed the importance of B-BBEE as an integral part of the Government’s economic policy and
economic transformation. ”It is part of a broader objective of promoting inclusive growth and economic development,”
he said.
In his closing remarks, the President made a comment that by 2030, South Africa should be an inclusive economy
and the reference to black versus white should not exist.
2.4 Presidential B-BBEE Advisory Council
The Summit was also addressed by Mr Sandile Zungu, a member of the Advisory Council.
In the course of its work and deliberations, the Council has made recommendations that are intended to further
enhance the reform and development of the economic landscape of the country towards meaningful participation by
black people in pursuit of inclusive growth. Prior to the Summit, all four Sub- Committees (see section 1.3.3 above)
tabled reports based on the focus areas and made key recommendations on the areas that warrant review and
refinement of the B-BBEE Act and the Codes of Good Practice.
The strategic objectives of the recommendations are as follows:
• The amendment of the primary and secondary legislative framework to address inter alia circumvention,
regulatory mechanisms and compliance;
• Alignment of the B-BBEE primary legislation to other key pieces of legislation and policy instruments (e.g.
PPPFA, Mining Charter, Liquid Fuels Charter, Sector Charters etc.);
• Monitoring, evaluation and reporting (consistent application across all spheres of Government and sectors,
increasing implementation and technical capacity, and strengthening institutional mechanisms);
• Regulation of the verification industry; and
• Establishment of B-BBEE Commission or Tribunal to analyse and vet B-BBEE transactions.
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2.4.1 Amendment of B-BBEE Act
The Advisory Council proposed that the B-BBEE Act be reviewed to extend its applicability to all sectors of the
economy. It was further recommended that the sustainability reports submitted by companies should include B-BBEE
status.
2.4.2 Fronting
The Advisory Council agreed that fronting is one of the biggest challenges in the effective implementation of B-BBEE.
As the State President had highlighted this also as a major obstacle, the Advisory Council made the following
recommendations to address fronting:
• Fronting must be prescribed in the B-BBEE Act;
• A Service Level Agreement must be entered into between the dti and the Special Investigation Unit;
• The National Treasury and the dti must collaborate on curbing B-BBEE Fronting; and
• Sanctions for B-BBEE fronting should include:
o Penalties and blacklisting of entities; and
o Penalties and blacklisting for management (company directors).
2.4.3 Monitoring and evaluation of B-BBEE
Section 11 of the B-BBEE Act makes provision for an integrated and co-ordinated approach to B-BBEE by all organs
of State, public entities, private sector, NGOs, local communities and other stakeholders. This section calls for the
provision of a system for organs of State, public entities and other enterprises to prepare B-BBEE plans and report on
compliance with such plans.
Against the above-mentioned background, the Advisory Council proposed that:
• All public entities and organs of State must submit regular reports on their compliance to B-BBEE, preferably
on an annual basis;
• The annual reports of all departments in the three tiers of Government must cover B-BBEE
performance/implementation;
• All heads of departments and CEOs of SOEs must be legally compelled to report on the performance of
their institutions on the implementation of B-BBEE; and
• Monitoring and evaluation of B-BBEE should form part of the evaluation of all Ministers.
2.4.4 Regulation of the Verification Industry
The Advisory Council noted the challenges encountered in the market due to the fact that the verification industry is
unregulated. Some of the challenges include the absence of a proper code of conduct for the actors in the industry.
Misrepresentation of B-BBEE status by Accredited Verification Agencies was also noted as a concern.
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A recommendation to regulate the industry has been proposed by the Advisory Council through the establishment of
a regulating authority by amending the B-BBEE Act. Furthermore, the Advisory Council recommended that the dti be
empowered to revoke the accreditation status of misbehaving Accredited Verification Agencies.
The Advisory Council also noted that the Cabinet, in its meeting of 6 December 2005, approved a statement on
Verification and Fronting. The recommendation made was that these statements be released for implementation.
2.4.5 Establishment of B-BBEE Commission
The establishment of a B-BBEE Commission, similar to the Competition Commission, has been recommended for
B-BBEE transactions. It is envisaged that this Commission will establish the capacity and authority to investigate
B-BBEE transactions and scrutinise B-BBEE claims contained therein. Furthermore, the proposed Commission will:
• To oversee, supervise and promote adherence with this Act in the interest of the public;
• To strengthen and foster collaboration between the public and private sector to promote and safeguard the
objectives of B-BBEE;
• To receive complaints relating to B-BBEE in accordance with the provisions of this Act;
• To investigate, either of its own initiative or in response to complaints received, any matter concerning
B-BBEE;
• To promote advocacy, access to opportunities and educational programmes and initiatives of B-BBEE;
• To maintain a registry of major B-BBEE transactions, above a threshold determined by the Minister by notice
in the Gazette;
• To receive and analyse such reports as may be prescribed concerning B-BBEE compliance from organs of
state, public entities and private sector enterprises;
• To promote good governance and accountability by creating an effective and efficient environment for the
promotion and implementation of B-BBEE; and
• To exercise such other powers that are not in conflict with this Act as may be conferred on the Commission
in writing by the Minister.
2.4.6 The Path towards the Creation of Black Industrialists
In September 2012, the Presidential B-BBEE Advisory Council resolved to convene a special meeting to define the
new trajectory “Black Industrialists” in support of the country’s industrial policy and its effect on economic
transformation. As part of executing the mandate, the Advisory Council convened two brainstorming sessions in
which different SOEs and Developmental Finance Institutions (DFIs) were invited to be part of the deliberations. The
SOEs and DFIs were expected to define their roles towards the creation of black industrialists.
The main purpose of the brainstorming sessions was to determine the common understanding of the meaning of
“black industrialists” by looking at similar processes from other developing countries such as South Korea and
identifying the different strategies that Government needs to put in place to support the new trajectory.
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A major obstacle towards the attainment of this goal was identified as the absence of a coherent and cohesive policy
framework aimed at promoting “black industrialists”. The various policies and programmes currently in existence were
not put in place with the intention of creating and supporting the creation of black industrialists.
These policies include:
• The National Development Plan
• The Industrial Development Policy Action Plan
• The B-BBEE Act and Codes (in revised form)
• The Competitive Supplier Development Programme
• The Preferential Procurement Policy Framework Act
Further, even as these policies were not intended to promote black industrialists, there are certain barriers that exist
within such policies, which will hinder prospects of creating such industrial enterprises. Furthermore, there is no fiscal
certainty of both the interest and exchange rates to facilitate investment planning for long-term, capital-intensive
projects.
The creation of black industrialists will require strong political leadership, a single and comprehensive policy
framework, a common approach to financing through DFIs, access to markets, fiscal certainty, incentives to promote
industrialists and procurement support.
The Advisory Council recommended that the following actions be taken:
• Revision of the fiscal policy to provide more regulatory certainty;
• Acceleration of the process for alignment of the Preferential Procurement Policy Framework Act (PPPFA) and
B-BBEE Act;
• Identification of the key components with the IPAP framework to develop black industrialists;
• Assessment of policy analysis reports to determine the status of the regulatory regime to assist in identifying the
gaps and improvements to be introduced;
• Analysis of the report of the SOE review to determine opportunities for facilitating black industrialists;
• Identification of other limitations and barriers to the creation of black industrialists;
• Revisit the mandate of DFIs;
• Conduct research to identify industries and sectors of focus (status quo and future plans);
• DFIs and SOEs to determine the support packages to offer aspirant black industrialists;
• Identification of other critical stakeholders to provide inputs to the development of the black industrialists
strategy; and
• Formulation of a coherent and cohesive strategy or policy framework for the creation and promotion of black
industrialists.
This new trajectory presents an opportunity to support the creation of black industrialists. Notwithstanding the actions
recommended above, some obstacles in the way of attaining this goal were identified, including:
• Limited/lack of access to finance
• Participation in low complex areas by black business
• Low entrepreneurship culture
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• Limited access to markets
• Limited geographical location by DFIs
2.5 Remarks by the Black Business Council (BBC)
The Black Business Council (BBC), represented by the CEO, Mr Xolani Qubeka, welcomed the improvements on the
Act. He particularly singled out the fact that some of these improvements will have a direct impact on SMMEs;
particularly the fact that 100% black-owned companies will attain an automatic Level 1 rating. The BBC also
welcomed the idea of legislating towards a more biting attitude on Fronting.
BBC also stated that as the country celebrates this important milestone of 10 years of transformation, there needs to
be a review of the achievements and a study of the areas where the desired outputs and outcomes have not been
achieved.
At its first anniversary earlier this year, delegates of the BBC deliberated on the Act and generally welcomed the
amendments. The BBC gave its support to the changes in the Act and the Codes of Good Practice. It called on the
Government to do everything in line with South Africa’s Constitutional democracy to drive towards the next level of
economic transformation. In this regard, the BBC tabled the following proposals:
• A call for the creation and development of Black Industrial Conglomerates. This next frontier in the war of
economic emancipation will have to be within the legislative framework;
• A push for significant transformation of the private sector and to not only focus on those companies that do
business with the public sector; and
• The repeal of the PPPFA and placing more emphasis on set-asides in large productive sectors.
It emerged from the deliberations at the summit that on the whole black business owners and those who aspire to be
involved in the economy are still marginalised and that the legislative framework has not yet sufficiently addressed
the levelling of the playing ground. In his address to the summit, Mr Xolani Qubeka stated that most black people
involved in the economy still feel rejected, ignored and marginalised in their quest to gain access to the productive
resources of the economy.
2.6 Remarks by the Employment Equity Commission
In his address to the summit, Dr Loyiso Mbabane, the Chairperson of the Employment Equity Commission, said there
is a link between employment equity and skills development. He, however, added that skills development has not
helped to improve employment equity levels across all sectors. An amount of R57 billion has been spent on skills
development in the last 10 years.
In looking at the trends in employment, top management is still largely white male. This clearly indicates that change
is slow, particularly in the top management echelons. Dr Mbabane said the Employment Equity Commission strongly
believes that employment equity is still relevant for transformation and would make a big contribution to the emerging
push towards the creation of black industrialists.
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3 A Bold New Trajectory for B-BBEE
3.1 B-BBEE Achievements and Performance
A research study conducted by the dti and released at the summit showed that although there has been challenges
in the implementation of the B-BBEE codes, there has been some progress.
In presenting the findings to the summit, the Chief Director of the BEE Unit, Ms Nomonde Mesatywa, said that since
2007 there has been a modest improvement in each of the elements of the scorecard by legal form, size, province
and industry. This, she said, could be attributed to the introduction of the codes. The level of empowerment across
the economy has grown from a situation where companies were non-compliant to a level four on the empowerment
scorecard.
The study noted some differences between the performance of Qualifying Small Enterprises (QSEs) and Exempted
Micro Enterprises (EMEs) against large companies. QSEs and EMEs had the highest empowerment level, which is
level three compared to level six of large companies. This could be attributed to less onerous conditions that were
placed on these two enterprise categories. However, the study highlighted some challenges with respect to the
ownership element of the scorecard. Thirty-three per cent of large enterprises had zero black ownership and only 9%
of enterprises had more than 90% black ownership. This is despite reports that showed that more than R600 billion in
B-BBEE transactions have been recorded since 1995. According to Ernst and Young, since 1995 there have been
more than 1 500 publicly announced B-BBEE ownership transactions worth at least R533 billion. Table 1 below
shows the performance of various sectors against the scorecard by sector.
Table 1: Performance against the B-BBEE Scorecard by Sector
SECTOR B-BBEE Level
Agriculture and Nature Conservation Level 5
Catering, Accommodation and other trade Level 5
Community, Social and Personal Services Level 5
Construction Level 4
Finance and Business Services Level 5
Manufacturing Level 5
Mining and Quarrying Level 5
Publics Sector Level 3
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Retail, Motor Trade and Repair Level 5
SETA Level 3
State-Owned Enterprises Level 3
Transport, Storage and Communications Level 5
Whole, Trade and Allied Services Level 5
3.2 The Revised B-BBEE Codes of Good Practice
With respect to the Codes, Ms Mesatywa stated that Government wanted to make sure that codes are easy to apply.
To ensure this, the Codes went through a robust testing process.
There were seven elements that were previously provided for. The new Codes provide for five elements, namely:
• Ownership
• Management Control
• Skills Development
• Enterprise and Supplier Development
• Socio-Economic Development
The Codes further provide for sub-minimum performance levels in priority elements, which include ownership, skills
development and Enterprise and Supplier Development (ESD). The sub-minimum performance levels are as follows:
• For ownership, the threshold requirement is 40% of net value;
• For skills development, the threshold is 40% of total weighting points; and
• For ESD, the threshold is 40% for each of the two categories, i.e. enterprise development and preferential
procurement.
The revised Codes also provide for the combination of enterprise development and procurement into one category
known as ESD. The main objective behind this grouping of these two elements is to drive the creation of productive
enterprises in the value chain of companies.
To lighten the burden on SMMEs, 100% EMEs and QSEs are not expected to do verification and would automatically
become level 1 B-BBEE contributors. They would, however, need to produce an affidavit attesting to their status. The
threshold for EMEs has been increased to R10 million, while that of QSEs has gone up to R50 million. The
discounting principle is still applicable, but with one level down both for large companies and QSEs.
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3.2.1 Ownership
With respect to the ownership element, the revised codes have provided for the following:
• 40% of the eight sub-points allocated to net value as this is key driver of true ownership in the hands of
black people and critical to measure economic interest on annual basis
• Clarity for Family Trust on the B-BBEE ownership principles for recognition on the ownership element
• Clarification that only RSA-based and regulated investments will be considered for qualification as Mandated
Investments
• Enhanced the provisions for Private Equity Fund
• Increased the weighting points of the Ownership scorecard from 20 to 25 points
• The points for Ownership have been broadened to include designated groups in the main points
• New entrants have been incorporated into the main points of the Ownership Scorecard and increased from
R20 million to R50 million
• Consolidated ownership fulfilment and net value points
3.2.2 Management Control
In the management control pillar, the revisions are as follows:
• Junior Management has been incorporated in the scorecard.
• The management control element has been aligned with the EAP targets as published by the
Department of Labour annually.
o These were aligned to the Commission for Employment Equity report.
• The measurement principle of EAP targets for enterprises operating in the provincial and national level
has been provided for.
3.2.3 Skills Development
Skills development revisions include:
• Informal and work-based training (Category F and G) can now be recognised, but has been capped at
15% of the total value of skills expenditure;
• The 6% compliance target for skills development expenditure has been maintained and clarification has
been provided that it should include external training expenditure;
• A 15% cap for non-core training costs such as accommodation, catering and other has been included;
and
• Clarification has been provided that international training interventions can be recognised, provided they
meet the SAQA requirements for recognition.
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3.2.4 Enterprise and Supplier Development (ESD) With respect to ESD, the revisions are that:
• Entities can apply the import exclusion principle, but this is not applicable to designated sectors as
pronounced by the Minister of Trade and Industry.
• The Value-Adding Supplier concept with Empowering Supplier defined has been replaced as follows:
• An Empowering Supplier within the context of B-BBEE is defined as a B-BBEE compliant
entity, which can demonstrate that its production and/or value adding activities take place in
the country;
• Criteria to qualify as an Empowering Supplier are listed below (large enterprise should comply
with at least three of the criteria, whereas QSEs should comply with at least one):
o At least 25 % of cost of sales, excluding labour costs;
o Depreciation (unless in the service sector) must be spent in RSA;
o For enterprises operating in the service industry, the labour cost can be
included, but to a threshold of 15%;
At least 50% of jobs created are for black people, provided that the number
of black employees on the first year of measurement is maintained;
Transformation of raw material/beneficiation;
At least 25% includes local manufacturing, production and/or assembly,
and/or packaging; and
At least 12 days per annum is to be spent on skills transfer activities that are
productive and will assist beneficiaries to increase their operational,
technical or financial capacity.
EMEs and start-ups are exempted from the Empowering Supplier definition.
3.2.5 Socio-Economic Development
There are no changes with respect to the socio-economic development element.
3.2.6 Summary of Revisions
In summary, the changes to the scorecard are indicated in the table below.
Table 2: Summary of Revisions to the B-BBEE Codes of Good Practice
Level Current codes Amended codes
B-BBEE Recognition Level
1 ≥100 ≥100 135%
2 ≥85 but <100 ≥95 but <100 125%
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3 ≥75 but <85 ≥90 but <95 110%
4 ≥65 but <75 ≥80 but <90 100%
5 ≥55 but <65 ≥75 but <80 80%
6 ≥45 but <55 ≥70 but <75 60%
7 ≥40 but <45 ≥55 but <70 50%
8 ≥30 but <40 ≥40 but <55 10%
Non-compliant <30 <40 0%
The general feeling of the summit was that the Codes were less onerous compared to the draft Codes. However,
there was a sense that some of the elements, such as ownership and enterprise and supplier development, may be
difficult and will pose challenges for companies. The amendments were, in the main, accepted by the summit.
Final revised Codes were gazetted on 11 October 2013. For the first year after the gazetting of these Codes,
measured entities can elect to use the Amended Codes or the 2007 Codes. However, after the first year all B-BBEE
compliance will be measured as per the Amended Codes.
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3.2.7 Implementation Challenges
Despite the achievements, there was broad consensus across the different stakeholders on the challenges the
country faces with regard to economic transformation. These include:
• Inadequate meaningful collaboration between big and small businesses;
• Fronting, with complex mechanisms employed in this regard;
• Insufficient capacity development (skills development and transfer);
• Misalignment of legislation (PPPFA and B-BBEE, for example); and
• Inadequate financing for black-owned start-up enterprises.
3.3 Overview of Panel Discussion
A panel discussion session with the three ministries (Trade and Industry, Economic Development and Public
Enterprises) was facilitated by Mr Teddy Daka.
A new trajectory for the creation of black industrialists was highlighted by both political leaders and the Advisory
Council as critical to drive economic transformation in the future. The aim of the session was to ascertain where the
black industrialists were, as well as to explore ways to ensure that they are able to benefit from the economy. Dr
Davies said it is imperative for South Africa to trade in value-added goods and be extensively involved in production.
The result of this would be the creation of strong routed jobs in various sectors and products of a higher quality. He
also reported that a lot has been done with the assistance of the dti in turning around the fortunes of some in the
manufacturing sector against the backdrop of the most difficult circumstances in the world economy.
He cited an example of the infrastructure programme that is driven by SOEs and co-ordinated by the Presidency,
which has spent up to R1 trillion to date. He believes that it is necessary for black industrialists to become experts in
particular technical areas.
Minister for Economic Development Ebrahim Patel believes that in building a class of black industrialists the country
needs to accomplish two things:
1. On the demand side of the economy, the State and corporates must be entrenched as buyers of goods from
the new industrialists; and
2. On the supply side of the economy, the state should provide support for supply side measures such as
funding, skills development and marketing support.
He, however, reiterated that the state cannot resolve all these needs, but can provide an enabling environment. In
this regard, he emphasised the need for competition policies that are aimed at curtailing challenges of monopoly to
establish fair competition in the economy.
The adviser to the Minister of Public Enterprises, Ms Mncobo, stated that SOEs are catalysts for industrialisation that
help to revive sectors of the economy through the stimulus that is created within their programmes. She indicated that
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DPE is already working on the supplier development programme and aims to link companies that have secured big
contracts with smaller black companies. Within the context of the economic infrastructure Bill, the DPE appealed to
black businesses to articulate what it is that they are prepared to do to broaden their participation in the economy.
Questions from the floor included:
• Is the B-BBEE policy, as it stands, able to create black industrialists?
• Do we have a proper procurement framework to support black industrialists?
• Is funding accessible and available to support black industrialists?
• What will be the effect of labour unions in the creation of black industrialists?
• Is there Government support for technology transfer to black-owned businesses?
The panel responded to the questions by giving examples of some of the work that has been done, such as the
incubation programmes, the disbursement (by the Industrial Development Corporation) of about R16 billion to
SMMEs, the reduction of turnaround times of transactions during the application process, and the use of incentive
schemes to encourage and support technology transfer. The panel highlighted some programmes that have been
successfully implemented towards the creation of black industrialists such as the manganese plant (based in the
Northern Cape) owned and managed by black women and the refurbishment of coaches for locomotives, driven by
PRASA.
3.4 Progress on the Implementation of Sector Charters
Ms Portia Tau-Sekati gave an informative presentation on the introduction and implementation of Sector codes.
These instruments were introduced and implemented to enhance transformation using unique knowledge and
characteristics of the sector to deepen meaningful participation in the mainstream of the South African economy.
Furthermore, the charters were to promote transformed, vibrant and globally competitive sectors, reflective of the
demographics of South Africa and contributing to the establishment of an equitable society. There are currently nine
sector charters.
The summit noted the progress and concerted effort in some sectors and highlighted the fact that more needed to be
achieved. Positive observations included the reasonable achievement of targets in preferential procurement,
enterprise and socio-economic development. However, under-performance in management control and employment
equity was also noted. Mixed performance was recorded in the areas of ownership and skills development. Delegates
raised concerns about the relevance of the charters while the codes were in existence.
3.5 Progress on the Implementation of the dti Incentive Schemes
Ms Susan Mangole from the Industrial Development: Incentive Administration Division (IDIAD) made an impressive
presentation on progress made in this regard. To respond to the challenge of access to finance, the dti has
developed 21 incentive schemes. The following are relevant for the support of B-BBEE:
• Black Business Supplier Development Programme
• Co-operative Incentives Scheme
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• Incubator Support Programme
• Manufacturing Competitiveness Enhancement Programme
• Sector-Specific Assistance Scheme
• Export Marketing and Investment Assistance
• Capital Projects Feasibility Programme
• Enterprise Investment Programme
• 12I Tax incentive
• Automotive Incentive Scheme
• Manufacturing Investment Programme
• People-carrier Automotive Investment Scheme
• Aquaculture Development Enhancement Programme
• Film and Production
• Business Process Services
• Critical Infrastructure Programme
The schemes were implemented to stimulate and facilitate the development of sustainable, competitive enterprises
through the efficient provision of effective and accessible funding mechanisms that support national priorities. The
incentive schemes were structured according the following clusters:
• Broadening participation
• Competitive investment
• Manufacturing investment
• Services investment
• Infrastructure investment
Significant and impressive progress was achieved in the following areas:
• Black Business Supplier Development Programme – 2 128 applications have been approved to the value of
R797.8 million since September 2010;
• Co-operative Incentives Scheme – 1 202 applications have been approved to the value of R287.4 million;
• Incubation Support Programme – 14 ISP incubators approved to the value of R168.8 million;
• Manufacturing Competitiveness Enhancement Programme – 387 projects approved since May 2012, with a
projected investment of R4.2 billion; and
• Business Process Services – 30 applications approved since inception 2011, with a projected investment of
R1.2 billion.
The above account is a strong demonstration of the effective implementation of incentive schemes as a response to
economic transformation.
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3.6 Overview on the State of the Economy
Mr Gerhard Kuhn, an economist at the IDC, gave a comparative high-level overview of the global and South African
economies in terms of current trends and future performance. He cited the following issues:
• A fragile global economy recovery
• The United States economy showing fairly modest growth
• The Eurozone is still in a crisis, but signs of recovery are emerging
• BRICS economies have a mixed performance
In terms of the world’s economies, about 60 million more people are unemployed as a result of the various economic
crises. In the South African economy, a modest increase in activity has been recorded. Overall performance can be
attributed to goods-producing services, agriculture, mining sectors and direct exports. Consumer spending is the key
component of the economy. There has been a dismal performance in the manufacturing sector, with a drop in overall
manufacturing output since 2009. Exports are still under pressure, despite the recoveries of the economy. The
mining sector has also shown a dismal performance as a result of the global economy, electricity constraints and
industrial action. The Government continues to create jobs, however, the private sector has shown an overall incline
of numbers. The overall outlook of the South African economy is that import demand is expected to remain relatively
strong, while the weaker rand will push up import costs such as crude oil and capital goods.
4 Summit Deliberations
The deliberations of the summit by delegates were conducted in four commissions, which constituted the
• Alignment of PPPFA and B-BBEE
• SOEs and Enterprise Development
• Black Industrialists and Localisation/Designated Sectors
• Access to Finance
Each commission had a facilitator and presenter who provided the document for discussion, setting the platform for
high-level deliberations and outcomes.
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Proceedings of the commissions are captured in detail below.
4.1 Commission 1 – Alignment of PPPFA and B-BBEE
Ms Portia Tau-Sekati facilitated the discussions at this commission. The presenter was Mr Teddy Daka.
4.1.1 Brief Background to the Topic – PPPFA and B-BBEE
Public procurement is the function whereby public sector organisations acquire goods, services and development and
construction projects from suppliers in the local and international market, subject to general principles of fairness,
equitability, transparency, competitiveness and cost-effectiveness. It includes many activities that support the service
delivery of government entities, ranging from routine items to complex development and construction projects. It also
directly or indirectly supports Government’s social and political aims. Procurement reforms in South Africa started in
1995 and were directed at two broad focus areas, namely the promotion of principles of good governance and the
introduction of a preference system to address certain socio-economic objectives. The systems of procurement and
provisioning were fragmented, owing to the fact that tender committees are responsible for procurement, whereas
provisioning is largely underwritten by the norms and standards in the logistic system driven by the National Treasury.
The PPPFA was promulgated in response to Section 217(3) of the Constitution of the Republic of South Africa. Under
the Act, a procurement policy may provide for the following:
• Categories of preference in the allocation of contracts; and
• The protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination.
The Public Finance Management Act 76(4) permits the National Treasury (NT) to make regulations or issue
instructions applicable to all institutions to which the Act applies concerning the ”determination of a framework of an
appropriate procurement provisioning system which is fair, equitable, transparent competitive and cost-effective”.
There are therefore numerous legislative frameworks that guide procurement practices and these include:
• The Constitution
• The Public Finance Management Act 1 of 1999
• The Municipal Finance Management Act No. 56 of 2003
• The Preferential Procurement Policy Framework Act No. 5 of 2000
• The Broad-Based Black Economic Empowerment Act No. 53 of 2003
• The Promotion of Administrative Justice Act No. 3 of 2000
• The Prevention and Combating of Corrupt Activities Act No. 12 of 2004
4.1.2 Issues Raised During Discussion
A discussion on the challenges of public procurement in South Africa took place, with delegates concurring that
enormous predicaments still exist, including:
• Lack of proper knowledge, skills and capacity
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• Non-compliance with SCM policy and regulations
• Accountability, fraud and corruption
• Inadequate monitoring and evaluation of SCM
• Unethical behaviour
• Too much decentralisation of the procurement system
• Ineffectiveness of the B-BBEE policy
Delegates said some of the practices with regards to non-compliance with the rules and procedures can be attributed
to the tendency to not make use of a competitive process for both quotations and bids as well as incorrect use of the
preference points system. Some also noted that there are inadequate controls and procedures for the handling of
bids, the appointment of bid committee members are not aligned to policy requirements, and there is insufficient
motivation for deviations from SCM procedures.
The general belief was that the majority of people who had hoped that freedom would bring relative socio-economic
liberation and improvement are feeling increasingly bitter towards Government over issues that include a lack of
perceived quality of governance, service delivery failures, fraud and corruption in some spheres of the economy and
disillusionment with empowerment policies.
Delegates also noted the absence of officials from NT who should be part and parcel of discussions around the
urgent need to rethink innovative ways of curbing corruption and other administrative malpractices within the spheres
of Government. They also believe that the PPPFA undermines the intentions of B-BBEE. Arguments were put
forward for greater centralisation of procurement to knowledgeable, accountable procurement officials/agents or
procurement consortiums.
The Government adopted the provision of B-BBEE to empower all historically disadvantaged people rather than only
a small group of black investors. To this end, it has also adopted the B-BBEE Act, which calls for expanded
opportunities for workers and smaller enterprises as well as more representative ownership and management. The
feeling in the deliberations was that current B-BBEE provisions have, however, in many instances failed to ensure a
broad-based approach, instead imposing significant costs on the economy without supporting employment creation
or growth.
The current B-BBEE model remains excessively focused on transactions that involve existing assets and benefit a
relatively small number of individuals. First, ownership and senior management issues receive disproportionate
emphasis. The unintended consequences of this trend include ‘fronting’, speculation and tender abuse. Secondly,
the regulations do not adequately incentivise employment creation, support for small enterprises and local
procurement. The preferential procurement regulations aggravate the situation by privileging ownership over local
production. Finally, the B-BBEE regulations penalise public entities as suppliers. The democratic state own public
entities on behalf of its people, yet the regulations do not count them as ‘black empowered’ (Zuma, 2009).
Some of the concerns about the regulations were expressed by the State-Owned Enterprise Procurement Forum
(SOEPF), a voluntary forum of procurement/supply chain management executives of SOEs.
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The PPPFA was highlighted as a major impediment in advancing the objective of B-BBEE in the public sector. The
PPPFA makes it impossible for black-owned companies to compete fairly with large companies. The Act puts in place
a weighting of 80% on price and 20% on B-BBEE score for smaller tenders, and 90% weighting on price, with 10%
weighting on B-BBEE for larger tenders. In this regard, the conference recommended that a review of the PPPFA to
align it with BBBEE be prioritised.
In the discussions, participants believed that the PPPFA is not transformational because it favours the traditional
suppliers over black suppliers. According to SOEPF, the empowerment legislative framework is fragmented. There is
a need to harmonise the empowerment framework in the country.
4.1.2.1 Some Questions from Commission Participants
• Why align when decisions have been taken to prioritise B-BBEE and where B-BBEE takes preference over
initiatives that have similar and possibly contrary mandates?
• Does the B-BBEE Commission or another authoritative body have the capability to monitor all applications
and ensure that all applicable companies are registered lawfully?
• What are the procedural logistics and specifications of the preferential pricing process?
• Does local content have more weight than B-BBEE within the PPPFA context?
• How do we redefine the PPPFA to make sure it is aligned with B-BBEE?
• How do we scrap the PPPFA without losing on the positive aspects of it?
4.1.3 Recommendations
• The B-BBEE Advisory Council had earlier recommended a revision of the fiscal policy to accelerate the
process of aligning the PPPFA and the B-BBEE Act, as well identifying key components within the industrial
policy for black entrepreneurs. This should include access to policy analysis, reports to determine the status
of the environmental regime, all of which will assist to determine the gaps and improvements to the
establishment. The delegates in this commission supported this.
• A complete overhaul of the PPPFA.
• Set asides to be introduced in all SOEs and in public sector procurement.
• Establish a working committee to engage with the NT, led by the dti on the reform/overhaul of the PPPFA.
• The Advisory Council to engage and continually work with the NT to implement and resolve the issues
raised.
• The Office of the President be involved in the process of supporting the mandate and taking action to ensure
the highest oversight.
4.2 Commission 2 - SOEs and Supplier Development
Discussions at this commission were led by Mr Thabo Masombuka. Dr Thami Mazwai was the presenter.
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4.2.1 Brief Background to the Topic
Based on the Government’s developmental and transformation agenda, there is a clearly articulated mandate given
to the SOEs on the role they are expected to play in supporting Government to achieve its goals.
the dti has proposed a fundamental shift in how enterprise development and procurement should be implemented.
SOEs have done well in driving localisation and supplier development, but more needs to be done. The objective of
enterprise development is to provide financial and non-financial support to small enterprises to ensure sustainable
economic, operational and technical independence. It is acknowledged that SOEs have a crucial role to play in
fostering enterprise development in their supplier development programmes.
4.2.2 Issues Raised During Discussion
Addressing the summit on this issue, Dr Mazwai stated that the context in which these enterprises operate needs to
be taken into account.
Dr Mazwai painted a worrying picture with respect to small enterprise development:
• 3,5 million small businesses in South Africa; 80% < R200k turnover per annum
• 90% of SMEs are black-owned
• 85-90% of the formal sector is white-owned
• <10% of entities in townships turnover > R1m
• SMEs constitute <60% of economic activity in rural areas, with 40% owned by Pakistanis and
Bangladeshis
• Many squatter camp businesses turn over R10 a day
• >50% live below the poverty line
• Gini-coefficient at 0.64; the second highest in the world
• Youth unemployment is at 60%, translating to roughly 3,3 million people
He further stated that despite all the support structures and government agencies that are in place, there is a high
failure rate of SMEs in South Africa, which is due to lack of:
• Finance
• Management know-how
• Market access
• Skills
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Delegates raised the following for consideration in a B-BBEE programme of enterprise and supplier development:
• The Construction Charter Matrix favours larger entities whereas it is the small SMEs that need the help;
• There is a need to consider tying ED and skills development spend more tightly;
• ED beneficiaries must be used as suppliers (not just helped) and their activities tested, monitored,
supported and developed;
• Certain sector councils must make sure that sector codes are aligned to reviewed B-BBEE codes to
ensure that ED is enhanced;
• Participation and input of young people must be enhanced; and
• Youth and women empowerment to be given priority in enterprise development.
The biggest hurdle is the lack of alignment between legislation that has B-BBEE impact and the B-BBEE Act and
Codes of Good Practice. This lack of alignment results in confusion over which Act should take precedence over the
other. This has led to the lack of robust implementation of the B-BBEE Act and the Codes of Good Practice within
some SOEs and public entities that tend to comply with the PPPFA. This has caused uncertainty in the
implementation of certain initiatives within SOEs and public entities.
4.2.2.1 Some Questions asked by Delegates
Questions included:
• Are SOEs achieving the transformation agenda?
• What hinders SOEs in achieving the agenda?
• Is there is no relationship between those who formulate the framework, the opportunities under which
small business operate and those who will be future business owners?
• What role can academic institutions such as universities play in inculcating a culture of
entrepreneurship?
• What should SOEs do to improve the achievement of the agenda?
4.2.3 Recommendations
Delegates who participated in this commission suggested that supplier development should be part of the
performance management requirement of any SOE. In addition, the proposal was made that the targets, which
should be a relatively higher weight, must be linked to the KPI targets of all top executives. The transformation targets
should not just be for the SCM executives.
Furthermore, it was recommended that the awarding of contracts should be better leveraged by ensuring that any
work awarded has significant transformation.
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4.3 Commission 3 - Black Industrialists and Localisations/DesignatedSectors
This discussion was facilitated by Professor E Links and had two presenters, namely Dr T Makube and Mr Ajay Lalu.
4.3.1 Brief Background to the Topic
The issue of growing a black industrialist class has come up over many years of deliberations in various quarters
since the promulgation of the B-BBEE Act. It is a concept that is taken as a proxy for full economic transformation.
4.3.2 Issues Raised in the Discussion
In looking at the issue of black industrialists, the presenters drew the attention of the delegates to the following:
• There is an outdated terminology from 1960s on what the definition of an industrialist is;
• As skills transfer is critical to drive the creation of industrialists, there is a need to consider and determine
how this transfer of skills will be undertaken; and
• Ownership and financing.
The commission participants noted the failure of SOEs and government departments to use state buying power to
deepen the creation of black industrialists and small enterprises. Currently, a policy that looks at the emergence of
black industrialists does not exist. Existing legislation or policies, such as National Development Plan (NDP), IPAP, B-
BBEE and PPPFA, are accidental. Examples, such as that of Korea (which managed to draw in the marginalised to
become active players in the mainstream economy), were made to illustrate that the creation of black industrialists is
possible.
Some of the concerns that were raised on the issue of the creation of black industrialists were:
• There is a general decline in VAT, company tax and individual tax
• The playing field in terms of importing and exporting are uneven, resulting in decline in GDP
• Legislation is not harmonised
• Impact of anti-competitive behaviour in some sectors and the role of the competition commission in this
regard cannot be over-emphasised
4.3.2.1 Some Questions Raised by the Delegates
The following key questions were raised with respect to creation of black industrialists:
• Are the prevailing conditions conducive for the creation of black industrialists?
• Are policies geared towards the formation of this grouping?
• Are the finance institutions able to support this cause of creating black industrialists?
• What role can SOEs play in creating black industrialists?
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4.3.3 Recommendations
• To create black industrialists as a new sector and form of empowerment and to be mindful that the current
policies do not support black industrialists.
• To ensure that the process is backed by a strong political leadership.
• The Presidential B-BBEE Advisory Council recommended a revision of the fiscal policy to accelerate the
process of aligning the PPPFA and the B-BBEE Act, as well identifying key components within the industrial
policy for black entrepreneurs. This should include access to policy analysis and reports to determine the
status of the environmental regime, all of which will assist to determine the gaps and improvements to the
establishment.
• The Presidential B-BBEE Advisory Council has already identified ways to align SOEs. It further recommends
revisiting DFI mandates to ensure that DFIs and SOEs are in support of black businesses and to identify
other critical stakeholders to provide input into the development and growth of black enterprises, thereby
assisting in creating a pool of black industrialists.
• A policy for the creation of black industrialists.
4.4 Commission 4 – Access to Finance
Dr Claudia Manning facilitated the discussion in the fourth commission. The presenter was Ms Phokwane Moloele.
4.4.1 Brief Background to the Topic
It is widely accepted that SMMEs have a strategic role to play in tackling poverty and unemployment. However, in
South Africa, SMMEs are beset with various problems that become obstacles to their development. The main
obstacles faced by SMMEs are a less enabling business environment and internal problems associated with low
access to capital and markets, and lack of entrepreneurial competence. It is also important to note that a significant
number of SMMEs are concentrated in rural areas.
There is no doubt that with the availability of adequate capital and easy access, micro-scale enterprises will develop.
This will lead to improvements in the productivity and scale of the businesses. Revenue will increase and so will their
purchasing power and absorption level of employment. A broad impact of this will be reduced urbanisation, poverty
and unemployment levels.
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In her input to the commission, Ms Phokwane Moloele indicated that private sector lenders have little appetite for
funding entrepreneurs, particularly black businesses. On the other side, DFIs are experiencing serious challenges
that impact on the financing of black companies. These difficulties include long lead times and poor skills to access to
credit in entrepreneurial businesses, lack of pre-financing support and ever-changing funding mandates. Lack of
collateral continues to be a hindrance to financing black businesses despite all the schemes that have been set up by
Government and its agencies. Furthermore, government programmes for the youth, disabled and vulnerable
communities are struggling to reach targets as the beneficiaries are seen as welfare recipients and not economically
productive groups.
4.4.2 Issues Raised During Discussion
The concerns raised in this commission include:
• Government incentive schemes’ application processes still have long lead times;
• Black entrepreneurs are still struggling to provide quality information in their applications;
• Government is still the biggest source of entrepreneurs’ financial problems due to late payments;
• Government requirements in tenders are a constraint – e.g. short term contracts;
• Black entrepreneurs are still struggling with the issue of collateral/own equity; and
• Pre-financing support is still very limited from DFIs.
Following deliberations on the above issues in the commissions, the participants broadly welcomed the amendments
to the Bill and the Codes.
4.4.3 Recommendations
• The concept of DFIs operating closer to rural areas was raised;
• A supportive and mutual benefit of performance and co-operation between DFIs and SMMEs is required;
• Lending should be in accordance with the feasibility of and cost of running the business;
• Where loans are granted, the type of business and the duration of the production process should be
considered;
• Stakeholders want to see “set asides” for black business in state procurement contracts;
• Alignment of the PPPFA with B-BBEE policy framework;
• Review of procurement regulations;
• Recapitalisation of the NEF;
• Review the role of DFIs in the development agenda;
• Provision of venture capital for start-ups;
• Support facilities for collateral funding;
• Limited use of Government and SOEs buying power to stimulate the creation of black industrials; and
• DFIs and the dti to review systems and processes for handling of funding applications.
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5 Common Issues emanating from all commissions
• A complete overhaul of the PPPFA.
• The creation of an enabling environment through facilitation, provision of support and enforcement of the B-
BBEE policy framework.
• Improved working relations between big businesses and SMMEs.
• Improved working relationships between departments to ensure consistency in the implementation of B-
BBEE practices.
• Significant improvement of the education system to create relevant skills required by the economy.
• Clarity on the role of SOEs in leading the drive towards the creation of an inclusive economy.
• Implementation of clearer governance structures (by SOEs) to facilitate B-BBEE.
• SOEs to maximise a broader contribution to supporting economic recovery and opportunities for enterprise
and innovation.
• A need to re-evaluate the mission and goals of SOEs.
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6 Summit Recommendations – The Next Empowerment Phase
6.1 Short Term
• Reform of the Preferential Procurement Policy Framework Act.
• Set asides be introduced in all SOEs and public sector procurement. In this regard, the Black Business
Council’s position submitted to the NT requesting a withdrawal of the practice note that disallows
government set-asides should be finalised.
• Establish an Advisory Commission to engage with the NT supported by the dti on reform of PPPFA. The
Advisory Council to engage and continually work with the NT to implement and resolve the issues raised by
these commissions.
• That the Office of the Presidency be involved in the process in support of his mandate to take action and
ensure the highest oversight.
• Where a tender has been awarded, not more than 25% of that business should be sub-contracted to
businesses with a lower BEE level than their own.
• Government must work with DFIs and private sector to find creative ways to unlock collateral potential of
entrepreneurs.
• The IPAP to help create black industrialists.
• SOEs to also ring-fence opportunities for EMEs, youth and women.
• SOEs should drive localisation to enhance enterprise development.
• Dedicated resources for enterprise development and supplier development within SOEs.
• Enterprise development and supplier development should be included in performance areas of executives
and managers of SOE.
• Culture of non-payment of accounts by government departments and SOEs should be completely
eradicated and legislated in PFMA and MFMA.
• Need leadership within SOEs that should report to Minister on enterprise development and supplier
development.
• SOEs to set aside budgets for enterprise development and supplier development.
• Enforcement of penalties.
• Company boards to be measured on ED and supplier development of SOEs.
6.2 Medium to Long Term
• Tax Breaks for black industrialists.
• Government has to change how it views and deals with Research and Development and the
commercialisation of R&D and innovation.
• SOEs to analyse the value chain for enhanced ED development.
• SOEs to partner with private sector and incentivise private companies that implement qualitative ED
programmes.
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• Mandatory reporting on supplier and enterprise development should be introduced.
• Venture capital/angel funding to be harnessed.
6.3 Recommended For Action by the Government
• the dti to engage the NT around the misalignment of PPPFA and B-BBEE policy frameworks.
• Aggressive communication on codes to be broadened to cover rural communities.
• Engage SOEs on expanding the opportunities for designated groups.
• Improve education systems to support the creation of black industrialists.
• A clear policy on creation of black industrialists.
• Tighten mandatory reporting and enforcement of penalties.
• Harmonisation of legislation across Government.
• Participation of NT should be prioritised in other B-BBEE engagements.
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7 SMME Exhibition
An exhibition was held alongside the main plenary session. A group of small businesses from various sectors and
provinces showcased their services and/or products. Some of the businesses had previously received financial
support from the dti and its agencies (such as seda). In addition, various support agencies based at national and
provincial level exhibited at the event. These included key public sector role players across all tiers of Government
whose departments offer business development services, organised business associations, private sector companies
involved in small enterprise development, and academic and research institutions focusing on small businesses.
the dti hosted the exhibition to recognise the vital role and contribution made by SMMEs in developing the economy.
It has witnessed increased knowledge, innovation and customer-centred services among SMMEs, which have
manifested some room for improvement. It is imperative for SMMEs to convert the challenges into opportunities by
exploring more business networks and acquiring more information for business growth. With a view to give more
insight into these, other supporting government agencies such as SARS were part of the exhibition.
It has always been the objective of the dti to empower emerging and established businesses with critical information
for their business intelligence as well as afford SMMEs business networking opportunities and to exchange views on
issues such as the regulatory environment and access to finance.
Note: A full list of exhibitors is provided in the Appendix 2.
8 Conclusion
The summit ended on a high note, with delegates confident that the dti will execute the recommendations as soon as
possible..
The DG of the dti, Mr Lionel October, thanked each and every delegate for their participation, passionate
contributions and proposals. He thanked the Programme Director, Peter Ndoro, for his management of the event as
well as his participation in the process. He thanked the dti staff, Deputy Director-General Sipho Zikode and Ms
Nomonde Mesatywa and her team, who worked tirelessly to get everything ready, from the initial creation of the
Codes right through to the planning of and participation in the summit. A vote of thanks included the portfolio
committee and parliamentarians, who participated actively, processed the regulations in record time and attended the
summit. Lastly, he thanked the Advisory Council for initiating the idea of the summit and the proposed revision of the
law and Codes.
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9 Appendices
9.1 Appendix 1: IDIAD – Incentives Offered
PROGRAMME PURPOSE TARGET OFFERING
Black Business Supplier Development Programme (BBSDP)
Broader participation of black-
owned SMMEs through
provision of business
development services
• Majority black-
owned entities
• R250 000 to R35
million turnover
• One year trading
• 80:20 cost-sharing grant for
business development
services
• 50:50 cost-sharing grant for
tools, machinery and
equipment
Co-operative Incentive Scheme (CIS)
Broader participation by
promoting the development of
co-operatives
• Registered co-operative
• Operate in the emerging
sector
• Manufacturing, retail and
services
100% cost-sharing grant for
machinery, equipment and
business development services
Incubator Support Programme (ISP)
Broader participation of SMMEs
through public/private sector
partnerships to assist SMMEs
with skills transfers, enterprise
development, supplier
development and marketing
opportunities
• Registered legal entity/
higher education
institution/science council
• Want to establish new
incubator or expand
existing one
• 50:50 cost-sharing grant for
large businesses
• 40:60 cost-sharing grant for
SMMEs
Manufacturing Competitiveness Enhancement Programme (MCEP)
To assist South African
manufacturers to improve
enterprise competitiveness and
job retention
South African-registered
entities engaged in
manufacturing Standard
Industrial Classification (SIC
3), engineering services that
support manufacturing, and
conformity
assessment agencies (SIC
88220) servicing the
• Two key components:
Production Incentive
Programme (PIP) managed
by the dti and the Industrial
Financing Loan Facility (IFLF)
managed by the IDC
• PIC consists of five sub-
components offered on a cost-
sharing basis of 50%, 60%,
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manufacturing sector 70% and 80%.
• Manufacturers apply for one
sub-component or a
combination
Export Marketing and Investment Assistance Scheme
To develop export market for
South African goods and
services and recruit FDI
Export-ready manufacturers Cost-sharing grant for exhibition
costs, marketing material and
research in foreign markets
Sector Specific Assistance Scheme (SSAS)
To provide exporting assistance
to South Africa’s emerging
exporters
Export councils
Industry Associations
Joint Action Groups
80:20 cost-sharing grant up to a
maximum of R1.5 million
Manufacturing Investment Programme (MIP
Stimulate investment in
manufacturing;
increase employment
opportunities; and
sustain enterprise growth
• Small, medium and large
manufacturing enterprises
• Local and foreign-owned
manufacturing enterprises
• Up to 30% of the value of
qualifying investment costs in
machinery, equipment,
commercial vehicles, land and
buildings, capped at
R200 million
12I Tax allowance programme (12I)
To contribute towards job
creation; improve the
productivity of the South African
manufacturing sector and
training of personnel; improve
labour productivity and the skills
profile of the South African
labour force
• New manufacturing
projects; energy efficiency;
skills development
• R900 million in the case of
any Greenfield project with a
preferred status; or
R550 million in the case of
any other Greenfield project
• R550 million in the case of
any Brownfield project with a
preferred status; R350 million
in the case of any other
Brownfield project
Film and Television Production Incentive
• Support local film
industry
• Encourage and attract
large budget films
• Build South Africa’s
international profile
• Increase South Africa’s
creative and technical skills
base
• South African Productions
• Co-productions
• Foreign productions
• Post-Production
• Uncapped grant for film and
television productions shot
within South Africa
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Film & Television Production Incentive
• Support local film industry
• Encourage and attract large
budget films
• Build South Africa’s
international profile
• Increase South Africa’s
creative and technical skills
base
• South African
Productions
• Co-productions
• Foreign productions
• Post-Production
• Uncapped grant for film
and television
productions shot within
South Africa
Business Process Services (BPS)
• Attract investment
• Create employment
opportunities
Enterprises offering business
process services to offshore
market
R112 000 is payable to an
offshore job created and
sustained from 2011/12 to
2013/14; R104 000 from 2012/13
2014/15 and R88 000 from
2013/14 to 2014/15
Critical Infrastructure Programme (CIP)
• Promote competitiveness of
South African enterprises
through the export of value-
added manufactured
products
• Attract foreign direct
investment (FDI) and select
targeted advanced foreign
production and technology
methods to gain experience
in global manufacturing
networks
The programme supports
infrastructure projects in
mining, tourism,
manufacturing and services
on a reimbursement basis
CIP is a 70:30 cost-sharing grant
for projects designed to improve
critical infrastructure in South
Africa
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9.2 Appendix 2: List of Exhibitors
Bagazio
Department of Public Works
Department of Economic Development – Gauteng Province
Essay gifts
Gauteng Tourism Authority
GGDA
GDB
Lerala Bonolo Co-operative
Jonganalo menu
IDS Consulting
National Empowerment Fund
National Gambling Board
National Youth Development Agencies
Roseta Trading
Small Enterprise Development Agency
Small Enterprise Finance Agency
South African Revenue Services
Strategic Outsourcing Solutions
Today’s Destiny
South African Women Entrepreneurs Network
Transnet
Western Cape Department of Economic Development and Tourism