Submission to The Portfolio Committee of Trade and Industry

1. Submission to The Portfolio Committee of Trade and Industry Parliament of The Republic of South Africa Comments by the Association of BEE Verification Agencies on the B-BBEE Amendment Bill [B42-2012]

2. Table of Contents Page 2 of 12 • Introduction • Executive summary • Comments relating to misinterpretation, fronting, penalties and guidelines • Comments relating to the practical implementation of B-BBEE and the Codes of Good Practice

3. Introduction Page 3 of 12 The Association of BEE Verification Agencies (“ABVA”) is an independent national membership organisation, registered as a Section 21 company and governed by the ABVA constitution. Our membership includes SANAS Accredited Verification Agencies, B-BBEE Consultants, Corporate Practitioners and Audit Firms. ABVA was formed with the objective of ensuring credible B-BBEE verification by promoting ethical behavior, common interpretation and application of the B-BBEE Codes and providing members with technical support and training. Through their daily occupation, our members gain knowledge, insights and a deep understanding of the B-BBEE legislation and the practical challenges faced by business upon implementation thereof. We believe that ABVA, being close to the “B-BBEE implementation coal-face”, are well positioned to provide informed comment on the B-BBEE Amendment Bill.

4. Executive Summary Page 4 of 12 The achievement of the objectives of the B-BBEE Act is primarily dependent upon: • the proper alignment of the mechanisms and criteria which are designed to serve these objectives; and; • the effective practical implementation of these mechanisms and criteria. ABVA’s comments focus on the above and are provided in the spirit of transformation.

5. Comments Relating to Misinterpretation, Fronting, Penalties and Guidelines Page 5 of 12

6. Comments Relating to Misinterpretation, Fronting, Penalties and Guidelines Regulations, Guidelines and Practice Notes We welcome the proposed amendment to section 14 of Act 53 of 2003 which allows for the Minister to make guidelines and practice notes. To date numerous grey and unclear areas in the Codes have resulted in inconsistent interpretation and application thereof and therefore significant differences in resulting B-BBEE status levels. During the 5 years since the gazetting of the B-BBEE Codes only a few notices have been gazetted to clarify grey areas and omissions in the Codes. We would like to urge the Minister to make use of this amendment and to gazette practice notes in order to curtail “forum shopping” and to ensure consistent understanding and interpretation of the B-BBEE Codes, particularly in “grey areas”. This would go a long way towards ensuring comparative measurement of B-BBEE, curtailing misrepresentation and the use of “loopholes”. In addition, consistent application provides certainty to business and further enables investment in B-BBEE related initiatives and projects. Page 6 of 12

7. Comments Relating to Misinterpretation, Fronting, Penalties and Guidelines B-BBEE Commission – Proactive Approach to Implementation of B-BBEE Codes ABVA welcomes the establishment of the B-BBEE Commission. The Commission’s functions include to investigate any matter or complaint concerning B-BBEE, implement education and information measures, provide guidance to the public, issue non-binding opinions on the interpretation of the Act and to apply to a court for a declaratory order on the interpretation or application of the provisions of the Act. The application of different interpretations concerning “grey areas” in the Act and B-BBEE Codes leads to significantly different B-BBEE Status Levels. Many of these “grey areas” have not been proactively clarified or addressed in the Draft Revised B-BBEE Codes or previously gazetted notices. ABVA calls for the emphasis and effective use of Section 14 of the Act and the regular issuing of binding regulations, guidelines and practice notes in order to proactively address misrepresentation as opposed to reactively address such matters. Page 7 of 12

8. Page 8 of 12 Comments Relating to the Practical Implementation of B-BBEE

9. Comments Relating to the Practical Implementation of B-BBEE B-BBEE Verification Professional Regulator In accordance with Gazetted Notice 754 of 23 September 2011, the Independent Regularity Board of Auditors may authorise certain Registered Auditors issue B-BBEE Certificates. The B-BBEE Bill does not provide for the regulation of such Approved BEE Auditors. We suggest that the B-BBEE legislation be aligned in order to regulate all Verification Professionals (Sanas accredited verification agencies and Approved BEE Auditors) using the same regulatory framework and designations. The transitional framework from one regulator to the next must also be better explained The above would contribute to consistency and credibility with regard to B-BBEE Status verification and would further the aims? of the B-BBEE Codes. Page 9 of 12

10. Comments Relating to the Practical Implementation of B-BBEE Application of B-BBEE Sector Codes in the case of Group Companies Section 10(2) of the Bill requires that an enterprise in a sector for which a Sector Code has been gazetted, may only be measured using such Sector Code. In many cases the B-BBEE scorecard of a group of companies consists of enterprises operating in different sectors. Neither the Bill nor the B-BBEE Codes provides a directive on how to consolidate such different scorecards. ABVA recommends that the Bill specifies how different Codes’ are consolidated. We propose that the specific enterprise(s) in a group, operating in a different sector than the majority of group enterprises (by revenue), be allowed to be measured on the Codes of Good Practice. Page 10 of 12

11. Comments Relating to the Practical Implementation of B-BBEE Specification of qualification criteria for procurement and other economic activities by organs of state and public entities Section 9(6) permits the Minister to, upon request, permit organs of state and public entities to specify qualification criteria for procurement and other economic activities which exceed those set in terms of section 9(1). The above, if not adequately controlled, could lead to disparity in standards, uncertainty for business in terms of the requirements that will be applicable from time to time and diluted impact of B-BBEE; e.g. an enterprises could be strategically aligned to the B-BBEE Codes only to suddenly find out that they are insufficiently prepared for a tender. ABVA recommends that only one set of criteria and standards be maintained as much as possible. The conditions and parameters under which organs of state and public enterprises are permitted to specify additional or other qualification criteria must be clearly spelled out and include a.o. minimum adherence levels to the B-BBEE codes (e.g. clear points system) and sufficient notice to prospective tenderers through public advertisements and / or websites. Page 11 of 12

12. Comments Relating to the Practical Implementation of B-BBEE Definition of “Black people” Section 1 of the Act contains the definition of “Black people”. The definition states that included is a Black person “who became citizens of the Republic of South Africa by naturalisation – ((ii) on or after 27 April 1994 and who would have been entitled to acquire citizenship by naturalisation prior to that date but were precluded from doing so by Apartheid policies”. In accordance with a court order issued on 18 June 2008 regarding case no: 59251/2007, Chinese have been declared as falling within the ambit of “Black people”. ABVA recommends that: - (South African) Chinese be incorporated in the definition of Black people contained in the Draft Revised B-BBEE Codes; - the definition of and method of identifying/evidencing those who “would have been entitled to acquire citizenship by naturalisation prior to that date but were precluded from doing so by apartheid policies”, be clarified and specified. Page 12 of 12