Description
In this such a detailed illustration in relation to black economic empowerment commission report.
Note:
This information is taken from Chapter 6 of the Black Economic Empowerment Commission
Report:
Published by: Skotaville Press 2001
17 Spartan Crescent, Eastgate Ext 3, Woodmead, Johannesburg 2001
E-Mail: [email protected]
Copyright ©: Black Economic Empowerment Commission
All rights reserved.
www.beecom.org.za
BLACK ECONOMIC EMPOWERMENT COMMISSION REPORT
Chapter 6 – Affirmative Procurement
Problem Statement
Systematic and institutionalised racism in South African society continues to restrict black
business access to the public and private sector contracts required to grow black businesses into
a new and dynamic force in the economy.
Government departments (national, provincial and local) and SOEs procure goods and services
worth more than R110bn a year. Government has recognised that these budgets could be
utilised as a powerful mechanism to promote the development of small
and medium businesses and the broader objectives of the RDP.
However, current Government procurement policy and legislation has proved inadequate. Firstly,
it is difficult to estimate what portion goes to small and medium businesses and black
entrepreneurs because of poor, and in many instances, non-existent monitoring and evaluation of
contract awards.
Secondly, there are inconsistent definitional yardsticks against which to monitor performance.
Government departments and SOEs use different definitions of a black company. Thirdly, there
are major institutional weaknesses within tender boards, procurement offices and Government
departments which contribute to abuse of the system and ineffective empowerment outcomes.
Government’s current approach is to create a decentralised system. However, the system is too
reliant on a formula, with little attention paid to providing guidelines or mechanisms aimed at
revamping the system. Institutionalising a formula – as has been
done in the Preferential Procurement Act – will not eradicate obstacles in the way of increasing
black participation in the economy.
Developing black business should involve comprehensive strategies aimed at supporting the
growth of suppliers. It is not simply about procedures and formulas.
Findings
Government’s initiatives in the procurement arena have been one of the drivers behind the
development of black-owned businesses since 1994.95
Government has recognised that its procurement budgets could be utilised as a powerful
mechanism to promote the development of small and medium businesses and the broader
objectives of the RDP.
The Department of Public Works’ Emerging Contractor Development Programme (ECDP) has
been active in defining and implementing plans specific to procuring services from black
entrepreneurs.
Via Ntsika Enterprise Promotion Agency, 18 tender advice centres (TACs) have been opened. In
1999, these TACs facilitated business linkages worth R130m between Government and 300
black suppliers. Most of these suppliers were contracted as part of the Public Works ECDP.
At an institutional level the Government created new Tender Boards and redefined inherited
tender boards. Government’s current approach is to create a decentralised system. However, the
system is too reliant on a formula, with little attention paid to providing guidelines or mechanisms
aimed at revamping the system.96
Despite the above, Government procurement initiatives have encountered a number of
difficulties:
• Firstly, it is difficult to estimate what portion goes to small and medium businesses and black
entrepreneurs because of poor, and in many instances, non-existent monitoring and evaluation of
contract awards.
• Government only tracks procurement by the State Tender Board and Provincial Tender Boards.
Most departments enter into their own contracts, which are not monitored. The State Tender
Board handled only R8bn of the Government procurement in 1999.
• At local government level no estimates are available and few have mechanisms in place to
effectively monitor procurement spend. The possibilities at local level to promote black SMEs are
vast. Total expenditure at local Government level for 1999/2000 is estimated at R44bn, with 60-
70% of expenditure possibly related to procurement. (A large portion of this is infrastructure).
• Although SOEs are now able to report on procurement spend relating to black companies,
numerous definitions are used, making assessment difficult.
• Government departments, again, use different definitions of BEE, resulting in extreme difficulty
in evaluating figures.
• There are major institutional weaknesses within tender boards, procurement offices and
Government departments along with a chronic lack of the appropriate skills required to procure
effectively. There are currently few courses that offer training in procurement, contract
management and supplier development. This has allowed for inefficiencies and abuse of the
system, including fronting. There is widespread evidence of continued racism among tender
board, Government department and SOE purchasing officials.97
• There is a weak approach to contract and supplier management, resulting in inappropriate
evaluation at all stages of the contract cycle. This can result in cost escalations and abuse,
including fronting, and restrict the development of all suppliers, especially black companies.
• Partly as a consequence of poor contract management, the procurement process is still
unfriendly towards SMEs. For example, many black businesses have experienced severe
financial difficulties while waiting for payment.
The Preferential Procurement Framework Act (PPFA) is inadequate as an instrument to
achieve Government objectives in the procurement arena for the following reasons:
• Although the regulations make the Act applicable to state organs the legislation is not
mandatory.
• It places excessive reliance on a formula that should be part of the regulations and not the
substance of the legislation. Institutionalising a formula – as has been done with the Preferential
Procurement Act – will not eradicate obstacles in the way of increasing black participation in the
economy.
• The Act elevates price above all other factors, with the result that tender adjudications are
essentially revenue-based, preventing a more comprehensive analysis of competing suppliers.
• The Draft Regulations published by the former Department of State Expenditure do not give any
guidance against which to evaluate the complexities involved in the deracialisation of ownership.
These include complex funding structures and control arrangements that are used to disguise
fronting.
• The penalties stipulated are not onerous enough to prevent the deliberate manipulation of the
Regulations.
Recommendations
6.1 The BEECom recommends that there should be an overhaul of the entire public sector
procurement system with a view towards ensuring that procurement meets the objectives
of the RDP. To this end a National Procurement Agency (NPA) should be established
within the Department of Trade and Industry. The NPA must ensure the transformation of
the procurement system into one rooted in effective supplier development and contract
management.
• The NPA must set policy guidelines and targets for all Government departments, national,
provincial and local, and SOEs. It should monitor performance against the set targets and build
capacity within Government.
• The Preferential Procurement Framework Act ("PPFA"), should be substantially amended to
bring it inline with the Integrated National BEE Strategy. It is further proposed the PPFAbe
amended to allow for the establishment of the NPA.
• Government departments could still use centralised purchasing agencies to reap the benefits of
bulk buying and to ensure uniformity in systems. Centralised agencies could be constituted at
provincial and local level as is currently being piloted in Gauteng. An example would be the State
IT Agency (SITA). The SITA is mandated to integrate all Government IT services and to act as a
procurement agent for such services.
• Procurement targets and set-asides for black companies and SMEs for all Government organs
and SOEs should be designed. There are various options which could be pursued, including
setting aside a minimum percentage of contracts for black companies to perform. Another route is
to set aside certain contracts in their totality only for black groupings.
• Special attention needs to be paid to local Government structures given the high level of
procurement spend. Uniform guidelines and systems need to be set.
• A system of contract cessions needs to be designed to enable entrepreneurs to fund initial
contract activities through provision of contract guarantees.
6.2 An Accreditation Unit should be established as a joint venture between the public and
private sectors, with a mission to stimulate private sector procurement from black
suppliers and to broaden ownership structures.
• The Unit should be incorporated into the NPA and it should establish a national database of
black suppliers.
• The Unit should encourage the private sector to procure from black companies by providing an
accreditation of these companies. The Unit should also provide an appraisal of the capacity of
black suppliers. This appraisal could guide Government support to SMEs.
• The unit could also provide an empowerment accreditation for any company that submits an
empowerment report to it. Incentives for submitting reports to the Unit could include Presidential
awards for outstanding performers, recognition of rating in adjudication procedures undertaken by
State and SOE tenders and licenses, publication of results in an accreditation register and
positive sentiments from clients and consumers.
6.3 Current initiatives to reform public sector procurement need to take into consideration
the following:
• The ongoing process of decentralising the tender function to departmental levels needs to be
appraised in terms of its ability to meet national objectives. Tender Boards should be transformed
to include an increasing amount of procurement officials. A comprehensive evaluation should be
undertaken to ensure readiness to dissolve Tender Boards and to determine time frames to do
so.
• The implementation of a central monitoring system which enables ongoing evaluation of
procurement spend to ensure it meets national objectives, including BEE.
• Uniform adjudication criteria, guidelines and targets should be set at a national level to be
applied by all Government institutions.
• The review and complaints capability must be enhanced. The feasibility of establishing review
panels and incorporating constituency representatives in the panels could then be investigated.
These panels could act as a final review of the tender process in the event of complaints.
• There is an urgent need to overhaul and implement a turnaround strategy for procurement
offices/agencies through a comprehensive skills audit, training programmes and an institutional
capacity building strategy. Training for procurement officials needs to be fast tracked to enable
them to procure in a manner which furthers all Government
objectives.
• Tender Advice Centres for potential suppliers should be improved.
• The private sector should be able to access all these services at a fee in the interest of
promoting private sector support for affirmative procurement policies.
• A National Procurement Framework must incorporate a definition of BEE and of a black
company; it must be applicable to all Government organs and SOEs. A new system of
preferences for qualifying companies should be increased to a maximum of 20%.
6.4. Government and the South African Management Development Institute (Samdi) should
investigate the possibility of drafting a skills plan, that will facilitate the upskilling of
existing staff and training of new staff as part of an HRD
Strategy for Procurement. This can be carried out via the NPA.
• The programme must consider and adjust existing training programmes in the National
Treasury. The training should include the evaluation of funding and ownership structures (for
example the difference between ownership and control) to prevent fronting and the development
of a comprehensive understanding of empowerment indicators.
• Government must help design an HRD Strategy for the sector to meet the requirements of a
revamped procurement system.
• The HRD Strategy will include estimates of personnel needs after conducting a skills audit of
existing capacity.
• Training could be done in partnership with the private sector (for example an IT company that
specialises in supply chain management) and an existing educational institution.
• Training costs could be recouped through developing private sector skills.
6.5 Given the numerous structures and mechanisms used to facilitate black entry into the
economy, the BEECom is presenting the following analysis and a definition to assist in the
creation of uniformity in the tender system.
6.5.1 In this regard, the first question is whether priority should be given to control or ownership.
• Control is not directly related to ownership. Control has strategic importance because it can
contribute to the deracialisation of the political economy. However, control in itself cannot be the
most important indicator since it is only useful insofar as it can be used to achieve BEE
objectives, including the deracialisation of business ownership.
• There is, therefore, an emerging consensus that ownership (as measured by economic
interest), rather than control, is the key indicator to evaluate success in deracialising business
ownership. It is an unambiguous indicator and refers to a situation where the BEE company has
paid for its full portion of an equity stake.
• The evaluation of a funding mechanism should focus on how long it will take to achieve this
objective and the manner in which this will be attained. This is because most black companies do
not meet this stringent (economic interest) criterion because they do not have the funding
required. There are numerous funding structures achieve this (economic interest) objective to
varying degrees.
• They do not require third party (e.g. bank or financial institution) funding. The BEE company that
does not have to give away the bulk of the financial benefits to a third party funder. The full
economic interest will eventually accrue to the BEE company. These models can, ideally, be
combined with voting pool arrangements to ensure that the BEE company has a meaningful
influence, which is at least commensurate with the equity stake.
• For these reasons, in such cases the BEE company should be regarded as having an economic
interest. Where an option model has to be combined with third party funding – for example, in
licensing and concessions where new projects have to be financed – the same could apply and
the criterion should, again, be how fast the equity (and voting interest) will translate into economic
interest.
• Other models – for example, N-shares, pyramids and special purpose vehicles (SPVs) – do not
have built-in mechanisms to match the voting interest with full economic interest. Such
arrangements can, however, enhance black influence and control in strategic sectors of the
economy and do not deserve outright condemnation.
• Black influence in the form of board positions and minority equity stakes remain an important
instrument towards achieving the objectives of BEE. This suggests that SPVs should continue to
play a role in the BEE funding arena because, as stated before, board positions and minority
stakes can contribute towards the deracialisation of the
political economy.
• Furthermore, the financing instruments used should reflect attempts to achieve the kind of
optimal capital structure that is commensurate with empowerment objectives, i.e. reasonable term
structure of the loans at affordable interest rates. This is important not only as a way of lowering
uncompetitive and historically generated barriers to entry but
more significantly to ensure sustainability of the black business projects.
6.5.2 Given the imperative of attaining economic interest, the BEECom is proposing the following
definition to be applied by the public and private sector in initiatives aimed at deracialisation of
ownership. The BEECom submits the following proposal - to be used when awarding price
preferences - for further discussion.
• A "black company" is one that is 50,1% owned and managed by black people. Ownership refers
to economic interest. Management refers to executive directors. A black company should receive
an "A " rating for Accreditation purposes, allowing it to qualify for set-asides and a 15% price
preference.
• A "black empowered company" is one that is at least 25,1% owned and managed by black
people. Ownership refers to economic interest. Management refers to executive directors. This is
whether the black company has control or not. Such a company should receive a "B" rating for
accreditation purposes, allowing it to qualify for set-asides and
a 10% price preference.
• A black influenced company is one 5-25% owned and managed by black people. Such a
company should receive a "C" rating for accreditation purposes and a 5% price preference. Such
a company would not qualify for set-asides.
• An "engendered company" is one with at least 30% representation of black women within the
black equity and management portion. Companies in any of the above three categories, with at
least 30% representation, will receive another 5% price preference. Therefore an "engendered
black company" will get a 20% price preference. An "engendered empowered company" will get
15% etc.
• To qualify for any of the above preferences and ratings, companies must submit a number of
regulatory documents and policies such as SARS returns, Employment Equity Plans and Proof of
adherence to bargaining Council Agreements.
doc_845748884.pdf
In this such a detailed illustration in relation to black economic empowerment commission report.
Note:
This information is taken from Chapter 6 of the Black Economic Empowerment Commission
Report:
Published by: Skotaville Press 2001
17 Spartan Crescent, Eastgate Ext 3, Woodmead, Johannesburg 2001
E-Mail: [email protected]
Copyright ©: Black Economic Empowerment Commission
All rights reserved.
www.beecom.org.za
BLACK ECONOMIC EMPOWERMENT COMMISSION REPORT
Chapter 6 – Affirmative Procurement
Problem Statement
Systematic and institutionalised racism in South African society continues to restrict black
business access to the public and private sector contracts required to grow black businesses into
a new and dynamic force in the economy.
Government departments (national, provincial and local) and SOEs procure goods and services
worth more than R110bn a year. Government has recognised that these budgets could be
utilised as a powerful mechanism to promote the development of small
and medium businesses and the broader objectives of the RDP.
However, current Government procurement policy and legislation has proved inadequate. Firstly,
it is difficult to estimate what portion goes to small and medium businesses and black
entrepreneurs because of poor, and in many instances, non-existent monitoring and evaluation of
contract awards.
Secondly, there are inconsistent definitional yardsticks against which to monitor performance.
Government departments and SOEs use different definitions of a black company. Thirdly, there
are major institutional weaknesses within tender boards, procurement offices and Government
departments which contribute to abuse of the system and ineffective empowerment outcomes.
Government’s current approach is to create a decentralised system. However, the system is too
reliant on a formula, with little attention paid to providing guidelines or mechanisms aimed at
revamping the system. Institutionalising a formula – as has been
done in the Preferential Procurement Act – will not eradicate obstacles in the way of increasing
black participation in the economy.
Developing black business should involve comprehensive strategies aimed at supporting the
growth of suppliers. It is not simply about procedures and formulas.
Findings
Government’s initiatives in the procurement arena have been one of the drivers behind the
development of black-owned businesses since 1994.95
Government has recognised that its procurement budgets could be utilised as a powerful
mechanism to promote the development of small and medium businesses and the broader
objectives of the RDP.
The Department of Public Works’ Emerging Contractor Development Programme (ECDP) has
been active in defining and implementing plans specific to procuring services from black
entrepreneurs.
Via Ntsika Enterprise Promotion Agency, 18 tender advice centres (TACs) have been opened. In
1999, these TACs facilitated business linkages worth R130m between Government and 300
black suppliers. Most of these suppliers were contracted as part of the Public Works ECDP.
At an institutional level the Government created new Tender Boards and redefined inherited
tender boards. Government’s current approach is to create a decentralised system. However, the
system is too reliant on a formula, with little attention paid to providing guidelines or mechanisms
aimed at revamping the system.96
Despite the above, Government procurement initiatives have encountered a number of
difficulties:
• Firstly, it is difficult to estimate what portion goes to small and medium businesses and black
entrepreneurs because of poor, and in many instances, non-existent monitoring and evaluation of
contract awards.
• Government only tracks procurement by the State Tender Board and Provincial Tender Boards.
Most departments enter into their own contracts, which are not monitored. The State Tender
Board handled only R8bn of the Government procurement in 1999.
• At local government level no estimates are available and few have mechanisms in place to
effectively monitor procurement spend. The possibilities at local level to promote black SMEs are
vast. Total expenditure at local Government level for 1999/2000 is estimated at R44bn, with 60-
70% of expenditure possibly related to procurement. (A large portion of this is infrastructure).
• Although SOEs are now able to report on procurement spend relating to black companies,
numerous definitions are used, making assessment difficult.
• Government departments, again, use different definitions of BEE, resulting in extreme difficulty
in evaluating figures.
• There are major institutional weaknesses within tender boards, procurement offices and
Government departments along with a chronic lack of the appropriate skills required to procure
effectively. There are currently few courses that offer training in procurement, contract
management and supplier development. This has allowed for inefficiencies and abuse of the
system, including fronting. There is widespread evidence of continued racism among tender
board, Government department and SOE purchasing officials.97
• There is a weak approach to contract and supplier management, resulting in inappropriate
evaluation at all stages of the contract cycle. This can result in cost escalations and abuse,
including fronting, and restrict the development of all suppliers, especially black companies.
• Partly as a consequence of poor contract management, the procurement process is still
unfriendly towards SMEs. For example, many black businesses have experienced severe
financial difficulties while waiting for payment.
The Preferential Procurement Framework Act (PPFA) is inadequate as an instrument to
achieve Government objectives in the procurement arena for the following reasons:
• Although the regulations make the Act applicable to state organs the legislation is not
mandatory.
• It places excessive reliance on a formula that should be part of the regulations and not the
substance of the legislation. Institutionalising a formula – as has been done with the Preferential
Procurement Act – will not eradicate obstacles in the way of increasing black participation in the
economy.
• The Act elevates price above all other factors, with the result that tender adjudications are
essentially revenue-based, preventing a more comprehensive analysis of competing suppliers.
• The Draft Regulations published by the former Department of State Expenditure do not give any
guidance against which to evaluate the complexities involved in the deracialisation of ownership.
These include complex funding structures and control arrangements that are used to disguise
fronting.
• The penalties stipulated are not onerous enough to prevent the deliberate manipulation of the
Regulations.
Recommendations
6.1 The BEECom recommends that there should be an overhaul of the entire public sector
procurement system with a view towards ensuring that procurement meets the objectives
of the RDP. To this end a National Procurement Agency (NPA) should be established
within the Department of Trade and Industry. The NPA must ensure the transformation of
the procurement system into one rooted in effective supplier development and contract
management.
• The NPA must set policy guidelines and targets for all Government departments, national,
provincial and local, and SOEs. It should monitor performance against the set targets and build
capacity within Government.
• The Preferential Procurement Framework Act ("PPFA"), should be substantially amended to
bring it inline with the Integrated National BEE Strategy. It is further proposed the PPFAbe
amended to allow for the establishment of the NPA.
• Government departments could still use centralised purchasing agencies to reap the benefits of
bulk buying and to ensure uniformity in systems. Centralised agencies could be constituted at
provincial and local level as is currently being piloted in Gauteng. An example would be the State
IT Agency (SITA). The SITA is mandated to integrate all Government IT services and to act as a
procurement agent for such services.
• Procurement targets and set-asides for black companies and SMEs for all Government organs
and SOEs should be designed. There are various options which could be pursued, including
setting aside a minimum percentage of contracts for black companies to perform. Another route is
to set aside certain contracts in their totality only for black groupings.
• Special attention needs to be paid to local Government structures given the high level of
procurement spend. Uniform guidelines and systems need to be set.
• A system of contract cessions needs to be designed to enable entrepreneurs to fund initial
contract activities through provision of contract guarantees.
6.2 An Accreditation Unit should be established as a joint venture between the public and
private sectors, with a mission to stimulate private sector procurement from black
suppliers and to broaden ownership structures.
• The Unit should be incorporated into the NPA and it should establish a national database of
black suppliers.
• The Unit should encourage the private sector to procure from black companies by providing an
accreditation of these companies. The Unit should also provide an appraisal of the capacity of
black suppliers. This appraisal could guide Government support to SMEs.
• The unit could also provide an empowerment accreditation for any company that submits an
empowerment report to it. Incentives for submitting reports to the Unit could include Presidential
awards for outstanding performers, recognition of rating in adjudication procedures undertaken by
State and SOE tenders and licenses, publication of results in an accreditation register and
positive sentiments from clients and consumers.
6.3 Current initiatives to reform public sector procurement need to take into consideration
the following:
• The ongoing process of decentralising the tender function to departmental levels needs to be
appraised in terms of its ability to meet national objectives. Tender Boards should be transformed
to include an increasing amount of procurement officials. A comprehensive evaluation should be
undertaken to ensure readiness to dissolve Tender Boards and to determine time frames to do
so.
• The implementation of a central monitoring system which enables ongoing evaluation of
procurement spend to ensure it meets national objectives, including BEE.
• Uniform adjudication criteria, guidelines and targets should be set at a national level to be
applied by all Government institutions.
• The review and complaints capability must be enhanced. The feasibility of establishing review
panels and incorporating constituency representatives in the panels could then be investigated.
These panels could act as a final review of the tender process in the event of complaints.
• There is an urgent need to overhaul and implement a turnaround strategy for procurement
offices/agencies through a comprehensive skills audit, training programmes and an institutional
capacity building strategy. Training for procurement officials needs to be fast tracked to enable
them to procure in a manner which furthers all Government
objectives.
• Tender Advice Centres for potential suppliers should be improved.
• The private sector should be able to access all these services at a fee in the interest of
promoting private sector support for affirmative procurement policies.
• A National Procurement Framework must incorporate a definition of BEE and of a black
company; it must be applicable to all Government organs and SOEs. A new system of
preferences for qualifying companies should be increased to a maximum of 20%.
6.4. Government and the South African Management Development Institute (Samdi) should
investigate the possibility of drafting a skills plan, that will facilitate the upskilling of
existing staff and training of new staff as part of an HRD
Strategy for Procurement. This can be carried out via the NPA.
• The programme must consider and adjust existing training programmes in the National
Treasury. The training should include the evaluation of funding and ownership structures (for
example the difference between ownership and control) to prevent fronting and the development
of a comprehensive understanding of empowerment indicators.
• Government must help design an HRD Strategy for the sector to meet the requirements of a
revamped procurement system.
• The HRD Strategy will include estimates of personnel needs after conducting a skills audit of
existing capacity.
• Training could be done in partnership with the private sector (for example an IT company that
specialises in supply chain management) and an existing educational institution.
• Training costs could be recouped through developing private sector skills.
6.5 Given the numerous structures and mechanisms used to facilitate black entry into the
economy, the BEECom is presenting the following analysis and a definition to assist in the
creation of uniformity in the tender system.
6.5.1 In this regard, the first question is whether priority should be given to control or ownership.
• Control is not directly related to ownership. Control has strategic importance because it can
contribute to the deracialisation of the political economy. However, control in itself cannot be the
most important indicator since it is only useful insofar as it can be used to achieve BEE
objectives, including the deracialisation of business ownership.
• There is, therefore, an emerging consensus that ownership (as measured by economic
interest), rather than control, is the key indicator to evaluate success in deracialising business
ownership. It is an unambiguous indicator and refers to a situation where the BEE company has
paid for its full portion of an equity stake.
• The evaluation of a funding mechanism should focus on how long it will take to achieve this
objective and the manner in which this will be attained. This is because most black companies do
not meet this stringent (economic interest) criterion because they do not have the funding
required. There are numerous funding structures achieve this (economic interest) objective to
varying degrees.
• They do not require third party (e.g. bank or financial institution) funding. The BEE company that
does not have to give away the bulk of the financial benefits to a third party funder. The full
economic interest will eventually accrue to the BEE company. These models can, ideally, be
combined with voting pool arrangements to ensure that the BEE company has a meaningful
influence, which is at least commensurate with the equity stake.
• For these reasons, in such cases the BEE company should be regarded as having an economic
interest. Where an option model has to be combined with third party funding – for example, in
licensing and concessions where new projects have to be financed – the same could apply and
the criterion should, again, be how fast the equity (and voting interest) will translate into economic
interest.
• Other models – for example, N-shares, pyramids and special purpose vehicles (SPVs) – do not
have built-in mechanisms to match the voting interest with full economic interest. Such
arrangements can, however, enhance black influence and control in strategic sectors of the
economy and do not deserve outright condemnation.
• Black influence in the form of board positions and minority equity stakes remain an important
instrument towards achieving the objectives of BEE. This suggests that SPVs should continue to
play a role in the BEE funding arena because, as stated before, board positions and minority
stakes can contribute towards the deracialisation of the
political economy.
• Furthermore, the financing instruments used should reflect attempts to achieve the kind of
optimal capital structure that is commensurate with empowerment objectives, i.e. reasonable term
structure of the loans at affordable interest rates. This is important not only as a way of lowering
uncompetitive and historically generated barriers to entry but
more significantly to ensure sustainability of the black business projects.
6.5.2 Given the imperative of attaining economic interest, the BEECom is proposing the following
definition to be applied by the public and private sector in initiatives aimed at deracialisation of
ownership. The BEECom submits the following proposal - to be used when awarding price
preferences - for further discussion.
• A "black company" is one that is 50,1% owned and managed by black people. Ownership refers
to economic interest. Management refers to executive directors. A black company should receive
an "A " rating for Accreditation purposes, allowing it to qualify for set-asides and a 15% price
preference.
• A "black empowered company" is one that is at least 25,1% owned and managed by black
people. Ownership refers to economic interest. Management refers to executive directors. This is
whether the black company has control or not. Such a company should receive a "B" rating for
accreditation purposes, allowing it to qualify for set-asides and
a 10% price preference.
• A black influenced company is one 5-25% owned and managed by black people. Such a
company should receive a "C" rating for accreditation purposes and a 5% price preference. Such
a company would not qualify for set-asides.
• An "engendered company" is one with at least 30% representation of black women within the
black equity and management portion. Companies in any of the above three categories, with at
least 30% representation, will receive another 5% price preference. Therefore an "engendered
black company" will get a 20% price preference. An "engendered empowered company" will get
15% etc.
• To qualify for any of the above preferences and ratings, companies must submit a number of
regulatory documents and policies such as SARS returns, Employment Equity Plans and Proof of
adherence to bargaining Council Agreements.
doc_845748884.pdf