BEE: Proposed changes increase emphasis on enterprise development and procurement

In July, the South African government will be tabling language aimed at altering the focus of BBEEE legislation to place more emphasis on enterprise development and procurement. For years, BEE supporters and detractors alike have claimed that the codes create a small class of passive black share holders that reap huge fortunes from their connections but generate precious little economic activity for black businesses or black communities.

Sometimes BEE investors feel duped - realizing only after they have signed that the fine print of their contract relegates them to the periphery.

The proposed changes would address fronting and expand the benefits of BEE by reforming several aspects of the Codes:

1)Currently, most major corporations maintain high BEE scorecards by selling an equity stake. This has, inadvertently, allowed fronting to pay, and created a group of well connected BEE-elites. One of the changes under discussion would set minimum scores in terms of enterprise development and affirmative procurement—companies that performed poorly in these categories would lose points overall.

2)Fronting has become more complex and unfortunately more common. The new proposals will almost certainly contain mechanisms for evaluating claims of fronting and punishing offenders. Here is president Zuma discussing the issue.

3)In terms of enterprise development, companies will likely be required to play a more active role in developing suppliers and small businesses (especially rural businesses). Signing a check to an accelerator program does little to help small businesses compete unless the larger corporation is willing to provide real mentorship and open up procurement opportunities.

In Minister Davies' recent budget speech he noted that while South Africa has between 30-40 small business incubators, Brazil had 4000. Commentators on the SAIBL Business Forum have also highly praised certain incubation projects.

These new changes have supporters and detractors.

Companies like Microsoft, Netcare and others have already bought into the spirit of these changes by driving enterprise development—last month SAIBL discussed Microsoft’s R 475 million investments in four Black owned software companies. The board members of the South African Supplier Diversity Council (SASDC) also understand the value of driving enterprise development through the procurement process.

Other corporate voices are grumbling that forcing companies to spend valuable time and resources on someone else’s business is inconsistent with delivering maximum value to shareholders.

We believe that halfheartedly engaging in enterprise development is indeed a poor business expense; however, making enterprise development part of the core business strategy will, eventually, diversify sources of supply and make supply chains more competitive.

The SASDC is one mechanism that will help companies reap the benefits of affirmative procurement.

The Corporate Council on Africa will be hosting a meeting in late May introducing the SASDC to US Corporations interested in South Africa. Please email cgodfrey@africacncl.org if you would like more information. Read more...

Local Crafters in SA Impress US Buyers

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Saibl hosted two US craft buyers in the past week - Nicole Hagerman-Miller, Project Manager for the Montana World Trade Centre and Angela Ramirez, Director of Worldstock, a division of Overstock.com. The aim of the visit was to consult with local crafters and provide advice on market trends and opportunities in the US, product development and design, the establishment of distribution channels, price negotiating (leveraging financing and terms to benefit buyer/seller), as well as marketing and promotion.

(Picture: from left to right: Angela Ramirez - Overstock.com Merchandising Manager, Bongi Mbili - SAIBL Trade Team, Vuyisile Mshudulu- CCDI, Nicole Hagerman-Mille r- Consultant and Buyer, Haben Berhe - SAIBL Washington office.)

The programme included visits to saibl clients’ premises and meetings with small groups of crafters who displayed their own products. The activities of the week culminated in a workshop in Cape Town attended by fifteen crafters and organized in conjunction with the Cape Craft and Design Institute (CCDI), a member organization responsible for the development and promotion of the craft sector in the Western Cape.

The buyers were impressed by the variety of high quality products made by South African crafters and bought some samples with the promise of placing bigger orders in future. saibl clients Imiso Ceramics, Ilulwane Craft / Zenzulu, Artists of Africa, Homepower / Kunye, and Le2 Designs were some of the companies that stood out as having suitable products for the US market.
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National Skills Development Strategy III: What does South Africa Need?

Nearly two and a half million young South Africans are currently out of work and not in school. That is both a social and economic brake on South Africa’s development.

Some skills shortages are worse than others of course — read this SABC article on primary school teachers struggling with basic literacy.

In an effort to remedy this, Higher Education and Training Minister Blade Nzimande unveiled the third National Skills and Development Strategy (NSDS III) earlier this year. It looks like a lot of the same, but with a few notable improvements.

This new strategy makes substantive changes in the way Sector Education and Training Authorities (SETAs) are monitored and evaluated, (to rebuff critiques that many SETAs were fly-by-night operations for quite some time) and also attempts to align skills development more closely with economic and employment needs. Currently, the majority of skills development for South African youth is undertaken at the university level. This neither reaches a sufficient number or people, nor seeds the South African economy with the right types of skills.

What are the right types of skills? Minister Nzimande is glad you asked. The NSDS III makes a provision for research that analyzes the market demand for skills. In Dr. Nzimande’s press release, he notes that — “There is currently no institutional mechanism that provides credible information and analysis with regard to the supply and demand for skills”.

That might be true — but there is a lot of educated guess work, and the numbers are staggering.

For example; the South African economy supposedly needs approximately 22,000 chartered accountants, and 13,000 engineers. However, the statistics for high end jobs such as engineers and accountants can be misleading.

As noted by the New Age, for each engineer or accountant, you need three support staff. And then you need many skilled artisans to actually erect the projects once the engineers and accountants have argued over the specs. Thus the skills shortage is far greater at the middle and lower rungs than at the top of the South African economy. Anecdotally, students at South Africa’s technical colleges are often convinced to leave before graduating because employers offer high salaries for immediate openings.

Addressing this imbalance will require far greater coordination among SETAs, Further Education and Training Centers (FETs), employers, and private skills development organizations.

Currently, Dr. Nzimande is under fire for allegedly over stepping his authority by unilaterally appointing 21 SETA chairpersons. Hopefully the spotlight will focus attention on the urgent need to implement the NSDS III effectively, and get on with the crucial work of optimizing the South African workforce to drive job creation. Read more...

Entrepreneurship in South Africa

This past weekend SAIBL attended the Shiftseries Summit on Social Entrepreneurship in Washington, D.C. I have always been intrigued by entrepreneurship in South Africa —as we have noted in several posts, South Africa consistently ranks abysmally in Global surveys of entrepreneurial activity. Download the 2010 report here.

We have posited that the incentives in SA do not encourage entrepreneurship—it pays for the majority of the population to throw their energies into studying hard for high-pay high-prestige professions. In South Africa, if you are a qualified black engineer, or lawyer, why take a risk on starting your own business when you are in such high demand? That all makes sense—but then again—so does South Africa’s stubbornly high unemployment. There simply is not enough job creation at the bottom of the pyramid.

Over the next couple posts we are going to offer some of the tips and inspirations SAIBL picked-up this weekend for would be entrepreneurs—we are going to talk about SEO tips for new businesses, creativity, international business plans, and what Teju Ravilochan calls “being unreasonable”.

Today I want to start with some thoughts on Jim Cliffton’s remarks to the conference. Mr. Cliffton is the CEO of Gallup, a polling organization of international renown.

He began the conference discussing the U.S., but he might very well have been talking about South Africa. Mr. Clifton opened by asking what the audience thought Americans wanted more than anything else? People yelled out “security”, “family”, “time”, and many other guesses, to all of which Mr. Clifton said no.

He said the overwhelming majority of Americans put “a meaningful job” at the top of their priority list.

He then went on to exhort all young Americans to create enterprises that make as much money as possible and create as many jobs as possible, because according to polls, all other priorities are less important.

He noted that this is far harder than working for NGOs or working for the government or pursuing some other high prestige cause.

This is a hard message to swallow, but that does not mean it is far off. For Americans or South Africans.

Being an entrepreneur is fraught with risk, but job creation depends on it. I wonder what it would take for South Africa to see a wave of entrepreneurship sufficient to take a bit out of unemployment. What would happen if the government phased out aspects of the social safety net while phasing in tax and other incentives for entrepreneurs? Right now 77% pf South African's claim that entrepreneurship is a "good career choice", but only 16% have any intention of starting a business. Something has to change. Read more...

Supplier Diversity: Microsoft makes the BEE deal happen

Microsoft SA announced that it would invest 475 million rand in four black owned software companies in order to meet empowerment goals and requirements. The selections were made out of an applicant pool of around 650 companies.

I think this type of non-ownership BEE deal should be more commonplace. Investing in qualified black owned companies increases the size of the pie as opposed to chopping it up.

Kethan Parbhoo at Microsoft SA claims that Microsoft “will be providing the companies with support in the areas of infrastructure and human resources, as well as assisting the companies in recruiting and retaining additional skilled staff".

In theory, this deal will upgrade Microsoft’s BEE rating to level 2, giving them access to more lucrative government tenders as well as improving the BEE status of their partners and customers.

Find informative articles on the deal in the Mail & Guardian and Reuters.
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Entrepreneurship: Resources for Entrepreneurs

There are too many resources for entrepreneurs on the web, and a lot of them are not worth your time. I’ve chosen 5 sites below that give you access to all sorts of critical information, or they link you to sites that can.

Resources for Entrepreneurs:

Entrepreneur Magazine: U.S. based magazine for Entrepreneurs. Articles, how-to, case studies, and advice.
Inc Magazine: U.S. magazine targeted at small business owners and entrepreneurs.
Entrepreneur's Handbook: Tons of resources for first time entrepreneurs; legal, marketing, financial, everything…
Ideate: SA focused website for entrepreneurs
International Entrepreneurship--SA: Another website aggregating tons of resources for South African Entrepreneurs

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Companies Amendment Bill Almost There

It seems as though progress has finally been made on a recent amendment to the 2008 Companies Act. For nearly two years the implementation of the act has been delayed in anticipation of a raft of changes. The amendment was taken up by a portfolio committee of the National Assembly on Thursday, March 11th.

The original Companies Act of 2008 would have modernized the previous Act passed in 1978, by increasing… “[simplicity], flexibility, corporate efficiency, transparency and predictability. Everything from accounting standards, to corporate governance norms, to notions of corporate social responsibility have changed since 1978.

The text of the original 2008 bill dealt very specifically with corporate governance, including director’s financial liability in the event of wrongdoing, the ‘future of closed corporations’, and the treatment of ‘financially distressed companies.’

The new language speaks specifically to protecting and enhancing the role of BEE minority shareholders, early action/turnaround for companies experiencing financial distress, drastically reducing the bureaucracy involved n registering a business, and improved legal supervision and enforcement to prevent corporate hijacking.

In theory, Minister Rob Davies would like to kick off the Companies Act (w/amendment) by April 1st , 2011. Members of the opposition have voiced numerous concerns including a rushed parliamentary process, the inability of existing mechanisms to enforce the provisions of the Companies Act by April 1, weak language concerning the ability of past criminals to serve as company directors, the legality of rules surrounding corporate social and ethnics committees, and a number of technical issues such as how and when firms can act when insolvent.

Democratic Alliance spokesman Tim Harris has asked for an additional six months to discuss the amendment.

Watch this space for more updates. Read more...

Specialty Food: Around the World in 80 sips - D.C., March 18th

Coming up March 18th Bottlenotes is hosting a high-end wine tasting in Washington, D.C. featuring 80 wines from around the world, including Koopmanskloof's One World Pinotage!

Bottlenotes is an online wine community based in San Francisco with a large national following. They are also the originators of the Daily Sip, a daily email offering thoughts on the wine industry, recommendations on varietals or wine growing regions, or behind-the-scenes insight on wine makers and critics.

Here is a link to today's daily sip.

As some of you may know, the SAIBL program has worked with Koopmanskloof Winery for many years.

Koopmanskloof is situated in the Bottelary Hills in Stellenbosch, and exports to the United States under the One World Wines Label carried by Heritage Link Brands. Heritage Link Brands is available in almost all 50 U.S. states, and currently carries the One World Chenin blanc 2010, One World Shiraz 2008, and One World Pinotgae 2009.

We interviewed Rydal Jefhta, part owner of Koopmanskloof Winery, on a hand-held camera last year at the Fancy Food Show. He is an engaging owner with a real vision for Koopmanskloof.

So, if you are interested in International Wines, as a consumer or an industry professional, this event is the place to be on Friday, March 18th.

6:30-7:30p.m. VIP/Press Hour
7:30-9:30p.m. General Admission
cost: 75$

Follow Bottlenotes on twitter for event updates!

If you want more information on Koopmanskloof, check out their section of our online catalogue.
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Food and Wine: Why we should hail Walmart's arrival

Carol O'Brien, executive director of the American Chamber of Commerce of South Africa, writes an interesting article in Times Live on Walmart's proposed acquisition of 51 percent control of Massmart and the implications for the South African market.

... Three years ago, Amcham estimated US investment in this country at $200-billion. There are indications that the figure may have at least doubled.

Certainly, we know that bilateral trade has been worth as much as $16-billion annually - excluding US trade, via South Africa, with countries north of our borders.

And several significant announcements have been made recently: General Motors putting R1-billion into new manufacturing capacity in this country; Procter & Gamble announcing a R350-million nappy plant; and Amazon creating hundreds of call-centre jobs in the Western Cape.

But nothing the US Chamber of Commerce does compares with the impact that Walmart's $2.3-billion offer for Massmart will have.

Read the article
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SME: What does the new SA budget do for SMEs?

Politicians in South Africa, and in the U.S. for that matter, love to talk about the importance of SMEs to the health of the overall economy, but the recent budget announced by Finance Minister Pravin Gordhan offers a number of real, actionable line items that South African SMEs should be excited about.

The highlights for SMEs essentially break down into interventions targeted directly at SMEs, and interventions that support SMEs by improving the business environment.

Direct interventions: (As reported by BuaNews)

1. R600 million for enterprise investment incentives
2. R250 million to the Industrial Development Corporation to support agro-processing businesses
3. R120 million for the national tooling initiative,
4. R282 million for the Micro-finance Apex Fund, and
5. R55 million to develop new strategies for small business lending through Khula Enterprises

Indirect Interventions: (Source)

1. Building transport infrastructure: the Finance Minister announced that the SA government will spend R66 Billion in 2012 and R80 Billion in 2013/14 on improving transportation.
2. Fighting Crime: Small business bears the brunt of crime in South Africa. R2 Billlion has been allocated to increase the number of police on patrol, and an additional several billion rand will go toward policing and judicial infrastructure.
3. Small Businesses suffer from a lack of middle management skills and expertise. Minister Gordhan hopes that R20 billion will help train South Africans in the forward looking skills demanded by the information economy.
4. New funding will open up entrepreneurial space in clean technology, textiles, and natural resource stewardship.

At SAIBL we believe that SMEs, and black owned SMEs in particular, are South Africa’s hope for inclusive growth. This budget focuses on all the right things.
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