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...