AMENDED AGRIBEE CODES: Key Changes and Implications for your business

Transcription

1 AMENDED AGRIBEE CODES: Key Changes and Implications for your business Cape Agri Employers Organisation, Boschenmeer, 21 June 2016 Stephen Hobson Agrifusion (Pty) Ltd 1

2 Structure Background & introductory comments Main changes in amended Generic Codes Status of amended AgriBEE Implications and strategy per element (AgriBEE) Concluding comments & way forward Agrifusion (Pty) Ltd 2

3 Background Changing policy environment 2007 B-BBEE Codes of Good Practice Dec 2012 initial AgriBEE sector codes 1 May 2015 Amended B-BBEE Codes Amended AgriBEE Was 60 day commentary period to 20 Jan 2016 to be gazetted by end June 2016? Can still be measured on old AgriBEE if year end before date of gazetting Agrifusion (Pty) Ltd 3

4 Compliance Measured by means of a scorecard Compliance voluntary but must report compliance level annually to AgriBEE Council Included Organs of state & public entities Enterprises doing business with the above General shift from Supplier (2007) to Boardroom (2013) to Legislating (2016) Agrifusion (Pty) Ltd 4

5 Compliance Voluntary for private sector, BUT Competitive marketing advantage Pressure via preferential procurement Any business with state or anyone doing business with state Any preferential financing (dti, IDC, Land Bank etc) Licensing and registration (water rights, export permits, liquor licenses) Right thing to do! Agrifusion (Pty) Ltd 5

6 AgriBEE Scope very wide and includes any business which derives the majority of its turnover from: Primary production of agricultural products; Provision of inputs and services to businesses engaged in the production of agricultural products; Beneficiation of agricultural products whether of a primary or semi-beneficiated form; Storage, distribution and/or trading and allied activities relating to non-beneficiated agricultural products. Agrifusion (Pty) Ltd 6

7 Amended Codes: Major changes 7 to 5 elements OK but not necessary Priority elements ownership problematic Recognition levels major problem Turnover thresholds OK but QSE s all elements Treatment of black owned businesses - big advantages Agrifusion (Pty) Ltd 7

8 Elements condensed from 7 to Codes Amended Generic Amended AgriBEE Element Weight Element Weight AgriBEE (Large) AgriBEE (QSE) Ownership 20 Ownership Management Control 10 Management Control Employment Equity 15 (& Employment Equity) Skills Development 15 Skills Development Preferential Procurement Enterprise Development Socio-economic Development Enterprise and Supplier Development (& Preferential Procurement) Socio-economic development Priority Element Priority Element Priority Element TOTAL Agrifusion (Pty) Ltd

9 Priority elements Ownership (effectively need 10% BEE) Skills (need min of 8 points) Enterprise & Supplier Development (incl. Preferential Procurement) min 16 points So only Management Control & Socio Economic excluded Large comply with all 3 to avoid 1 level penalty QSE 2 but ownership compulsory! Agrifusion (Pty) Ltd 9

10 Amended status & recognition levels Result: automatically drop 2 to 3 levels Contribution level 2007 Codes Amended Codes Recognition level points 100 points 135% 2 85, < 100 points 95, < 100 points 125% 3 75, < 85 points 90, < 95 points 110% 4 65, < 75 points or EMEs 80, < 90 points or EMEs 100% 5 55, < 65 points 75, < 80 points 80% 6 45, < 55 points 70, < 75 points 60% 7 40, < 45 points 55, < 70 points 50% 8 30, < 40 points 40, < 55 points 10% Noncompliant <30 points <40 points 0% Agrifusion (Pty) Ltd 10

11 Revised Turnover thresholds Turnover levels amended EME: increased from R5m to R10m QSE: increased from R35m to R50m Amended QSE. Much more onerous. Need to comply with all elements Agrifusion (Pty) Ltd 11

12 Black owned businesses Huge advantages for >51% black owned businesses with turnover under R50m Do not have to comply with Codes - only sign affidavit (empowering supplier issue?) If 100% - level 1 > 50% - level 2 Big preferential procurement advantages Agrifusion (Pty) Ltd 12

13 Summary of problematic policy issues Narrow based vs broad based. Lack of inclusivity unintended consequences Total exemption for black businesses <R50m Racial break down for sub components Priority elements, penalties & changed recognition levels Preferential procurement & Empowering suppliers Agrifusion (Pty) Ltd 13

14 Overview of implications and strategies per element Ownership Management Control Skills Development Enterprise and Supplier Development Socio Economic Development Updated for AgriBEE but based on final draft Agrifusion (Pty) Ltd 14

15 Ownership (25 points) Objective: to increase black ownership Target: 25%, women 10% Key levels: 10%; 25%; 51% Sale of equity; sale of assets; equity equivalents (multinationals) Priority Agrifusion (Pty) Ltd 15

16 Some changes Net value priority element implies minimum 10% black ownership Some changes to Broad based Ownership schemes (BBOS), Trusts, private equity. Black owned (>50% to 51%) Modified flow through (MFT) only once in entire ownership structure Agrifusion (Pty) Ltd 16

17 Ownership strategies Ownership now key for reasonable score Complex & emotive but get advice & do it properly Concept & business rationale Approach: Sale of shares, sale of assets, equity equivalents Valuation and how funded BEE structures. Use of modified flow through (MFT) Composition of BEE grouping (entrepreneurs, employees, broad based, institutional / private equity) Legal entities Agrifusion (Pty) Ltd 17

18 Ownership strategies Employee share schemes Broad based ownership schemes but some risk Sale of assets (including sale of land) 51% black owned Joint Ventures (JV s) Effective ways of structuring using MFT Beware fronting (10% of turnover or up to 10 yrs imprisonment) Agrifusion (Pty) Ltd 18

19 Management Control (incl Employment Equity Objective: increase participation & levels of control of black people at board and management levels Combined Management Control (9 points) & Employment Equity (10 points) Targets based on overall demographic representation. Issue or national vs regional For EE broken down further in race groups (only for senior, middle & junior mngt) Agrifusion (Pty) Ltd 19

20 Skills Development Facilitates the development of the skills of black people through education and training Priority element: reach at least 8 / 20 points Target increased from 3% to 6% of payroll; Learnerships, apprenticeships, internships But per racial sub groups for all categories Priority Element Bonus points for training & employing previously unemployed Agrifusion (Pty) Ltd 20

21 Skill Development strategies Concentrate on non monetary Widened from Employees to Black People Cost effective approaches using SARS incentives and WSP contributions Focus for points Disabled learnerships Learnerships Employee training Agrifusion (Pty) Ltd 21

22 Overview: Enterprise & Supplier Development (ESD) Combined PP and ED (total 40 points) and now has 3 sub elements namely: Preferential procurement (25 points) Supplier Development (10 points) Enterprise Development (5 points) Priority: 40% sub minimum on total targets = 16 points PP: 40% of 25 =10 SD: 40% of 10 = 4 ED: 40% of 5 = 2 Priority Element Agrifusion (Pty) Ltd 22

23 Empowering supplier Empowering Supplier status, needs to be verified: BEE compliant, good citizen, comply with all regulatory requirements & must meet 3 (QSE 1) of the following requirements. At least 25% of cost of sales excluding labour cost and depreciation must be procured from local producers or local suppliers in SA, for service industry labour cost are included but capped at 15%. Job creation 50% of jobs created are for Black People provided that the number of black employees since the immediate prior verified B-BBEE Measurement is maintained. At least 25% transformation of raw material/beneficiation which include local manufacturing, production and/or assembly, and/or packaging. Skills transfer at least spend 12 days per annum of productivity deployed in assisting black EMEs and QSEs beneficiaries to increase their operation or financial capacity. At least 85% of labour costs paid to SA employees by Service Industry entities EME s = Empowering supplier Agrifusion (Pty) Ltd 23

24 Preferential Procurement strategy Closely linked & reinforces SD & ED strategy Create & purchase from >51% black owned suppliers Note: EME s (including white) 100% BEE & automatically empowering Must maximise SD points to get benefit of phasing targets for PP Focus on various multipliers & bonus points Agrifusion (Pty) Ltd 24

25 Enterprise and Supplier Development What you do to help other black business to become sustainable & financially viable Overall target increased from 3% to 4.5% of NPAT Consists of SD and ED Turnover <R50 million 51% black owned 51% of exercisable voting rights 51% of economic interest. The entity must have earned all the points for Net value. Priority Agrifusion (Pty) Ltd 25

26 SD & ED strategy SD & ED makes sense, is great opportunity for black entrepreneurs & can benefit your business Understand distinction between SD & ED SD entity must be in your supply chain ie must be part of your TMPS SD beneficiary may be a ED beneficiary but not vice versa Establish / support black suppliers & buy from them Joint ventures with >51% black owned companies Can access ED & SED money & big preferential procurement advantages Agrifusion (Pty) Ltd 26

27 SD & ED strategy (cont) Focus on cost effective interventions from matrix Grants, direct costs; discounts; overheads Loans: Interest free; Lower interest rate; Standard loan; Guarantees provided Equity investments Human resource capacity - Professional services at no cost or discount; time of employees Other - Shorter payment periods Use enhanced recognition multipliers Proposed ESD fund? Max points if contribute appropriate amount Can apply to fund to implement ESD in your enterprise Agrifusion (Pty) Ltd 27

28 Socio Economic Development Monetary / non-monetary contributions towards beneficiaries / groups who are at least 75% black to facilitate sustainable access to the economy Some change in definition but not substantial Agrifusion (Pty) Ltd 28

29 SED strategy Focus is outside your business Normal CSI and charitable Encourage economic participation not only handouts Bigger weighting for AgriBEE Target increased to 1.5% of NPAT Agrifusion (Pty) Ltd 29

30 Concluding comments Await gazetting of amended AgriBEE if possible do another verification on existing AgriBEE For amended AgriBEE score 3 to 4 levels lower Difficult to be BEE compliant especially if no black Ownership But are solutions and reasonable score is possible Plan ahead & implement appropriate strategies Get advice is a solution for every challenge! Agrifusion (Pty) Ltd 30

31 Broad-based Black Economic Empowerment S u sta inable B EE Solutions Approach Strategic planning 1 Develop a practical knowledge of BEE requirements Understand your current and potential BEE compliance and the impact of different initiatives on your scorecard Stephen Hobson Director E mail: stephen@agrifusion.co.za Telephone: +27 (82) Verification support Assistance in preparing your audit file for verification Frans van Wyk Director E mail: frans@agrifusion.co.za Telephone: +27 (82) Tailored solutions 3 Specific solutions per element, tailored to the needs of your business, such as: Ownership; Enterprise development; Supply chain; Skills development Address: Corner of Andringa and Dorp Street, Stellenbosch Web: Agrifusion (Pty) Ltd 31