Changes to the BBBEE codes and the mining charter will negatively impact productivity says ATI

Changes to the BBBEE codes and mining charter are punitive and are going to place many companies under considerable financial strain, many of whose BBBEE rating could drop by as many as two levels.

May 20, 2014

Changes to the BBBEE codes and mining charter are punitive and are going to place many companies under considerable financial strain, many of whose BBBEE rating could drop by as many as two levels, said Sean Jones, CEO of black-owned artisan training company, Artisan Training Institute (ATI).

“Industry will be put under immense financial strain with these new codes – and I predict that ATI is also going to see its BBBEE rating drop by at least two levels, despite our business being majority owned by a black female. This is extremely negative news for us as we have spent a lot of time and money to get a Level 1 rating, only to see it being brazenly torpedoed.”

He said rather than wielding a big stick, government and its various mouthpieces and institutions should offer tax incentives to achieve milestones. The cost of BBBEE to the fiscus could be exactly the same either way, but the psychology of incentives versus punitive targets is very different.

One of the many negative points is that racial quotas have been introduced. This marginalizes certain groups such as Indian and Coloured communities, especially where these communities are densely populated in certain areas.

The new Mining Charter targets include:

  • 26% of equity to be held by historically disadvantaged South Africans (HSDAs);
  • To be supplied by BEE-compliant suppliers:
    • – 40% of capital goods;
    • – 70% of services ; and
    • – 50% of consumables.

The Department of Trade and Industry (DT) codes, which come into effect in October, include:

  • Black ownership – 25% + 1 ;
  • Black female ownership – 10%;
  • Black voting rights – 25% +1 ;
  • Black female ownership – 10% of executive management are to be black persons, half of whom are to be black females;
  • 75% of middle management are to be black, of which 38% are to be black females;
  • 88% of middle management are to be black, half of whom are to be black females;
  • 2% of the workforce to be black employees with disabilities;
  • 50% of board to be black persons, half of whom are to be black females; and
  • 50% of executive directors to be black persons, half of whom are to be black females.

“These codes are simply unrealistic with the current supply of skills available and will cost industry financially and from a productivity perspective. The South African economy will be dealt a further blow” said Jones.

“Rather than wielding a big stick, the government should be more forward thinking, and should, instead, look at introducing tax incentives coupled with radical improvements to the education system.”

“In terms of education and global competitiveness, South Africa is rated badly internationally – and, right now, what the government is effectively doing is pressurising the private sector to fulfil the role it should be playing, which is to provide quality education to its people. This could very well result in companies taking their eyes off the ball as they are forced to continually jump through additional “legislative hoops”. Our global competitiveness will take additional hits.”

This year, South Africa’s Global Competitiveness ranking out of 148 countries dropped from 52nd to 53rd. In the World Competitiveness Yearbook 2013 the country’s ranking dropped three positions, from 50th to 53rd.