The B-BBEE Commission is proving itself as a watchdog with teeth, and is proactively clamping down on undesirable practices such as Fronting.
In June 2016, the final Regulations to the Broad-Based Black Economic Empowerment (B-BBEE) Act were published. They signified a pro-active intent from the Department of Trade and Industry to monitor B-BBEE ownership transactions to ensure they meet with the spirit of the B-BBEE framework, with substance over form an important consideration.
The amended B-BBEE Act criminalised Fronting and introduced penalties for those found to be involved in fronting – a fine of up to 10 percent of an entity's turnover or imprisonment for up to 10 years. The Broad-Based BEE Commission was formed with a legislative mandate to receive complaints, investigate and institute proceedings in court to restrain any breach of the B-BBEE Act.The B-BBEE Commission is proving itself as a watchdog with teeth, and is proactively clamping down on undesirable practices such as Fronting which affect ownership. Prominent South African businesses are now under investigation and answerable to the Commission.South Africa's government continues to seek the 'silver bullet' that will speed up the transformation of the economy, with a major focus on ownership. Beyond absolute compliance with the revised B-BBEE Codes and avoiding any possibility of transgressions such as Fronting, there should be room for innovative approaches to inclusivity which require, in part, devising new models of investment.
The government released its Black Industrialists Policy in 2016. The objective of the policy is to promote and support the participation and long-term sustainability of black industrialists in the industrial sectors of the economy. However, the DTI acknowledges in its draft policy that critical success factors to the policy lie in the definition of a black industrialist, availability and access to funding, access to markets, technical and manufacturing competitiveness in a global context, as well as collaboration between the public and private sectors. These factors pose many challenges.
Another alternative is the use of broad-based trusts and employee schemes to ensure that B-BBEE impacts a broader cross-section of the historically disadvantaged community, including the ability to enable active ownership, enterprise development and downstream supply chain empowerment. How acceptable are these?The need to review existing practices and effectively structure and implement transactions that are fully compliant and that will meet with the approval of the B-BBEE Commission is obvious. True broad-based empowerment can only be driven by concerted action on a number of different fronts. Innovative thinking should be applied to existing strategies and initiatives in order to maximise their impact in the short term, without compromising the long-term health of South Africa's economy.
Johan van Zyl - co-CEO, African Rainbow Capital
Soria Hay - Head of Corporate Finance, Bravura
Sandile Zungu - on the Presidents BEE Advisory Council, on the BRICS Forum and previous chairman of the Black Business Council.
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