Many of South Africa’s small businesses
are white-owned family enterprises needing clarification on how
they can comply with the Department of Trade and Industry’s
(dti’s) BEE codes of good practice. According the BusinessMap
Foundation director, Khehla Shubane, “small enterprises were
arguing that the one-size-fits all approach did not suit them, since
it would require them to welcome people who did not add value for
the sake of complying with the charter.
A BusinessMap report suggests some synergy with
black and white-owned businesses might be found in the small enterprise
environment. It says small white-owned businesses might have opportunities
to score points by developing black skills, buying from black suppliers
and helping black enterprise. At the same time, some black-owned
emerging companies already comply with BEE requirements but lack
the skills to fully exploit preferential opportunities open to them.
South Africa’s small enterprise sector
has boomed since 1994, led by a number of factors — amongst
them high levels of unemployment, increasing downsizing and retrenchments,
the introduction of affirmative action and the Employment Equity
Act, and the satisfaction of being the boss regardless of the pain
that might bring.
“The more recent trend of supporting and promoting the development
of black entrepreneurs through enterprise development on the broad-based
BEE scorecard has also made starting a business more attractive
for black entrepreneurs,” says Natalie Clow-Wilson, research
and special projects manager at Empowerdex. “Although BEE
has clearly been one of the drivers of self-employment and the creation
of small and micro-enterprises, it is essential that broad-based
BEE now successfully transforms the self-employed and small business
sector into one that creates jobs and profits.”
She believes that one way to make sure this happens
is to effectively implement incentives for procuring from small
businesses.
“The draft codes on procurement have specific
set-asides for procurement from micro-enterprises and qualifying
small enterprises (QSEs),” Clowe-Wilson points out, “but
these are problematic in the sense that large businesses are disinclined
to award larger contracts to small businesses lest the contract
catapults the small business’s turnover to such an extent
that it is no longer a ‘qualifying small enterprise’.
In such cases, the big company will effectively lose some preferential
procurement points.”
An important way to ensure the growth of small
enterprises is by decreasing the cost of doing business, Clowe-Wilson
believes.
The answer? Tandem franchising, says franchising
guru, Eric Parker, the mastermind behind South African home-grown
Nando’s Chicken fast food outlets and now an international
brand. The concept is a made-in-Heaven solution for BEE prospects
looking for a business home and the know-how to go with it.
The tandem franchising system envisages the franchisee buying into
the venture with a minimum 10 percent stake, where after he and
his franchisor mentor run the business together until the fledgling
franchisee is able to manage the business on his own, emulating
the company’s successful formula.
The key to how SME’s will fit into the
BBBEE scheme of things lies in the codes for QSEs and will differentiate
how some small companies will qualify for measurement under the
QSE scorecard as opposed to the generic scorecard, and basically
rests on the company’s turnover and number of employees, with
differentiation between sectors.
“For example,” says Jabu Thobela,
a director at Denys Reitz attorneys, “an entity in the retail
and motor trade and repair services sector that has an annual turnover
of less than R15mn and employs fewer than 50 full-time employees
qualifies for measurement in terms of the QSE scorecard. The same
entity would not qualify if it fell within the construction sector,
where the annual turnover threshold is R5mn, and would have to be
measured in terms of the generic scorecard.”
The QSE scorecard lowers the sights somewhat
on compliance targets and responds to calls for codes that are easier
to manage and implement, and more user-friendly for small businesses.
“What is clear at the very least is that
there is a recognition that small businesses should be assessed
differently to larger enterprises, public entities and organs of
state,” says Thobela.
The regulations or strategy governing the implementation
and measurement of BBBEE are set by either the dti’s generic
codes of good practice or an industry-specific transformation charter.
They are due for signature by the minister of trade and industry.
Paul Janisch, CEO of BEE specialists Caird Consulting,
says the act only provides guidelines to how BBBEE should be constructed,
while the finer detail has been left to the codes of good practice.
“Companies are more than happy to comply
with regulations,” maintains Janisch, “but they need
clarity. They also do not wish to begin a comprehensive empowerment
process using one scorecard, to discover that their new charter
has set different targets.”
Neva Makgetla, economist with Cosatu, says negotiations
on sector charters and the empowerment regulations often end up
in class wars, as different groups try to grab more benefits or
avoid costs. “This new version of class conflict emerges because
the BBBEE Act moves beyond ownership to give all major stakeholders
in the black community a chance to win something. The result is
endless debates over who should get how much.”
She maintains that rising black businesspeople
want more ownership, more financing and less risk while workers
demand higher targets for skills development, employment equity
and local procurement to safeguard jobs, and communities want more
appropriate, lower-cost services.
“Labour and poor communities prefer collective
forms of ownership such as pension funds and community trusts, over
shareholding by a few rich individuals,” she observes. “And
Union members fear big companies will boost their empowerment scores
by outsourcing activities to black entrepreneurs at the cost of
workers’ conditions and security.”
The hardest nut to crack
Early into its tenure the new government made
a substantial commitment of people and resources to small business
development. In fact, this was the first high-profile new programme
of the department of trade and industry. It was prominent because
it fitted into the ANC’s view that the economy was unbalanced
in favour of the giant conglomerates, and that small business development
was a key strategy for the economic advancement of historically
disadvantaged individuals and communities.
In the early 1990s, it was estimated that there
were at least 500 000 black-owned businesses in South Africa, including
some 100 000 taxis, 150 000 hawkers and vendors, 50 000 small shopkeepers,
70 000 backyard manufacturers and around 40 percent of all liquor
was sold was sold in ‘shebeens’, in the black townships.
By making small business its initial BEE focus, the dti was unknowingly
jumping in at the deep end. The challenge of building new institutions
to support a constituency as weak, politically and economically,
as small black business, stretched the capabilities of a fledgling
administration. As a business consultancy later put it, “The
small and medium enterprise sector was the hardest nut to crack.”
This article was first published in Business
in Africa Magazine, June 2006.
