BEDC CONFERENCE SPEECH By Hon. Patricia De Lille
2004-06-30. I would like to thank the Business Empowerment Development Corporation for inviting me to share some impressions on this very important topic.
The promulgation of the Black Economic Empowerment (BEE) Act of 2003
was a necessary interventionist piece of legislation designed to fast
track the transformation of the economy. Some of the intended
beneficiaries of this process were suppose to be women, the disabled
and previously disadvantaged individuals. The question we need to ask
is; ‘Who have really benefited thus far in terms of deals done and
what are some of the problems being experienced?'
To its credit the BEE Act has stimulated various industry transformation charters with accompanying targets and time frames set. The Mining Industry Charter is one successful example. However, implementation of the various charters have been slow.
Some of the contributing problems as to why BEE deals have failed include:
1. South Africa's high interest rates which has made the cost of capital expensive.
2. Transactions were dependent on share price performance.
3. Lack of technical insight into the core business of the companies or sector that investors are buying into, meaning that very little value, in terms of business/ intellectual capital, can be added.
4. Most of the deals were equity buy-ins with little or no direct operational involvement in the actual management of the company.
5. BEE is not the panacea for all our economic problems.
6. BEE is overrated as a tool to transform the economy and to achieve broad-based economic redistribution.
Understanding BEE financing mechanisms
Many aspirant BEE companies go into talks with dealmakers with no idea of the financing options open to them and how this could benefit them. Information provision is essential in terms of explaining:
> How equity funds work.
> Understanding different funding structures.
> Understanding criteria for investment.
Once the BEE deal is completed, then the hard work begins. More attention needs to be paid to corporate governance issues as per the King 2 report requirements. BEE's should try to create competitive advantage through excellence in governance which will contribute to improved earnings potential.
Role of government
While Government has provided a facilitative policy framework, its own entrepreneurial support agencies such as Khula, have failed to deliver on their mandate. Maximising access to finance has not happened as judged by poor loan ratios to small businesses.
While President has announced new measures such as the APEX fund for small business, this fund must still be capitalized. What is required is an integration of all these agencies into a one stop small business support centre offering a holistic business advisory service. The RED initiative of the Provincial government is an attempt to improve funding and service to SMME's in the Western Cape.
The difficulties of SMME's having access to bank finance continues as banks continue to be risk averse to this sector. Issues of collateral and insufficient security remain barriers to finance. The Banking Council together with Government should find ways to overcome this problem as it excludes many budding entrepreneurs.
At the Affirmative Procurement level the Government can assist SMME's by
> Creating uniformity on empowerment criteria across government departments with regards to tender application forms.
> Tender forms need to have built in indicators to assess business acumen and financial feasibility.
> Continually engage with SMME Departments of Banks on project financing.
> Increase guarantee schemes for Bank.
> Government together with the Banking Council need to play continuous mentorship and monitoring roles in terms of BEE accreditation.
> There is a need to establish uniform guidelines and systems of local government structures.
> Need for institutional capacity building.
> Strategy to bridge the skills gap etc.
We need to instill a culture of entrepreneurship in our society in that we establish a culture that encourages job creators and not job seekers. Government programs should start at Grade 10 to 12 offering entrepreneurship as part of Business Economics curricula.
South Africa currently ranks 19th overall in terms of entrepreneur skills activity which is behind some developing countries such as Brazil and Mexico.
Direct challenges facing small business people
> Lack of adequate skilled labour.
> No reliable business support service enterprises.
> Continuous education necessary for business development.
Role of Business Chambers
The integration of chambers to form the Chamber of Commerce South Africa (CHAMSA) is crucial so that business, both black and white, speak with one voice on empowerment and small business concerns. The challenge is to merge the various ideologies of the business chambers and so engage effectively on policy issues, labour etc.
In conclusion, the role of Banks, Government and business chambers is integral to supporting SMME growth and development. South Africa needs a thriving small business sector to alleviate the unemployment problem which is hovering around 40%. It is in this context that this one day conference is so important and I wish all stakeholders present a successful outcome.
I thank you.
To its credit the BEE Act has stimulated various industry transformation charters with accompanying targets and time frames set. The Mining Industry Charter is one successful example. However, implementation of the various charters have been slow.
Some of the contributing problems as to why BEE deals have failed include:
1. South Africa's high interest rates which has made the cost of capital expensive.
2. Transactions were dependent on share price performance.
3. Lack of technical insight into the core business of the companies or sector that investors are buying into, meaning that very little value, in terms of business/ intellectual capital, can be added.
4. Most of the deals were equity buy-ins with little or no direct operational involvement in the actual management of the company.
5. BEE is not the panacea for all our economic problems.
6. BEE is overrated as a tool to transform the economy and to achieve broad-based economic redistribution.
Understanding BEE financing mechanisms
Many aspirant BEE companies go into talks with dealmakers with no idea of the financing options open to them and how this could benefit them. Information provision is essential in terms of explaining:
> How equity funds work.
> Understanding different funding structures.
> Understanding criteria for investment.
Once the BEE deal is completed, then the hard work begins. More attention needs to be paid to corporate governance issues as per the King 2 report requirements. BEE's should try to create competitive advantage through excellence in governance which will contribute to improved earnings potential.
Role of government
While Government has provided a facilitative policy framework, its own entrepreneurial support agencies such as Khula, have failed to deliver on their mandate. Maximising access to finance has not happened as judged by poor loan ratios to small businesses.
While President has announced new measures such as the APEX fund for small business, this fund must still be capitalized. What is required is an integration of all these agencies into a one stop small business support centre offering a holistic business advisory service. The RED initiative of the Provincial government is an attempt to improve funding and service to SMME's in the Western Cape.
The difficulties of SMME's having access to bank finance continues as banks continue to be risk averse to this sector. Issues of collateral and insufficient security remain barriers to finance. The Banking Council together with Government should find ways to overcome this problem as it excludes many budding entrepreneurs.
At the Affirmative Procurement level the Government can assist SMME's by
> Creating uniformity on empowerment criteria across government departments with regards to tender application forms.
> Tender forms need to have built in indicators to assess business acumen and financial feasibility.
> Continually engage with SMME Departments of Banks on project financing.
> Increase guarantee schemes for Bank.
> Government together with the Banking Council need to play continuous mentorship and monitoring roles in terms of BEE accreditation.
> There is a need to establish uniform guidelines and systems of local government structures.
> Need for institutional capacity building.
> Strategy to bridge the skills gap etc.
We need to instill a culture of entrepreneurship in our society in that we establish a culture that encourages job creators and not job seekers. Government programs should start at Grade 10 to 12 offering entrepreneurship as part of Business Economics curricula.
South Africa currently ranks 19th overall in terms of entrepreneur skills activity which is behind some developing countries such as Brazil and Mexico.
Direct challenges facing small business people
> Lack of adequate skilled labour.
> No reliable business support service enterprises.
> Continuous education necessary for business development.
Role of Business Chambers
The integration of chambers to form the Chamber of Commerce South Africa (CHAMSA) is crucial so that business, both black and white, speak with one voice on empowerment and small business concerns. The challenge is to merge the various ideologies of the business chambers and so engage effectively on policy issues, labour etc.
In conclusion, the role of Banks, Government and business chambers is integral to supporting SMME growth and development. South Africa needs a thriving small business sector to alleviate the unemployment problem which is hovering around 40%. It is in this context that this one day conference is so important and I wish all stakeholders present a successful outcome.
I thank you.
