PC Tour: Tourism Broad-Based Black Economic Empowerment (BBBEE) Codes: National Department of Tourism briefing

The committee meeting Tourism Broad-Based Black Economic Empowerment (BBBEE) Codes: National Department of Tourism briefing on 2016-05-20 is now available

Tourism Broad-Based Black Economic Empowerment (BBBEE) Codes: National Department of Tourism briefing

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Chairperson: Ms S Xego (ANC) (Acting)

Date of Meeting: 20 May 2016

Summary

The Committee elected Ms S Xego (ANC) as Acting Chairperson in the absence of the Chairperson Ms B Ncgobo (ANC).

The National Department of Tourism briefed the Committee on the Amended Tourism Broad-Based Black Economic Empowerment Sector Code. The briefing commenced with an overview of the process on the development of Broad-Based Black Economic Empowerment. In 2003 the Broad Based Black Economic Empowerment Act No 53 was enacted for the promotion of Broad Based Black Economic Empowerment. The amendment of the Act and the Broad Based Black Economic Empowerment Generic Codes of Good Practice happened in 2012/2013. In 2014/2015 the Tourism Broad-Based Black Economic Empowerment Charter Council developed the draft Amended Code in consultation with tourism stakeholders which set new targets for transformation in the sector. In 2015 the Amended Tourism Broad-Based Black Economic Empowerment Sector Code was gazetted for implementation in terms of Section 9(1) of the Broad-Based Black Economic Empowerment Amendment Act No. 46 of 2013. Tourism was the first sector to gazette its Amended Broad-Based Black Economic Empowerment Code. The scope of application of the Code covered accommodation (hotels, B&B, hostels etc.), hospitality and related services (restaurants, professional catering and casinos etc.) and travel & related services (tour operators, travel agents and car rental companies etc.). On the applicability of the Code there were three categories of enterprises. The first was Exempted Micro Enterprises, which were smaller enterprises with total revenue of less than R5m. The second was Qualifying Small Enterprises with total revenue between R5m-R45m, these formed the largest group. The third category was Large Enterprises with total revenue of over R45m. The Code had been consolidated from seven into five elements in line with the Department of Trade and Industry’s amended generic codes. Of the five elements three were priority elements i.e. Ownership, Skills Development and Enterprise & Supplier Development. On Ownership the minimum compliance requirement was 40% of 8 net value points. On Skills Development the minimum compliance requirement was 40% of skills development points. On Enterprise and Supplier Development the minimum compliance requirement was 40% for each of the three categories within the Enterprise and Supplier Development element. Of importance was the fact that non-compliance with the 40% sub-minimum requirements of any of the above priority elements would result in the measured entity’s Broad-Based Black Economic Empowerment Status Level and corresponding Broad-Based Black Economic Empowerment recognition Level being discounted by one level.

The Committee was provided with a detailed explanation on compliance parameters, new recognition levels and efforts on empowering suppliers. On Broad-Based Black Economic Empowerment verification, the Code was valid for one year. An Exempted Micro Enterprise only required a sworn affidavit annually, confirming the total annual revenue up to R5m and the level of black ownership. There was thus no need to fill out paperwork. However, an Exempted Micro Enterprise could be measured in terms of the Qualifying Small Enterprises scorecard if they so wished in order to maximise their points and to move to a higher recognition level. A Qualifying Small Enterprise that was 51% or 100% black owned was only required to obtain a sworn affidavit or Broad-Based Black Economic Empowerment certificate issued by the Companies and Intellectual Property Commission on an annual basis, confirming the total annual revenue of between R5m and R45m and the level of black ownership and its empowering supplier status. Other Qualifying Small Enterprises were required to obtain a verification certificate to substantiate their Broad-Based Black Economic Empowerment status.

On the way forward the National Department of Tourism was in the process of appointing a new Tourism Broad-Based Black Economic Empowerment Charter Council to drive and monitor transformation in the sector. A baseline study would be conducted to establish the current state of transformation in the sector ahead of the full implementation of the Amended Tourism Sector Broad-Based Black Economic Empowerment Code. In consultation with a wide range of stakeholders a Broad-Based Black Economic Empowerment Strategy would be developed mapping out a comprehensive set of targeted actions for transforming the sector beyond compliance with the Code. A Tourism Broad-Based Black Economic Empowerment portal for black owned enterprises was under development to accelerate the empowerment of Small Medium and Micro Enterprises in the sector. Key components of the Portal would be the matchmaking function, the self-assessment tool and the reporting functionality to monitor compliance with the Amended Tourism Sector Broad-Based Black Economic Empowerment Code.

Members asked what the involvement of the Department of Trade and Industry was on the Code. How were the National Department of Tourism and the Department of Trade and Industry working together to ensure compliance? The National Department of Tourism was asked what comments had been received on the Code when it was released for public comment. It would be helpful for Members to know what the industry had said about the Code.  Members suggested that perhaps the Committee could hold public hearings on the Code and in this way members could get some insight into what some of the challenges were. The National Department of Tourism was asked why on ENEs the total revenue ceiling was set at R5m whereas with the generic codes the ceiling was set at R10m. The DA was of the view that the Code was too stringent for the industry to create jobs. It was felt that the Code should not be more stringent than the generic codes. In addition, incentives should be provided which would allow the industry to grow. Members were obviously in favour of transformation of the tourism industry but felt that it should be done in an effective manner. Processes should be easier and less bureaucratic. The briefing had stated that a company could receive additional points if the companies who supplied them were themselves compliant. The difficulty was that even a medium sized company could have many suppliers which meant that there would be a huge administrative burden when checking on compliance. How would it be checked on what people were qualifying for was actually correct? The Committee needed to know the number of staff members required to do audits and checks from government’s side on what was being claimed by companies. In other words, the compliance costs from a personnel and financial point of view needed to be known. The Department acknowledged that verification was an issue and would be looked at as the process unfolds. Members were insistent that a cost figure for compliance needed to be provided to the Committee in order for oversight to be done. The Department conceded that there was as yet no exact figure on what the compliance costs would be. Members appreciated the difficulty to come up with exact figures which only further displayed the need for inputs from the industry as costs would affect Department. The Acting Chairperson asked how the Department ensured that stakeholders understood the Code. The Department was asked whether it had a plan to sensitise the public. Some Members were apprehensive of the Department inviting previously disadvantaged persons to enter the tourism industry. The concern was that persons could find themselves in a financial dilemma once again as they did when they splurged in anticipation for business that might come their way during the 2010 FIFA Soccer World Cup. Members felt that tourism education should begin at school so that people knew what to expect in the tourism industry.

The DA reserved its position on the Code subject to public hearings in order to get the industry’s view on it.

Minutes

Election of Acting Chairperson
The Committee elected Ms S Xego (ANC) as Acting Chairperson in the absence of the Chairperson Ms B Ncgobo (ANC).

Briefing by the National Department of Tourism (NDT) on the Amended Tourism Broad-Based Black Economic Empowerment (B-BBEE) Sector Code
The delegation comprised of Mr Victor Tharage Director General, Ms Shamilla Chettiar, Deputy Director General: Policy and Knowledge Systems; Ms Sibongumusa Ngidi Chief Director: Policy Development and Evaluation; and Ms Petra van Niekerk Parliamentary Liaison Officer. Ms Chettiar undertook the briefing.

The briefing commenced with an overview of the process on the development of B-BBEE. In 2003 the B-BBEE Act No 53 was enacted for the promotion of B-BBEE. The amendment of the B-BBEE Act and the Generic B-BBEE Codes of Good Practice happened in 2012/2013. In 2014/2015 the Tourism B-BBEE Charter Council developed the draft Amended Tourism B-BBEE Code in consultation with tourism stakeholders which set new targets for transformation in the sector. In 2015 the Amended Tourism B-BBEE Sector Code was gazetted for implementation in terms of Section 9(1) of the B-BBEE Amendment Act No. 46 of 2013. Tourism was the first sector to gazette its Amended B-BBEE Code. The scope of application of the Code covered accommodation (hotels, B&B, hostels etc.), hospitality and related services (restaurants, professional catering and casinos etc.) and travel & related services (tour operators, travel agents and car rental companies etc.). On the applicability of the Code there were three categories of enterprises. The first was Exempted Micro Enterprises (EMEs) which were smaller enterprises with total revenue of less than R5m. the second was Qualifying Small Enterprises (QSEs) with total revenue between R5m-R45m, these formed the largest group. The third category was Large Enterprises (LEs) with total revenue of over R45m. The Code had been consolidated from seven into five elements in line with the DTI’s amended generic codes. Of the five elements three were priority elements ie Ownership, Skills Development and Enterprise & Supplier Development (ESD). On Ownership the minimum compliance requirement was 40% of 8 net value points. On Skills Development the minimum compliance requirement was 40% of skills development points. On ESD the minimum compliance requirement was 40% for each of the three categories within the ESD element. Of importance was the fact that non-compliance with the 40% sub-minimum requirements of any of the above priority elements would result in the measured entity’s B-BBEE Status Level and corresponding B-BBEE Recognition Level being discounted by one level. The Committee was provided with a detailed explanation on compliance parameters, new recognition levels and efforts on empowering suppliers. On B-BBEE verification the Code was valid for one year. An EME only required a sworn affidavit annually, confirming the total annual revenue up to R5m and the level of black ownership. There was thus no need to fill out paperwork. However, an EME could be measured in terms of the QSE scorecard if they so wished in order to maximise their points and to move to a higher B-BBEE recognition level. A QSE that was 51% or 100% black owned was only required to obtain a sworn affidavit or certificate issued by the Companies and Intellectual Property Commission (CIPC) on an annual basis, confirming the total annual revenue of between R5m and R45m and the level of black ownership and its empowering supplier status. Other QSEs were required to obtain a verification certificate to substantiate their B-BBEE status. On the way forward the NDT was in the process of appointing a new Tourism B-BBEE Charter Council to drive and monitor transformation in the sector. A baseline study would be conducted to establish the current state of transformation in the sector ahead of the full implementation of the Amended Tourism B-BBEE Sector Code. In consultation with a wide range of stakeholders a B-BBEE Strategy would be developed mapping out a comprehensive set of targeted actions for transforming the sector beyond compliance with the Code. A Tourism B-BBEE Portal for black owned enterprises was under development to accelerate the empowerment of SMMEs in the sector. Key components of the Portal would be the matchmaking function, the self-assessment tool and the reporting functionality to monitor compliance with the Amended Tourism B-BBEE Sector Code.

Discussion
Mr J Vos (DA) asked what the involvement of the Department of Trade and Industry (DTI) was on the Code. The Code was gazetted in July 2015 by the DTI and was presented for public comment for 60 days. He also asked how the NDT and the DTI were working together to ensure compliance. The NDT was asked what comments had been received in relation to the Code. It would be helpful to know what the industry had said on the Code. He suggested that perhaps the Committee could hold public hearings in relation to the Code. In this way the Committee could get insight into what some of the challenges were. He pointed out that on EMEs the total revenue ceiling was set at R5m for the Code but on the generic codes the ceiling was set at R10m. The DA was of the view that the Code was too stringent for the industry to create jobs. The Code should not be more stringent than the generic codes. In addition, there should also be incentives in order for tourism to grow. He agreed with Mr Tharage that transformation required there to be a partnership with the private sector.

Ms Ngidi stated that on the DTI’s involvement, a DTI representative had sat in on the meetings of the B-BBEE Charter Council meetings. Once the Council process was done it handed the Code to the DTI. The DTI processed the Code. The prioritised elements had been prioritised by the DTI. They were applicable to the entire economy. Attempts were being made to increase the ownership of companies by previously disadvantaged persons in the economy. New entrants should be encouraged. The whole point was to have meaningful participation by the previously disadvantaged. One of the key issues raised by stakeholders was contestation on ownership. The cost of ownership dealt was another issue raised. The targets of the B-BBEE Code were higher that the DTI’s codes.

Mr G Krumbock (DA) said there was the realisation that tourism could create jobs better than other industries. It was a high value industry in terms of job creation. It was fairly easy to start a business in the tourism industry. He agreed that transformation was important and he had no problem with sentiments that had been expressed. The issue was about bringing about transformation in an effective way. It should be done in a less bureaucratic way and the processes should be made easier.  He supported Mr Vos’s suggestion of the Committee holding public hearings. In the briefing it was stated that a company received additional points if the companies who supplied were themselves compliant. He pointed out that even a medium sized business had a great deal of suppliers, and that there was a great deal of admin involved. He felt it to be a fairly onerous requirement. How much of suppliers input costs would qualify to meet the requirement. How would it be checked on what people were qualifying for was actually correct. The Committee needed to know the number of staff members required to do audits and checks from government’s side on what was being claimed by companies. In other words, the compliance costs from a personnel and financial point of view needed to be known.

Ms Ngidi, on the cost of compliance, said it would be limited to an annual assessment done by verification agencies accredited through the Independent Regulatory Board for Auditors (IRBA). She conceded that there was admin involved. The agency would look at submitted documents and check on how the scorecard had been applied. A certificate would be issued which would speak to performance.

Mr Tharage conceded that verification was an issue that would be looked at as the process unfolds. The requirement of a small business simply being required to make out an affidavit could be corroborated by records held by the South African Revenue Services (SARS) that such person fell within the threshold. There were thus means and ways. It was a long road and partnerships were the only way ahead.

Mr Krumbock responded that the Committee had an oversight role to play. The response given had not said what the cost would be. It was not good enough to say that the issue would be looked at. If an exact cost figure could not be provided a ball park figure would be good enough. The Committee needed to have a feel of what the compliance cost would be. A number was needed.

Mr Tharage said he could not put exact figure to it as yet which. On compliance there were some things that one could place a figure on and others which one could not. On skills development there could be figures. There could also be figures for supplier and enterprise development. It varied on whether a business would have figures or not. Some businesses had in-house lawyers and accountants whereas other businesses would outsource these services. There would be a cost for compliance. The NDT had an enterprise development function and it worked with the Tourism Enterprise Partnership (TEP) but not on a large scale.

Mr Krumbock appreciated the difficulty to come up with figures. It only further displayed the need for inputs from the industry as the costs would affect them.

The Acting Chairperson asked the Committee Content Adviser, Dr Sibusiso Khuzwayo, to make an input if he wished to do so.

Dr Khuzwayo, on empowering of suppliers, said the amendment to the Code took the tourism industry further. The three areas prioritised in the briefing spoke to other sectors that were linked to tourism. For example, where did hotels source their food from? Interaction with other government departments was also required. The NDT together with other departments could empower small suppliers to reach the level of supplying hotels with what they needed. The value chain could not only concentrate on tourism. Skills development was also important. If efforts were coordinated properly between the NDT and hotels, then it would be easy to work out where persons could be sent for training. In this way the place offering the training could score additional points. Where training programmes were offered tax rebates could also be gained. People need not be in the mainstream tourism industry as such. Reducing the threshold ensured that more businesses fell within the threshold of the Code.

Ms Ngidi said if skills development were done correctly there could be empowered individuals in the entire value chain.

The Acting Chairperson asked how the NDT could ensure that stakeholders understood the Code. The NDT was asked whether it had a plan to sensitise the public.

Ms Ngidi said that part of the Annual Performance Plan projects of the NDT related to a portal under development. The NDT had done a study on procurement and had found that there were low levels of procurement from black enterprises by big companies. The portal would limit qualified suppliers in the value chain. Opportunities that came up were also advertised. Talks had taken place with the Departments of Small Business Development and Agriculture on accessing small suppliers.

Ms Chettiar said that popularising the Code and work with the private sector was the role of the B-BBEE Charter Council.

Mr Tharage noted that transformation had to be seen as a business strategy. For example, in the hospitality sector the bigger groups ensured that they had compliant scorecards because it made good business sense. He noted that a great deal of work needed to be done from a business side. Some of the inputs on the Code were whether it would dilute the level of transformation that was already there. He responded that it would not dilute the level of transformation that was already there as it was on a different level. Tthere were already hoteliers that were doing supplier development. Why the need for an empowered supplier? The answer was that if one went the normal route of corporate social investment it would not bring about meaningful change. There had to be meaningful business and value.

Mr Krumbock reiterated the need to get input from the industry on the Code. The DA consequently reserved its position on the Code subject to public hearings to get the industry’s view on it. A level picture was needed so that one could apply one’s mind.

Mr R Cebekhulu (IFP) noted that tourism was new to the previously disadvantaged. In 2010 many South Africans had gone into debt due to the prospect of making a killing when the 2010 FIFA Soccer World Cup came to SA. The NDT was now inviting people to enter the tourism industry and the concern was what if people once again got into financial trouble. He strongly felt that tourism education should start at school or else the African nation would have a long way to go.

The Acting Chairperson noted that some of the Members’ questions had been from a business point of view whilst others had been from a transformation point of view. Either way there was a need to continue to capacitate people in the tourism sector.

The meeting was adjourned.

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