New Proposed BEE Codes: What Will this Mean for Us?

funding governance ngos sustainability B-BBEE
Wednesday, 21 November, 2012 - 10:09

The article focuses on the proposed Broad Based Black Economic Empowerment Codes and their potential impact on the NGO sector

Our nonprofit organisation finds itself in the company of a sector that is estimated to have contributed R12.5 billion to the fiscus in 2007. This contribution is but the tip of the iceberg of the value that the sector adds to the country. Its main contribution is the value that it adds to vulnerable people in society and the ways in which it empowers the most vulnerable to become self-sufficient. It supports government in providing social services, community development, housing and education. In fact, our organisation is one of the many that is contracted by government to provide statutory services to the most vulnerable children in society, regardless of their race. We have also partnered with government to provide prevention and early intervention services, all issues that are of national importance if the country is to progress in challenging times.

In the face of difficult financial circumstances, the challenges of both Broad-Based Black Economic Empowerment (B-BBEE) and governance in line with King III were tackled with enthusiasm and hope of making a positive impact. In fact, we embraced B-BBEE in particular as a way forward to ensure our contribution to a more equitable future and financial growth for all South African citizens. Although not without flaws and loopholes, the system provided incentive and opportunity to advance black economic empowerment in ways that allowed everyone to win.

We have serious reservations about the proposed changes that pertain to the Socio-Economic Development element.

Comments on the Socio-Economic Development Element

Whether intentional or not, the proposed policy changes to the socio-economic development element creates uncertainty and risk for the NGO sector and will without a doubt be the final blow for many of the charitable institutions in South Africa.

Funding Sources of the NGO Sector

The NGO sector is primarily funded by:

  • The State (through Service Level Agreements);
  • Corporate Social Investment (CSI) programmes of the South African corporate sector;
  • South African individuals; and
  • The National Lottery Distribution Trust Fund (NLDTF).

According to a survey conducted by GreaterGood South Africa (GGSA) in October this year, all these sources of funding have reduced in the past year to 18 months, with the greatest reduction seen in the NLDTF funding and the second greatest in CSI funding from South African corporates. The result according to this survey has been a total of 7 612 retrenchments in the 695 NGOs surveyed. The truth of the matter is that for-profit companies that make investments into socio-economic development do so from their CSI budgets.

Very few companies are in the privileged position to be able to give beyond the amount required to earn the full 5 points for their B-BBEE certificate. In the last couple of years they have increasingly tailored their investments in socio-economic development to earn those points. And they are conservative in their approach because experience has taught that the approach of rating agencies tend to be very rigid, perhaps because they are subjected to very rigid controls through SANAS.

The impact of this funding shift has been felt by many children’s charities in South Africa already, for example, when the sector specific codes for the mining sector diverted funding from traditional areas into the communities surrounding the mines. The effectiveness of this is questionable in view of recent unrest in mining communities. I can explain why the re-direction of these funds has not been as effective as one would have hoped. The reason is simply that there were no passionate, skilled and driven NGOs to manage the funds and drive the required changes in these communities.

In the NGO sector we know that shifts in policies such as B-BBEE are effective, because we experience the effect directly and almost immediately. The sector is extremely vulnerable, particularly at this time, when neither the government departments that share the same responsibilities and help fund the invaluable work done by the sector, nor the NLDTF is providing the support that is needed for sustainability.

The latest proposed changes to the B-BBEE codes will have the effect of withdrawing corporate funding from this sector as well, so that only the narrow field of ‘income generating activities for targeted beneficiaries’ can benefit and then only if the NGOs make very sure that they do not inadvertently assist any white person or child.

We object because: We propose:
  • It is inappropriate and illegal in terms of the Children’s Amendment Act (Act 41 of 2007) for vulnerable and orphaned children to have to generate income, so they are automatically excluded as beneficiaries regardless of their race.
  • That the DTI recognises the need for children to be developed in order for them to gain access to the economy and that development of black children is recognised as valid for earning SED points
  • It is inappropriate for the sick and the aged to have to generate income, because they simply cannot.
  • That the dignity of aged people is recognised and that funding of services to disadvantaged black aged people are given some recognition.
  • While there is nothing wrong with people with disabilities generating income, one has to consider that there are those disabled beyond the ability to generate income. There are also years of developmental investment required for disabled people before they come to a point where projects that can generate income become an option.
  • That the development of black persons with disabilities is recognised as valid grounds for earning SED points
  • Development of people requires that they are not starving, that they have shelter and that their immediate needs to be safe from harm are met.
  • Development of people is required before economic development in general and income generation specifically becomes possible.
  • That recognition is given to the fact that basic survival needs have to be met as a pre-requisite for development and that development is a pre-requisite for income generation and that all the above will count towards earning SED points if the beneficiaries are black.
  • It is not enough to raise awareness of the HIV/AIDS pandemic, but the country has to care for the children currently affected by the pandemic through hunger, neglect and lack of access to an education.
  • That all forms of care for (black) children affected by the HIV/AIDS pandemic be recognised as valid for earning SED points

Note: In all cases above where children or beneficiaries are referenced, please note that it is assumed that it should read black beneficiaries according to the BEE definitions.

This policy leaves companies with two options namely:-

  • Disregard the SED element of B-BBEE and do your giving where the need is;
  • Disregard the need and do your giving to earn maximum B-BBEE points. It is not in the interest of B-BBEE that a significant proportion of companies use this as motivation to turn their backs on B-BBEE. It is likely that the bigger corporates will submit to the dictates of the policy, which, regardless of the opposition of a significant proportion of smaller companies, will lead to a significant number of nonprofit companies closing their doors and thousands of beneficiaries losing the only source of assistance they have.

The Requirement that Beneficiaries Must be 100 Percent Black

The stipulation that 100 percent of beneficiaries must be black for the full value of the contribution to be recognised is racially offensive. It is particularly offensive when it comes to children, who by now have all been born in a free South Africa. The deletion of the paragraph that determines that a reduced value can be recognised if white children and black children that are not South African Citizens are also assisted, inevitably leads to the conclusion that the proposed B-BBEE codes penalise any NGO or donor that assists a white child or a foreign black child in need.

This has the appearance of active victimisation of white people and xenophobia, which can lead to active opposition to B-BBEE as a whole. Furthermore, this stipulation also implies that black children beneficiaries will forfeit the benefits of donor contributions if they happen to be served by a nonprofit organisation who simultaneously also support white children. Does this imply that services should be segregated to ensure that black children qualify for donor contributions? Surely this cannot be the intention, but this might be a very real consequence of an ill-perceived regulation. It needs to be kept in mind that the individual donor community in South Africa is still predominantly white. This regulation is bound to have a negative impact on the whole B-BBEE campaign and holds the risk of being racially divisive. This is not a good and highly desired outcome.

We propose that the 100 percent requirement for black beneficiaries is brought in line with the reality that it is primarily, but not exclusively black children that are disadvantaged or in need. It would be justified to increase the percentage of black beneficiaries to 85 percent or even 90 percent, but it should still be possible for NGOs serving a lower percentage of black beneficiaries to qualify for points proportionally in a model similar to the current codes.

Our organisation - Abraham Kriel Childcare - supports the spirit of B-BBEE and believes that the economic empowerment of black South Africans is vital for the future well-being of our country. Our support is evident in the fact that we have been pursuing B-BBBEE objectives actively and have been rated a level 2 contributor since 2007. We also believe that in order for it to really succeed, it needs the wholehearted support of the majority of the people in South Africa, but more particularly the support of those people who have the means to make an impact. We want to be a part of this solution for the future of our country.

It is our position that some of the proposed changes will do more harm than good as it threatens to alienate a significant and important sector on the one hand and do not provide sufficient incentive for others to actively support and drive B-BBEE on the other hand.

We trust that you will accept our comments in the spirit of good citizenship in which it is offered.

- Hilda du Toit, Marketing Manager, Abraham Kriel Childcare. Website: www.abrahamkriel.org or abrahamkriel.tumblr.com

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