Black Economic Empowerment

Overview

Black economic empowerment (‘‘BEE'') is a program that promotes the accelerated integration of black people into the South African economy and has been a policy of the South African government since 1994.

In April 2004, the BEE Act came into effect. The BEE Act establishes the legislative framework for the promotion of BEE, and in particular, what it refers to as ‘‘broad-based'' BEE.

Broad-based BEE involves the economic empowerment of all black people, including women workers, youth, people with disabilities and people living in rural areas through strategies which seek to, amongst others, increase the number of black people that manage, own and control enterprises and productive assets.

True broad-based black economic empowerment (“BEE”) must be an inclusive process based on seven elements – ownership, management, employment equity, skills development, procurement, enterprise development and socio economic development. Each element has a weighting indicating its relative importance to the overall cause of transformation. Companies seeking their BEE credentials should not concentrate on one element to the detriment of other elements, but should have broadly made an effort across all elements will find more business coming their way.

The main mechanisms introduced in the BEE Act to ensure that these socio-economic strategies are implemented are:

• Codes of Good Practice: issued by South Africa's Minister of Trade and Industry which specify empowerment targets consistent with the objectives of the BEE Act, and the periods within which those targets must be achieved.
  
  Organs of state and public bodies must take into account and, as far as is reasonably possible, apply the Codes when issuing licences or concessions, developing and implementing a preferential procurement policy, determining qualification criteria for the sale of state-owned enterprises and developing criteria for entering into partnerships with the private sector.
  
  It is important to note that the Codes are at present, in draft form and the final Codes are expected to be gazetted in the next few months. There may be substantial changes to the current drafts, particularly nuances in the measurement of BEE ownership. However, the underlying principles should largely remain the same.

• Transformation Charters: developed through a participatory approach by major stakeholders in various sectors of the economy which promote transformation for that particular sector. Certain sectors such as mining, have, through industry bodies and negotiations with government, developed transformation charters setting BEE targets for those sectors.
  
  The charters represent the commitment of stakeholders in that sector to promote BEE in the particular sector. However, organs of state and public entities are not obliged to consider the requirements in those charters in the manner which they would consider the requirements of the Codes, as discussed above. When these charters undergo the process of development set out in the Codes and are then gazetted as Sector Codes, they will then have equal status with the Codes. Organs of state and public entities will then be obliged to consider the requirements of these Sector Codes.

The Mining Charter, however, stands in a unique position compared with charters of other industries. As mentioned earlier, the Mining Charter was published under Section 100(2)(a) of the MPRDA. The MPRDA refers to the requirements in the Mining Charter in considering applications for, inter alia, mining and production rights. As such, compliance with the requirements in the Mining Charter will be important in those contexts.

Mining companies will still be subject to measurement in terms of the Codes when transacting with entities not covered by the Mining Charter.

This means that mining companies will endeavour to comply with the requirements in the Mining Charter and the BEE Codes. Compliance with the Mining Charter does not automatically mean compliance with the BEE Codes as there are substantial differences between these two instruments. There are important differences in the definitions, concepts, targets and measurement principles between these instruments. For the purpose of this prospectus, the emphasis will be on the requirements of the Mining Charter.

The scorecard of the Mining Charter requires that mining right applicants indicate their compliance with broad based socio-economic empowerment of the mining industry by requiring a commitment of applicants in respect of ownership, management, employment equity, human resource development, procurement and beneficiation.

The DME has not indicated what its approach will be if a company ceases to comply with the provisions of the Mining Charter and specifically with the HDSA ownership requirements set out in the Mining Charter. Regarding the stated aims of the MPRDA and the requirement for 26% HDSA ownership in mining companies by 2014, it is generally accepted that a failure by a mining company to comply with the HDSA ownership requirements as set out in the MPRDA and the Mining Charter will eventually lead to the revocation of those mining rights. However, the position remains unclear.