The plan was first outlined<\/strong><\/a> by businessman Alan Knott-Craig Jnr in May this year, and drew attention from Department of Trade, Industry and Compeititon (DTIC) minister Parks Tau.<\/p>\n\n\n\n Following President Cyril Ramaphosa’s controversial meeting with US President Donald Trump at the White House in May, South Africa’s Black Economic Empowerment (BEE) laws and regulations became a hot topic.<\/p>\n\n\n\n BEE has been consistently flagged by the United States and the Trump administration as an impediment to foreign investment and a point of contention in ongoing trade negotiations.<\/p>\n\n\n\n Other South African delegations to the US have also flagged BEE as a sticking point in their visits to the states, and the DTIC has acknowledged the policy being brought up in its interactions with US counterparts.<\/p>\n\n\n\n At the time of Ramaphosa’s visit, Knott-Craig took to the social media platform LinkedIn <\/strong><\/a>to propose<\/span> an alternative plan, called BEE3, or 3-for-3.<\/strong><\/a><\/p>\n\n\n\n Knott-Craig invited the DTIC to look at and test the plan, which drew a response from DTIC minister Parks Tau, who said “challenge accepted”, giving credence to the government’s reported interest.<\/p>\n\n\n\n The programme proposes that the South African government simplify its BEE policies by allowing private (non-listed) companies to effectively ‘buy’ automatic level-3 BEE compliance by injecting 3% of gross revenue into a transformation fund.<\/p>\n\n\n\n In South Africa’s Broad-Based Black Economic Empowerment (B-BBEE) laws, level-3 compliance is the highest level a company can attain without changing ownership.<\/p>\n\n\n\n In a whitepaper on the scheme, the authors of the plan posit that BEE level-3 is enough to entice businesses to voluntarily take part, while not giving them a free run to full level-1 BEE compliance and shirk transformation goals.<\/p>\n\n\n\n To reach level-1 BEE compliance (the highest level), companies would truly need to transform their businesses in line with the government’s BEE ownership objectives.<\/p>\n\n\n\n But at level 3, a company would still secure full points on the scorecard, except for ownership. <\/p>\n\n\n\n A majority black-owned business could then easily graduate to level 2, and a fully black-owned business to level 1.<\/p>\n\n\n\n In exchange, a private (non-listed) company would then commit 3% of its gross revenue to a ring-fenced transformation fund, which Knott-Craig said would serve the government’s transformation objectives.<\/p>\n\n\n\n Crucially, the plan would not absolve companies of any of their other obligations under the Employment Equity Act\u2014which now also includes numerical targets for workforces based on race, gender and disability.<\/p>\n\n\n\n The ‘3-for-3’ scheme broadly aligns with the DTIC’s plans to draw money from private sector businesses into a R100 billion transformation fund over five years.<\/p>\n\n\n\n This fund, announced in March, would aggregate enterprise and supplier development (ESD) funds to support the participation of black-owned enterprises in the economy.<\/p>\n\n\n\n The current B-BBEE policy, through the Codes of Good Practice, requires South African businesses to contribute through ESD, which includes giving 3% of net profit after tax to the development of black suppliers, black industrialists and SMMEs. <\/p>\n\n\n\n Under the DTIC’s fund, businesses would instead voluntarily direct this 3% ESD payment to the transformation fund.<\/p>\n\n\n\n This is where the proposals differ greatly. <\/p>\n\n\n\n Firstly, while the DTIC’s plan targets net profit, the ‘3-for’3’ scheme wants companies to pay based on gross revenue.<\/p>\n\n\n\n This puts businesses in a difficult position, as low-margin operations would immediately lose out. Any company with a profit margin of less than 3% would instantly make a loss.<\/p>\n\n\n\n According to the BEE3 whitepaper, revenue has to be used to keep the scheme simple and free of ‘creative bookkeeping’ gaming the system.<\/p>\n\n\n\n “The fundamental principle of BEE3 is to reduce complexity. Simplicity makes business easier. A simple “Although crude, revenue is the simplest metric by wish to measure the Levy.”<\/p>\n\n\n\n The scheme posits that using metrics like net profit introduces the need for audits, creates room for disagreement, and windows for understating in order to underpay the levy.<\/p>\n\n\n\n “From an enforcement perspective, a levy calculated as a percentage of revenue is very simple to collect. SARS already collects a two-monthly revenue levy in the form of VAT,” it said.<\/p>\n\n\n\n The scheme posits that the government could collect R40 billion a year from companies through this process, hitting R120 billion in three years\u2014compared to the R100 billion the DTIC wants to collect over five years.<\/p>\n\n\n\n A second key difference is who manages the funds<\/strong>. Under the DTIC’s plan, the billions collected from companies go into a government fund.<\/p>\n\n\n\n The government has an incredibly poor track record of managing funds, sparking corruption and looting concerns.<\/p>\n\n\n\n Despite guarantees and assurances that the money will be directed to the stated purpose, critics have extreme doubts.<\/p>\n\n\n\nRevenue not profit<\/h2>\n\n\n\n
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regulatory framework is easy to understand and easy to enforce,” it said.<\/p>\n\n\n\n