Trade and industry minister Rob Davies. Picture: TREVOR SAMSON
Trade and industry minister Rob Davies. Picture: TREVOR SAMSON

No sooner has the position of the black economic empowerment (BEE) goal posts been settled, than they are shifted again.

The recent administrative actions by the BEE Commission, which has advised dozens of entities that their ownership structures are not compliant with the Broad-Based Black Economic Empowerment Act, is the latest example. According to the commission, entities in which trusts are a part of the ownership structure will no longer be viewed as black ownership. Broad-based trusts may even be seen as fronting, which carries a criminal sanction.

It is not the first time that the department of trade & industry has raised the red flag on broad-based schemes. In 2015, it signed a clarification notice saying that broad-based trusts would be downgraded in the ownership points calculation on the scorecard.

After an outcry, this was withdrawn, with trade & industry minister Rob Davies saying it had been “a mistake”.

There is no mistake this time.

After the last incident the department decided that the matter of broad-based trusts would be looked into by its new BEE commissioner so that it was possible to distinguish between a good broad-based trust and a bad one. That process appears to have been completed and the commissioner has begun notifying a large number of entities that shareholding by broad-based trusts is, in most cases, not compliant.

There are many problems with this. Nowhere has the minister or the commission issued any kind of notice or clarification explaining that it has now reached a final conclusion.

The only thing that has happened is that the BEE Advisory Council — which advises on policy — has reached a resolution. This has not been announced and was referred to only obliquely in a statement issued by Davies after the council meeting. It has not been debated publicly; neither has it been announced by the cabinet as the new government policy.

The absence of any announcement leaves both corporate SA and the developmental and educational trusts that have until now benefited from investments made on their behalf guessing as to what constitutes compliance.

The commission has said that the test between a good broad-based scheme and one that is considered a front, is whether it meets the three ownership tests.

The first is that the beneficiaries of the trust must exercise voting rights, for instance, at annual general meetings. The second is that the beneficiaries must receive equal economic benefits compared to other shareholders. So, for instance, if other shareholders benefit from loans from the company or from income from service agreements with it, trust beneficiaries must benefit too.

The third is that, at the end of the day, when the lock-out period is over, the trust beneficiaries must be the unencumbered owner of the shares in the company in which the trust has invested.

Broad-based trusts which provide bursaries or other benefits to a category of beneficiaries simply do not operate in this way.

Apart from the lack of clarity over this change there is also the principle. The involvement of broad-based trusts in BEE transactions has served an admirable purpose. It has enabled the benefits of BEE to be spread more widely. It has also enabled workers and community groups to mobilise their collective savings to access opportunities.

After the first round of empowerment transactions back in the 1990s — those that went to a few, mostly politically connected individuals — civil society, the ANC included, railed against its elitist nature. This led to the adoption of the Broad-Based Black Economic Empowerment Act in 2003 and the balanced scorecard.

But since 2015 we have gone back to a narrower form of BEE, first by introducing punitive scoring for companies that chose not to do equity deals, and now by placing limits on broad-based trusts.  

It can only be expected that the goal posts will shift again in the future.