May 31, 2004

By Dirk De Vynck

Cape Town - The retail industry arguably must be the sector that faces the least pressure as far as black economic empowerment (BEE) compliance is concerned and hence could be one of the last to transform.

Soria Hay, the executive director of corporate finance and structured financing group Bravura, which does work for the retail sector, said the reason for this could be found in the retailers' client base of shoppers.

"The pressure to have your house in order as far as BEE is concerned normally comes from the clients you deal with," said Hay. "Many of these clients will not do business with you if you do not have the necessary BEE credentials.

"This is especially true when dealing with the government, and explains why industries like the financial sector, which works a lot with the government, has implemented a BEE charter that specifies certain empowerment criteria."

"But the retail sector's clients are consumers, from whom little pressure can be expected."

Still, Hay added that the retail sector was not totally immune. "We have seen that not being BEE compliant could count against a company."

"This is especially true where a retailer may be looking for a new store location."

For instance, if a retailer was looking at opening a store in the Victoria & Alfred Waterfront, which is owned by Portnet, it could have some problems if it was lacking in its BEE make-up.

"Another example could be a retailer wanting to open a store in one of the many state-owned airports," said Hay.

Asked about preferential procurement as one of the empowerment criteria, she said she did not see it as a major obstacle; there were ways of addressing possible complications.

Take, for example, the case of sourcing fruit and vegetables from black farmers.

"Going by the huge volumes of fruit and vegetables retailers source from farmers, of whom most in South Africa are white, it would basically be impossible to expect retailers to source a required percentage from black farmers," said Hay.

"Because of this, the retailers could negotiate that the sourcing of fruit and vegetables be excluded from the procurement criteria."

"This is exactly what happened in the BEE charter for the mining industry, where a lot of equipment can only be sourced from overseas."

Vuyo Jack, the chief executive of Empowerdex, a BEE research and rating agency, said that companies' initiatives were rated on a broad base and that it was the overall weighting that counted.

This implied that if a grocery retailer did not score high on preferential procurement, he could still do well on the other BEE pointers and accumulate a satisfactory overall weighting.

Companies' rating is done based on a BEE scorecard. This scorecard uses the seven pillars of BEE, each with its apportioned weighting.

The seven pillars are: ownership; operational control, classified as direct empowerment; employment equity; corporate social investment; skills development, which is categorised as human resource development; preferential procurement; and enterprise formation, classified as indirect empowerment.

The last pillar is described as a residual and allows for a measure of flexibility. Hence it could differ from one industry to the next and could include social responsibility initiatives.

Where there was no sector-specific scorecard, as was the case in the retail sector, Jack said such a sector would revert to the generic scorecard as set out by the government.

A calculation mythology is applied to arrive at an overall weighted average.

Depending on this overall weighting, a company can either be classified as a limited contributor to empowerment with a score of between 0 and 40; a satisfactory contributor with a score of between 40 and 65; or a good contributor, with a score in excess of 65.