1. REVISED CODES OF GOOD PRACTICE ON B-BBEE Gazette no. 36928 of 11 October 2013 Gazette no. 36928 of 11 October 2013

2. Contents 1.Legislative Framework 2.Code 000 – General Principles and the Generic Scorecard 3.Code 100 - Ownership 4.Code 200 – Management Control 5.Code 300 – Skills Development 6.Code 400 – Enterprise and Supplier Development 7.Code 500 – Socio Economic Development 8.Questions & Comments

3. LEGISLATIVE FRAMEWORK

4. Legislative Framework LEGISLATIVE PROCESS Delegated Legislation  The Revised Codes of Good Practice is sub-ordinate or delegated legislation. ( i.e. legislation that is not made by the primary legislator but in terms of authority delegated to the executive, the Minister of Trade and Industry in this case. )  The executive’s authority to legislate is limited by act that gives him such authority.  Section 9(5) Public Commentary  +-500 pieces of commentary received  Only then publish final Revised Codes i.t.o.section 9(1)

5.  Broad-Based Black Economic Empowerment Act 53 of 2003  6 Pages – gives wide powers to Minister to issue Codes and Regulations  Section 9(1) and 9(5) interaction, also section 14  Section 10 - mandatory application of any Codes  The Codes of Good Practice on Broad-Based Black Economic Empowerment, 9 February 2007 (Gazette nr.: 29617)  Code 000 to 800  Various Sector Codes – promotion from charter to Code  Statement 005 – Verification Professionals  Revised Codes of Good Practice on B-BBEE, 11 October 2013 (Gazette nr.: 36928) From the Codes Legislative Framework

6. Code 000 – General Principles and the Generic Scorecard

7. Defining Black  “Black people” is as defined in the Broad-Based Black Economic Empowerment Act no. 53 of 2003, (Africans, Coloured and Indians) Please note that this is limited to natural persons who are South African citizens by birth or descent or who acquired citizenship prior to 27 th April 1994 by naturalization or thereafter but who would have qualified had it not been for Apartheid legislation.  Population Registration Act 30 of 1950

8. Revised Codes 000 1.When do the Revised Codes become Effective? 2.What of Old Codes remains after they become effective? 3.Impact on Sector Codes 4.Concept of Empowering Supplier 5.Changes to EME, QSE and Generic Thresholds 6.We don’t expect wide use of merely affidavits 7.QSE Scorecard 8.Generic Scorecard 9.Priority Elements 10.Changes to the B-BBEE Status Levels 11.Broad-Based to Narrow Based Empowerment 12.Who can Verify 13.Mixed Acceptance of Certificates 14.What else does the Revised Codes focus on

9. When do the codes become effective? Notice Page of Gazette 36928 I, Dr Rob Davies, Minister of Trade and Industry, hereby: a)Issue the following Codes of Good Practice (the codes) under section 9 (1) of the Broad-Based Black Economic Empowerment Act, 2003 (Act No. 53 of 2003); and b)Determine that these Codes will come into operation within twelve (12) months from date of this publication. (i.e. 11 October 2014) Statement 000, Section 10 – Transitional Period 10.1For the first year after the gazette of this Statement, a Measured Entity may elect to use: 10.2The Amended Codes of Good Practice; or 10.3The Generic Scorecard in Code series 000, Statement 000 issued on 9 February 2007, notwithstanding the repeal of that Statement. 10.4Thereafter the first year, as per paragraph 10.1, all B-BBEE compliance measurement will be in accordance with this Statement. Problem: Section 10 only effective after 11 October 2014

10. What of Old Codes remains after they become effective?  What is clear is that the Existing Codes (Gazette 29617) is still active and has not been repealed.  Even after 11 October 2014 several of the old Statements or Codes will remain active as the revised Codes does not purport to amend, substitute or repeal them:  All Sector Codes until they are aligned to revised Codes  Statement 003: Guidelines for developing and gazetting of transformation charters and sector Codes  Statement 004: Scorecards for Specialised Enterprises  Statement 005: Requirements for Verification Agencies  Statement 102: Recognition of Sale of Assets  Statement 103: Recognition of Equity Equivalents for Multi Nationals  Code 800: QSE Scorecard?

11. Impact on Sector Codes  Statement 000, section 3.2.3 “A Measured Entity in a sector in respect of which a sector code has been issued in terms of Section 9 of the B-BBEE Act as amended, may only be measured for compliance in accordance with that code.”  All thresholds for distinction between EME’s, QSE’s and Generic Enterprises will therefore remain in tact for those entities that falls within a particular sector Code. EME’s Construction Sector Code: BEP’s < R1.5 mil Tourism Sector Code < R2.5 mil Property Sector Code: Asset Based Businesses – Net Assets <R30 mil QSE’s Construction Sector Code: BEP’s R1.5 mil - R11.5 mil Tourism Sector Code R2.5 mil - R35 mil Property Sector Code: Asset Based Businesses – Net Assets R30 mil – R280 mil  Existing Codes Gazette 29617 will remain the basis for resolving ambiguity, uncertainty or gaps within any particular Sector Code even after the effective date of the Revised Codes. That is until the that Sector Codes itself is aligned to the revised Codes.

12. Concept of a Empowering Supplier  All 25 points for procurement require that the suppliers are Empowering Suppliers.  For B2B Procurement the B-BBEE Status level of the business will therefore mean nothing unless it is also an Empowering Supplier.  Definition: Empowering Supplier " B-BBEE compliant entity, which is a good citizen South African entity, comply with all regulatory requirements of the country and should meet at least three if it is a large enterprise or one if it is a QSE of the following criteria: (a) At least 25% of cost of sales excluding labour cost and depreciation must be procured from local producers or local suppliers in SA, for service industry labour cost are included but capped at 15%. (b) Job creation – 50% of jobs created are for Black People provided that the number of black employees since the immediate prior verified B-BBEE Measurement is maintained. (c) At least 25% transformation of raw material/beneficiation which include local manufacturing, production and/or assembly, and/or packaging. (d) Skills transfer – at least spend 12 days per annum of productivity deployed in assisting black EMEs and QSEs beneficiaries to increase their operation or financial capacity. All EME's automatically qualify as an Empowering Suppliers.

13. Changes to Thresholds  The Thresholds for EME’s, QSE’s and Generic Entities have been amended:  B-BBEE Status Level of EME’s & Black Owned QSE’s  EME’s = Level 4 BEE Status  EME’s = Empowering Supplier status  EME’s or QSE’s that are 51% Black Owned = Level 2 BEE Status  EME’s or QSE’s that are 100% Black Owned = Level 1 BEE Status  Black Owned QSE’s are not automatically Empowering Suppliers  Sworn Affidavits attesting to turnover and black ownership will be sufficient evidence for EME’s and Black Owned QSE’s. Empowering Supplier status for Black owned QSE’s still needs to be verified though.  The term 51% Black Owned is defined and requires:  that the economic interest and voting rights of the business is at least 51% owned by black people as determined in Code 100. (modified flow through applicable)  All net value points are earned

14. Don’t expect wide use of the affidavit  Lacks professional appeal of a certificate;  Not independent confirmation like certificate;  Risk of Inadvertent misrepresentation in affidavit with could be met with fines of up to 10% of rvenue and/or imprisonment of up to 10 years;  Tender Boards of Government may not rely on affidavits ( 2011 Preferential Procurement Policy Framework Act Regulations );  Affidavit only used to attest to black ownership and turnover, but aspects which have become relevant in terms of the new Codes, such as the EME’s ‘designated group status’ and ‘enterprise and suppliers development beneficiary status’, can only be attested to by means of a certificate.

15. QSE Scorecard  3.2.2 of Statement 000 refers to the Generic Scorecard and QSE scorecard  The Revised Codes contains no separate QSE scorecard  5.2 of Statement 000: QSE must comply with all the elements of B-BBEE for the purposes of measurement.  Code 800: not expressly repealed, one has to infer that it was substituted by generic scorecard.  Rumors abound that the Dti will shortly gazette a QSE scorecard.  At the moment therefore no distinction between QSE and Generic Scorecard.  Non-Black Owned QSE’s only have two priority elements in stead of 3 to comply with:  Ownership is compulsory priority element  They then have to choose between either Skills Development or Enterprise and Supplier Development as priority elements.

16. Generic Scorecard

17. Who can verify  Schedule to Statement 005, The Codes – (23 September 2011) has not been repealed  Section 4.5, Statement 000, The Codes has not been repealed “ Sufficient proof of qualification as an EME is and auditor’s certificate or similar certificate issued by an accounting officer or verification agency”

18. Mixed Acceptance – next 12 months  Vast majority of large businesses will not opt into Revised Codes. Whoever goes first will not have any suppliers that are Empowering Suppliers;  Existing Codes only recognises measurement in terms of itself and its aligned Sector Codes. Companies that opt out of the Revised Codes and those rated on Sector Codes would therefore not be able to accept certificates in terms of the Revised Codes;  PPPF Act and its 2011 regulations are not aligned to Revised Codes. Tender boards would be opening themselves up to immense legal risk in accepting affidavits or certificates in terms of the Revised Codes until such time as PPPFA is aligned.  Even white owned EME’s between R5 mil and R10 mil turnover will have little incentive to be rated in terms of Revised Codes as they now have to compete with Level 2 and 1 black owned entities.

19. Ownership : 2007 IndicatorWeight (Marks)Target Black voting rights325%+1 Voting rights of Black women210% Black economic interest425% Economic interest of Black women210% Economic interest of Black designated groups; participants in Employee Ownership Schemes; beneficiaries of Broad-based Ownership Schemes; participants in co-operatives 12.5% Ownership fulfillment1Complete Net Value7Increasing TOTAL20 Black New Entrants 210% Black participants in: Employee Ownership Schemes; Broad-based Ownership Schemes or Co-operatives 110%

20. Ownership: 2013 IndicatorWeight (Marks) Target Black voting rights425%+1 Voting rights of Black women210% Black economic interest425% Economic interest of Black women210% Economic interest of Black designated groups; participants in Employee Ownership Schemes; beneficiaries of Broad-based Ownership Schemes; participants in co- operatives 33% Black New Entrants22% Net Value 8Annexure 100 (E) Total 25

21. Ownership Calculation Normal Formula A = x D A = the score B =the actual contribution by the measured entity C = the target D = the weighting B C

22. Ownership Calculation A = B/C WhereA = % black shareholding B = Issued share in the hands of black participant (26 shares) C = Total Issued Share Capital of ME (100 shares) BEE participant Current Shareholders Measured Entity (Pty) Ltd 74 shares 26 shares 100 issued shares 1000 authorised shares A = B/C = 26/100 = 26%

23. Calculating Net Value Deemed Net Value A = A = the deemed net value B =the value of the shares C = the carrying value of the acquisition debts of the black participants D = the value of the SA operations of the measured entity on date of measurement Net Value = higher of formula A or B Formula AFormula B: normal formula A = B x x 8 A = the score B =the deemed net value C = the time based graduation factor: 10% year 1; 20% year 2; 40% year 3&4 etc. BC D 25% x C 1

24. THE DEFINITION OF ‘CURRENT EQUITY INTEREST DATE The term current equity interest as used in the graduation factors in Formula A of the Net Value calculation in Annexe 100 (C), is not defined in the Codes. Revised Codes did not fix this omission. ABVA’s technical committee interprets the term ‘current equity interest date’ in line with the term “Net Value date” which is defined as meaning: “..the later occurring of the date of commencement of statement 100 and the date upon which the earliest of all still operative transactions undertaken by the Measured Entity in order to achieve black rights of ownership, became effective and unconditional.” Example: Timeline Deal 1 Deal 2 9 Feb 2007 3 Jan 20052 Apr 2009 Date of Commencement statement 100 OTHER BEST PRACTICE NOTES

25. MAJOR DIFFERENCES Increase of overall points from 23 to 25 Black new Entrants  Threshold increase from R20 mil to R50 mil  Target dropped from 10% to 2%  Points increased from 1 to 2 Realisation point moved to Net Value category Modified Flow through principle  BEE controlled or owned company now ≥51%  Can only apply once in entire ownership structure  Cannot apply exclusion principle if you apply MFT

26. MODIFIED FLOW THROUGH PRINCIPLE The Modified Flow-Through Principle applies to any a juristic person in the chain of ownership of the ME, in which black people have a flow-through level of participation of at least 51%. Then, according to this principle, only once in the entire ownership structure (use to be chain) may such black participation be treated as if it were 100% black. Only applies to “Black People” indicators therefore not to any other indicators including female, net value or bonus points. Example on left: Old Codes % BEE = (100% x 15%) + (100% x 10%) = 15% + 10% = 25% Revised Codes % BEE = (100% x 15%) + (60% x 10%) = 15% + 6% = 21% Prior to Transaction Post Transaction Measured Entity Co ACo B BEE 1BEE 2 MFT 51% 60% 15% 10%

27. MAJOR DIFFERENCES Mandated Investments – only South African Continued recognition of Sale of Shares limited Private Equity Fund treatment corrected Definitions of BBOS’s; ESOS’s and Trusts amended to:  Defining of participants and their proportion of entitlement  Limitation of fiduciaries’ discretion with this (except family trusts)  Compulsory AGM’s (disclosure of financials)  Constitution must be available upon request to participants in their language.

28. ANNEXURE 100 (B) VEHICLES BROAD BASED OWNERSHIP SCHEMES Substantive definitions removed in final draft e.g. > 50 people Only objective factual criteria - Management Fees not to exceed 15% - Constitution must record rules for distribution of Econ. Interest - At least 85% of value of scheme to accrue to black people - 50% of fiduciaries must be independent - 50% of fiduciaries must be black people and 25% black female - Chairperson must be independent - On winding up all accumulated econ. interest transferred to beneficiaries or entity with similar objectives. Now Added - Defining Participants and entitlement - Limitation of Fiduciaries discretion - Compulsory AGM and disclosure of financials

29. EMPLOYEE SHARE OWNERSHIP SCHEMES A Worker or Employee Scheme Objective Rules paragraph 2 of Annexe 100 (B) - Constitution must define Participants and the proportion of their entitlement to receive distributions. - Fiduciaries must have no discretion on the above. - Participants must take part in - appointing 50% of fiduciaries. - managing the scheme at a level similar to shareholders in company. - The Constitution must be available in an official language of the requester. - Winding up all interest payable to participants - Financial reports to be presented at annual general meeting of scheme. ANNEXURE 100 (B) VEHICLES

30. TRUSTS Constitution must define Participants and the proportion of their entitlement to receive distributions. - Written record of beneficiaries or reference to defined class of natural person satisfies the requirement for identification. - Written record of fixed % of entitlement or formula satisfies the need for defining proportion of benefit. Fiduciaries must have no discretion on the above (except in case of family trust) On winding up all interest to beneficiaries or similar entity representing interests of beneficiaries. Additional criteria for 100% recognition – certificate by competent person. ANNEXURE 100 (B) VEHICLES

31. MANAGEMENT CONTROL - 2013 Measurement category & CriteriaWeighting points Compliance Target 2.1.1 Exercisable Voting Rights of black board members as a percentage of all board members 250% 2.1.2 Exercisable Voting Rights of black female board members as a percentage of all board members 125% 2.1.3 Black Executive Directors as a percentage of all executive Directors 250% 2.1.4 Black female Executive Directors as a percentage of all executive Directors 125% Board Participation

32. MANAGEMENT CONTROL Measurement category & CriteriaWeighting points Compliance Target 2.2.1 Black executive Management as a percentage of all executive directors 260% 2.2.2 Black female executive Management as a percentage of all executive directors 130% Senior management Measurement category & CriteriaWeighting points Compliance Target 2.3.1 Black employees in Senior Management as a percentage of all Senior Management 260% 2.3.2 Black female Senior Management as a percentage of all Senior Management 130% Other Executive management

33. MANAGEMENT CONTROL Measurement category & CriteriaWeighting points Compliance Target 2.4.1 Black Middle Management as a percentage of all Middle Managers 275% 2.4.2 Black female Middle Management as a percentage of all Middle Managers 138% Junior management Measurement category & CriteriaWeighting points Compliance 7Target 2.5.1 Black employees in Junior Management as a percentage of all Junior Management 188% 2.5.2 Black female Junior Management as a percentage of all Junior Managers 144% Employees with disabilities Measurement category & CriteriaWeighting points Compliance Target 2.6.1 Black employees with disabilities as a percentage of all employees 22% Middle management

34. MANAGEMENT CONTROL. Key Measurement Principles The Measured Entity must use its current payroll data in calculating its score Collapsing Rules: - If no distinction between Other Executive Management and Senior Management, then Executive Management is measurable as a single indicator with a Weighting of 6 points under paragraphs 2.2.1 and 2.2.2 split as 4 and 2 point respectively. - No provision for collapsing in case of no distinction between other categories.

35. MANAGEMENT CONTROL General Principles Executive Management positions include: CEO, COO, CFO and other Executive Managers that serve on the Board. Other Executive Management positions include: - all executive management that do not serve on the board, e.g. human resource executive, transformation executive; and - other people holding similar positions.

36. Normal Formula A = x D A = the score B =the actual % contribution by the measured entity for that sub-category C = the target D = the weighting B C

37. MANAGEMENT CONTROL. Determining the sub-targets 2.1 The compliance targets for 2.3, 2.4 and 2.5 of the Management control scorecard are based on the overall demographic representation of black people as defined in the Regulations of Employment Equity Act and Commission on Employment Equity Report, as amended from time to time 2.2 In determining a Measured Entity’s score, the target should be further broken down into specific criteria according to the different race subgroups within the definition of black in accordance with the Employment Equity Act on an equitable representation and weighted accordingly. Formula Annexure 200(A) further states that: C is the compliance target as per the Regulations of Employment Equity Act and Commission on Employment Equity Report for that measurement sub-category.

38. Measurement of Senior Management, Middle Management, and Junior Management

39. EAP TARGETS: Commission for Employment Equity Annual Report 2012-2013

40. Source: Commission for Employment Equity Annual Report 2012-2013

41. Measurement Category and CriteriaWeighting points Compliance Target 2.1.1. Skills Development Expenditure on any Program specified in the Learning Programme Matrix for black people as a % of leviable amount: 2.1.1.1 Skills Development Expenditure on Learning Programmes for black people as a percentage of Leviable Amount 8 (6) 6% (3%) 2.1.1.2 Skills Development Expenditure on Learning Programmes for black employees with disabilities as a % of Leviable Amount. 4 (3) 0.3% 2.1.2 Learnerships, apprenticeships and Internships: 2.1.2.1 Number of black people participating in Learnerships, Apprenticeships and Internships as a % of total employees 4 (6) 2.5% (5%) 2.1.2.2 Number of unemployed black people participating in Learnerships, Apprenticeships and Internships as a % of total employees 4 2.5% Bonus Points: 2.1.3 Number of black people absorbed by the Measured and Industry Entity at the end of the Learnerships programme (pre-requisite is a trainee tracking tool) 5 100% SKILLS DEVELOPMENT CODE 300

42. Normal Formula A = x D A = the score B =the actual % contribution by the measured entity for that sub-category C = the target D = the weighting B C

43. Calculating Compliance (for 2.1.1.1 and 2.1.2) AM + CM + IM + AF + CF + IF C C C C C C 6 A = SKILLS DEVELOPMENT CODE 300 For each indicator where: A is the percentage spend on Black Employees (indicator 2.1.1.1) or percentage of Black People (indicator 2.1.2) for each indicator as measured in the Skills Development Scorecard using the annual EAP targets as published in the Regulations of the Employment Equity Act and Commission on Employment Equity Report AM is the % of spend (indicator 2.1.1.1) or people (indicator 2.1.2) in the measurement category that are African Males CM is the % of spend (2.1.1.1) or people (2.1.2) in the measurement category that are Coloured Males IM is the % of spend (2.1.1.1) or people (2.1.2) in the measurement category that are Indian Males AF is the % of spend (2.1.1.1) or people (2.1.2) in the measurement category that are African Females CF is the % of spend (2.1.1.1) or people (2.1.2) in the measurement category that are Coloured Females IF is the % of spend (2.1.1.1) or people (2.1.2) in the measurement category that are Indian Females C is the compliance target as per the Regulations of the Employment Equity Act and Commission on Employment Equity Report for that measurement sub-category

44. SKILLS DEVELOPMENT CODE 300 Skills Development now a priority element (40% of targets vs. total weighting points?) New pre-requisites:  SETA approved documents: Workplace Skills Plan, Annual Training Report and Pivotal Report  Implemented Priority Skills programmes for black people No enhanced recognition for ABET programmes Skills Spend target increased from 3% to 6%  Skills spend on unemployed black people now also recognised (double counting SED?)  Mandatory sectorial training does not qualify i.e.. health and safety  The following are limited to 15% of the total Skills Development Expenditure (i.e.. inclusive of spend on non- black):  Category F & G learning Programmes  Legitimate training costs e.g.. accommodation, travelling (non-exhaustive list) MAJOR DIFFERENCES

45. SKILLS DEVELOPMENT CODE 300 MAJOR DIFFERENCES Legitimate Recognisable Training Expenses  Costs of training materials;  Costs of trainers;  Costs of training facilities including costs of catering;  Scholarships and bursaries;  Course fees;  Accommodation and travel; and  Administration costs such as the organization of training including, where appropriate, the cost to the Measured Entity of employing a Skills Development facilitator or a training manager.

46. SKILLS DEVELOPMENT CODE 300 Bonus points for absorption of black people at end of learnerships  Absorption = “a measured entity’s ability to successfully secure formal permanent or long-term contract employment for the Learner or to assist the Learner’s proceed with further education and training”  Seems to be only available for people that were on Learnerships  Tracking tool must be developed to score these bonus points  If less than 100% absorbed then still earn proportionate recognition Salaries or wages only recognised if the Learning Programme is a Learnership, Internship and Apprenticeship (category B, C and D) of the Learning Programme Matrix. New Learning Programme Matrix (Annexe 300A) MAJOR DIFFERENCES

47. Learning Programme Matrix CatProgrammeNarrative DescriptionDelivery ModeLearning SiteLearning Achievement ABursariesInstitution-based theoretical instruction alone – formally assessed by the institution Institutional instructionInstitutions such as universities and colleges, schools, ABET providers Recognised theoretical knowledge resulting in the achievement of a degree, diploma or certificate issued by an accredited or registered formal institution of learning BInternshipsInstitution-based theoretical instruction as well as some practical learning with an employer or in a simulated work environment – formally assessed through the institution Mixed mode delivery with institutional instruction as well as supervised learning in an appropriate workplace or simulated work environment Institutions such as universities and colleges, schools, ABE providers and workplace Theoretical knowledge and workplace experience with set requirements resulting in the achievement of a degree diploma or certificate issued by an accredited or registered formal institution of learning CLearnershipsRecognised or registered structured experiential learning in the workplace that is required after the achievement of a qualification – formally assessed by a statutory occupational or professional body Structured learning in the workplace with mentoring or coaching WorkplaceOccupational or professional knowledge and experience formally recognized through registration or licensing DLearnerships OR Apprenticeships Occupationally-directed instructional and work-based learning programme that requires a formal contract – formally assessed by an accredited body Institutional instruction together with structured supervised experiential learning in the workplace Institution workplaceTheoretical knowledge and workplace learning, resulting in the achievement of a South African Qualifications Authority registered qualification, a certificate or other similar occupational or professional qualification issued by an accredited or registered formal institution of learning EWork-Integrated Learning Occupationally-directed instructional and work-based learning programme that does not require a formal contract – formally assessed by an accredited body Structured, supervised experiential learning in the workplace which may include some institutional instruction Workplace and some institutional as well as ABET providers Credits awarded for registered unit standards, CPD, improved performance or skills (e.g.. evidence of outputs based on Performance Development Programme) F Informal training Limited to 15% of total spend Occupationally-directed informal instructional programmes Structured information sharing or direct instruction involving workshops, seminars and conferences and short courses Institutions, conferences and meetings Continuing professional development, attendance certificates and credits against registered unit standards (in some instances) GInformal training Limited to 15% of total spend Work-based informal programmesInformal trainingWorkplaceIncreased understand of job or work context or improved performance or skills

48. 2.1 PREFERENTIAL PROCUREMENTWeighting points Compliance targets 2.1.1 B-BBEE Procurement Spend from all Empowering Suppliers based on the B-BBEE Procurement Recognition Levels as a % of Total Measured Procurement Spend 5 (12) 80% (70%) (subminimum 32% or discounted one level) 2.1.2 B-BBEE Procurement Spend from Empowering Suppliers that are Qualifying Small Enterprises based on the applicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend 3 15% (subminimum 6% or discounted one level) 2.1.3 B-BBEE Procurement Spend from Empowering Suppliers that are Exempted Micro Enterprises based on the applicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend 4 15% (subminimum 6% or discounted one level) 2.1.4 B-BBEE Procurement Spend from Empowering Suppliers that are at least 51% black owned based on the applicable B- BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend 9 40% (subminimum 16% or discounted one level) 2.1.5 B-BBEE Procurement Spend from Empowering Suppliers that are at least 30% black women owned (defined >30.1%) based on the applicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend 4 12% (subminimum 4.8% or discounted one level) Bonus Points B-BBEE Procurement Spend from Designated Group Suppliers that are at least 51% Black owned 2 2% ENTERPRISE & SUPPLIER DEVELOPMENT CODE 400

49. 2.2 SUPPLIER DEVELOPMENTWeighting pointsCompliance targets 2.2.1 Annual value of all Supplier Development Contributions made by the Measured Entity as a percentage of the target 10 2% of NPAT (subminimum 0.8% or discounted one level) 2.2(3) ENTERPRISE DEVELOPMENT 2.3.1 Annual value of all Enterprise Development and Sector Specific Contributions made by the Measured Entity as a percentage of the target 5 (15) 1% (3%) of NPAT (subminimum 0.4% or discounted one level) 2.4 BONUS POINTS 2.4.1 Bonus point for graduation of one or more Enterprise Development Beneficiaries to graduate to the Supplier Development Level 1 2.4.2 Bonus point for creating one or more jobs directly as a result of Supplier and Enterprise Development initiatives by the Measured Entity. 1 ENTERPRISE & SUPPLIER DEVELOPMENT CODE 400  Cannot get recognition for same activities undertaken in 2.2 and 2.3

50.  One combined scorecard with PP, Supplier Development (SD) and ED. 40 points on the scorecard 4 bonus points.  All indicators (except bonus points) are subject to 40% sub-minimum priority downgrade  Procurement is now based on Procurement Status level and Empowering Supplier status  Removal of enhanced recognition for Black Owned Professional Service Providers and Entrepreneurs  Adjustments made to Total Measured Procurement Spend (i.e. pre- requisite set for allowing permissible exclusions in respect of Imports) MAJOR DIFFERENCES

51.  ED and SD Measured Annually as a % of NPAT (removal of Industry Norms) (allows for averaging over multiple years)  Encouraged to develop and implement an ED & SD Plan including clear objectives, priority interventions, KPI’s, implementation plan.  No double counting between any of the 3 broad categories of the scorecard.  Double counting allowed amongst sub-indicators of PP scorecard. MAJOR DIFFERENCES

52. Formula for calculating the Preferential Procurement Normal Formula A = x D A = the score for preferential procurement B =the weighted B-BBEE spend C = the total measured procurement spend D = the weighting Weighted B-BBEE Spend A= B x C B=Value of included procurement spend with supplier not excluded C= B-BBEE Procurement Recognition of each such supplier B C

53. Contribution LevelQualificationBEE Recognition Level Level One Contributor≥ 100 points on the Generic Scorecard135% Level Two Contributor≥ 95 but < 100 points on the Generic Scorecard 125% Level Three Contributor≥ 95 but < 95 points on the Generic Scorecard 110% Level Four Contributor≥ 80 but < 90 points on the Generic Scorecard 100% Level Five Contributor≥ 75 but < 80 points on the Generic Scorecard 80% Level Six Contributor≥ 70 but < 75 points on the Generic Scorecard 60% Level Seven Contributor≥ 55 but < 70 points on the Generic Scorecard 50% Level Eight Contributor≥ 40 but < 55 points on the Generic Scorecard 10% Non Compliant Contributor< 40 on the Generic Scorecard0% WEIGHTED BEE SPEND SCORE RANGES AND CORRESPONDING B-BBEE STATUS & RECOGNITION

54. Procurement recognition from own Supplier Development Beneficiary with min 3 year contract with ME = BEE spend multiplied by 1.2 Procurement recognition from black owned QSE or EME which is not a supplier development beneficiary with min 3 year contract with ME = BEE spend multiplied by 1.2 Procurement recognition from 1 st time suppliers is multiplied by 1.2 PREFERENTIAL PROCUREMENT WEIGHTED BEE SPEND: Key Measurement principles

55. Concept of Empowering Supplier  All 25 points for procurement require that the suppliers are Empowering Suppliers.  For B2B Procurement the B-BBEE Status level of the business will therefore mean nothing unless it is also an Empowering Supplier.  Definition: Empowering Supplier " B-BBEE compliant entity, which is a good citizen South African entity, comply with all regulatory requirements of the country and should meet at least three if it is a large enterprise or one if it is a QSE of the following criteria: (a) At least 25% of cost of sales excluding labour cost and depreciation must be procured from local producers or local suppliers in SA, for service industry labour cost are included but capped at 15%. (b) Job creation – 50% of jobs created are for Black People provided that the number of black employees since the immediate prior verified B-BBEE Measurement is maintained. (c) At least 25% transformation of raw material/beneficiation which include local manufacturing, production and/or assembly, and/or packaging. (d) Skills transfer – at least spend 12 days per annum of productivity deployed in assisting black EMEs and QSEs beneficiaries to increase their operation or financial capacity.” All EME's automatically qualify as an Empowering Suppliers.

56. Formula for calculating the Preferential Procurement Normal Formula A = x D A = the score for preferential procurement B =the percentage weighted BEE Spend C = the target for preferential procurement D = the weighting How do we calculate the % weighted BEE spend? B = B C Weighted BEE Spend Total Measured Procurement Spend

57. PREFERENTIAL PROCUREMENT SPEND Operational Expenditure Cost of Sales Capital Expenditure Total Spend TOTAL MEASURED PROCUREMENT SPEND Allowable Exclusions: Salaries Loans and Donations Certain imports Rates & Taxes, levy and post retirement funding and Investments loans, etc. Imports (Specific Exclusions as detailed in Statement 500) BEE SpendNon-BEE spend

58. TOTAL MEASURED PROCUREMENT SPEND : INCLUSIONS Cost of sales Operational expenditure Capital expenditure Procurement from organs of state and public entities (Only when statutory monopoly is it excluded. When reseller of service required to look through to primary supplier) Procurement from monopolistic suppliers Third Party Procurement: where the cost of that procurement is included as a expense in the annual financial statements of the ME Outsourced Labour Expenditure: Independent contractors & Labour brokers; Pension & Medical Aid Contributions (excluding contribution to capital investment) Trade commissions Empowerment Related expenditure (excluding ESD & SED but incl. its facilitation cost) ; Imports Intra-group procurement (no exclusion for consolidated verification)

59. Taxation: e.g.. rates, levies, taxes; Salaries, wages, remunerations, and emoluments; Third Party Procurement: where the cost of that procurement is included as a expense in the third party’s or client’s annual financial statements and not ME’s Empowerment Related procurement Investments in or Loans to Associated Enterprise, Investments, loans or donations for ESD or SED  Imports TOTAL MEASURED PROCUREMENT SPEND :PERMISSABLE EXCLUSIONS

60. The following imports may be excluded: PERMISSABLE EXCLUSIONS: IMPORTS Imported capital goods/components for value-added production in South Africa provided that: No existing local production of such capital goods or components; and The importation thereof facilitates further value-added production within South Africa Imported goods or services other than as contemplated above if there is no local production of such goods or services including imported goods or services that: Carry a brand different to locally produced goods or services; Have different technical specifications to locally produced goods or services. ONLY IF ME Developed and Implemented an ESD Plan for imported goods and services with: Clear objectives Priority Interventions Key Performance Indicators Concise implementation plan with clearly articulated milestones

61. BEE Spend = 65% or 85% if enhanced Target is 80% BEE Spend – and Enterprise Development SupplierContribution Level Recognition Level Total Procurement Pure BEE Procurement Score Sup. Dev. Ben. 3yr ct ( x 1.2) 1st time Suppliers (x 1.2) Black- owned QSE EME 3yr ct (x 1.2) Total BEE Score enhanced IPS Co.2R1.25R1 000.00R1 250.00R1 500.00R1 800.00NOR1 800.00 EME Co.2R1.25R1 000.00R1 250.00NO R1500.00 NO BEE Co. Non Compliant ZeroR1 000.00 ZERO JUST BEE Co. 8R0.10R1 000.00R 100.00NOR120.00NOR 120.00 TOTALR4 000.00R2 600.00R 3 420.00

62. Beneficiaries = EME’s or QSE’s that are at least 51% black owned or 51% black women owned ( error in definition in Schedule 1 refers to 30% black women owned ) “Supplier Development Ben.” vs. “Enterprise Development Ben.” “Value-adding Supplier”Non-Supplier? (term not defined)  Objective in both cases must be to contribute to development, sustainability and financial and operational independence of those beneficiaries. SUPPLIER AND ENTERPRISE DEVELOPMENT BENEFICIARIES

63. ENTERPRISE DEVELOPMENT AND SUPPLIER DEVELOPMENT : Benefit Factor Matrix (400B) Qualifying Contribution typeContribution AmountBenefit Factor 1 Grant and Related Contributions 1.1 Grant ContributionFull Grant Amount 100% 1.2 Direct Cost incurred in supporting approved projects or enterprise development Verifiable Cost (including both monetary and non-monetary) 100% 1.3 Discounts in addition to normal business practices supporting approved projects or enterprise development Discount Amount (in addition to normal business discount) 100% 1.4 Overhead Costs incurred in supporting enterprise development (including people appointed in enterprise development) Verifiable Costs (including both monetary and non-monetary) 70% (80%) 2 Loans and Related Contributions 2.1 Interest-Free Loan with no security requirements supporting enterprise and supplier development Outstanding Loan Amount 70% (100%) 2.2 Standard Loan to enterprise and supplier development beneficiaries Outstanding Loan Amount 50% (70%) 2.4 Guarantees provided on behalf of a Beneficiary entityGuarantee Amount 3% 2.5 Lower Interest RateOutstanding Loan AmountPrime Rate – Actual Rate 3 Equity Investments and Related Contributions 3.1 Minority Investment in enterprise and supplier development beneficiaries Investment Amount 70% (100%) 3.3 Enterprise and Supplier Development Investment with lower dividend to financier Investment AmountDividend Rate of Ordinary Shareholders – actual Dividend Rate of Contributor 4 Contributions made in the form of human resource capacity 4.1 Professional services rendered at no cost and supporting approved projects or enterprise and supplier development Commercial hourly rate of professional 60% (80%) 4.2 Professional services rendered at a discount and supporting enterprise and supplier development Value of discount based on commercial hourly rate of professional 60% (80%) 4.3 Time of employees of Measured Entity productively deployed in assisting beneficiaries Monthly salary divided by 160 60% (80%) 5 Other Contributions 5.1 Shorter payment periodsPercentage of invoiced amount x 15% (approx cost of short term funding) Percentage being 15 days less the number of days from invoice to payment (max points is 15% of 10 points) (max 1.5 points) ENTERPRISE DEVELOPMENT MATRIX

64. SOCIO-ECONOMIC DEVELOPMENT: 2007 & 2013 Socio Economic DevelopmentWeighting Points Compliance Target Annual value of all Socio Economic Development Contributions made by the Measured Entity as a percentage of the target 51% of NPAT DEFINITION Par 3.2.1 Code 500 “Socio-Economic Development contributions consist if monetary or non-monetary contributions actually initiated and implemented in favor of beneficiaries by a measured entity with the specific objective of facilitating income generating activities for targeted beneficiaries.” Schedule 1 Contradiction with definition in Schedule 1 which refers to “promotion of sustainable access to the economy”

65. Schedule 1:  Development programmes for women, youth, people with disabilities, people living in rural areas  Support of healthcare and HIV/AIDS programmes  Support for education programmes, resources and materials at primary, secondary and tertiary education level, as well as bursaries and scholarships;  Community training skills development for unemployed people and adult basic education and training; or  Support of arts, cultural or sporting development programmes; Socio Economic Development Examples

66. Full Value: Communities, natural persons and groups of natural persons where at least 75% of the value of the benefits accrue to natural persons who are black people. If less than 75% of contribution directly benefits black people, then the value of the contribution multiplied by the percentage that benefits black people is recognisable. Annual Measurement only. No more Cumulative Measurement. Industry Norm Calculation remains if company made a loss. Socio Economic Development Recognition

67. SOCIO-ECONOMIC DEVELOPMENT BENEFIT FACTOR MATRIX ANNEX 700(A)

68. Concluding Remarks Some Positives: 1.Some technical issues addressed 2.Emphasis on skills and supplier development 3.Local production and procurement 4.ARG done away with Some Negatives: 1.Several more technical flaws 2.Exclusionary approach 3.Over emphasis of black ownership 51% of total scorecard vs. 28% in previous version – contradicts NDP direction 4.Government procurement practice section 217 of Constitution 5.Contradictions, inconsistencies and drafting errors abound Individuals affected by sub-ordinate legislation must know with a reasonable amount of certainty what is expected of them. In cases where a particular provision of sub-ordinate legislation is certain, that provision is valid. Where it is uncertain that provision should be invalid by reason of uncertainty or vagueness. [Arnold v Race Classification Appeal Board and Another [1967] II All SA 182 (C).]

69. Comparison to F & C Sub Sector Charter  No Priority Elements in F&C  Ownership is the same  Management control is the same  New codes have a slight higher Black Junior Manager ( 88% - F&C 80%) and Black female Managers ( 44% - F&C 40%)  Skills - increase in skills spend from 3% to 6%  ED - F&C has an extra 1.5% spend for Female black owned business  There is no SD in F&C  Procurement – 10% increase in Black Spend  SED – extra recognition for HIV / Bursaries / Poverty Alleviation F&C industry awareness