Forest Sector making progress in meeting transformation targets

The good news is that the Forest Sector has improved its overall B-BBEE rating from Level 4 to Level 3, demonstrating progress towards achieving transformation targets. Furthermore, there has been an encouraging improvement in the number of enterprises that submitted their B-BBEE Reports to the Forest Sector Charter Council – from 113 in 2021/22 to 192 during the 2022/23 financial year. 

While these trends reflect the progress that the forest sector is making towards achieving transformation targets, it must be said that the number of enterprises submitting their B-BBEE Reports is still fairly low relative to the number of enterprises that are active in the sector.

This is the case despite the fact that annual reporting of transformation performance for all large, medium, small and even micro-enterprises is required in terms of the amended B-BBEE Act.

The Forest Sector Charter Council (FSCC), which is charged with monitoring and reporting on the sector’s progress in achieving the B-BBEE targets, has been one of the most consistent and diligent charter councils in the country when it comes to annual reporting of the state of transformation in the sector. The FSCC team has also engaged with business associations and business owners in an effort to encourage them to submit their B-BBEE reports.

In any event it is pleasing to note that the biggest companies in the sector that are engaged in forestry and processing of wood and/or fibre are reporting regularly. These companies together represent a large chunk of the sector’s turnover, so their participation is crucial to the sector’s contribution to transformation.

It is safe to say that in general, it appears that the most transformed enterprises make up the bulk of enterprises submitting their reports as they are able to demonstrate good progress towards achieving the B-BBEE targets. This observation is borne out by the fact that the majority of Qualifying Small Enterprises (QSEs) and Exempted Micro-Enterprises (EMEs) submitting Reports were ‘Enhanced’, meaning that they have between 50% and 100% black ownership and thus automatically achieve Level 1 or Level 2 B-BBEE rating.

A number of commentators have pointed out that many enterprises in the sector are currently in ‘survival’ mode due to the impacts of Covid-19, load-shedding and a generally depressed economy, and so resources are stretched. As a consequence transformation efforts may be taking a back seat to more pressing issues. This is true of many other sectors in South Africa as well.

A negative attitude towards BEE among some business owners may also be a factor in low reporting levels. The poor performance of government in terms of service delivery and the decline of state owned enterprises adds fuel to this viewpoint.

The number of enterprises that submitted valid B-BBEE reports to the FSCC by forestry sub-sector in the 2022/3 financial year was as follows:

Forestry contractors are the most diligent sub-sector when it comes to transformation, with 132 enterprises reporting.

The very low number of growers reporting is disappointing. There are around 1 300 medium size growers active in SA and one would expect more to be reporting their transformation status. In mitigation many of these growers are also involved in agriculture and may be reporting under the Agri Charter.

The 10 fibre processors that submitted their reports probably constitute most of the enterprises active in this sub-sector in SA.

The number of charcoal and pole producers that reported is also disappointing.

Forest Sector Highlights

Here are some highlights from the latest Annual Status of Transformation in the Forest Sector Report worth noting:-

• Medium and Large Enterprises (MLEs) recorded ‘remarkable’ scores in Socio-Economic Development, Enterprise & Supplier Development, Ownership and Skills Development.
• MLEs achieved an average score of 50% of target in the Management Control element for the first time.
• QSE Reports were received from only four of the six sub-sectors: Contractors - 58, Sawmillers – 6, Pole producers – 2, Fibre producers – 1; and zero from Growers and Charcoal producers. Nevertheless QSE’s performed well maintaining a Level 2 B-BBEE rating.
• The state-owned forestry company Safcol recorded a big B-BBEE rating improvement, jumping from Level 4 last year to Level 2.
• EMEs are exempted from compliance with the scorecard (they are only required to submit affidavits and/or their CIPC certificates). EME’s achieve an automatic level 4 if unenhanced (below 50% black ownership), while enhanced EMEs with 50-100% black ownership achieve Level 1 or Level 2. It’s no surprise that most of the EMEs that reported are Enhanced.

Commented Makhosazana Mavimbela, Executive Director of the Forest Sector Charter Council: "We are extremely thrilled to have achieved a level 3 B-BBEE rating with improvement also in the number of reporting entities. This performance should no doubt be an escalator for continuous improvements, reliable reporting and impactful B-BBEE implementation in the Forest Sector.

“As a sector, our new approach - besides celebrating this milestone - should be to have all reporting entities in the forest sector reporting annually and gradually elevating our reporting to a point where we are able to fully demonstrate the sector's performance and commitment to the principles and objectives of B-BBEE.”

Commented Forestry South Africa’s Ronald Heath: “We are delighted that the industry has achieved Level 3 status for the first time since the B-BBEE Act was introduced. This demonstrates objectively the progress that has been made in the transformation of the Sector. The achievement is all the more encouraging given the very challenging years which the Sector and the country have endured. It is positive to note the number of reporting entities has grown more than five times over the last three years.”

SA Inc. transformation scorecard

How does the Forest Sector stack up against the rest of South Africa when it comes to transformation?

According to Sanlam’s Transformation Gauge Report released in July this year, South Africa Inc. achieved a combined B-BBEE score of Level 3, showing an improvement in all the scorecard elements over previous years. This matches the Forest Sector’s overall Level 3.

“But there is still a long way to go,” cautions the Gauge Report.

It cites the Ownership element by way of example: SA has achieved 80.8% of the target, which is 25% voting rights in a company for black people. “Is this a good achievement after 30 years of democracy?”

The Gauge Report notes that the worst performing scorecard element in all sectors remains Management Control, achieving 69% of target, up from 56% last year.

The Report notes further that government is pushing through a raft of legislation aimed at forcing compliance with its transformation objectives, particularly from companies that want to do business with government entities. Examples of this are the Employment Equity Amendment Act of 2020 and the Draft Public Procurement Bill. While closer to home the Department of Water Affairs & Sanitation has gazetted draft regulations stipulating that water use licences will only be granted to companies with at least 75% black equity ownership.

The Report notes that government appears to be busy “re-calibrating the balance between incentives and penalties to drive compliance with B-BBEE.”

Unlocking economic development

The rationale behind government’s transformation objectives is to accelerate the entry and development of previously disadvantaged people into the mainstream economy (women and people with disabilities are included in these empowerment imperatives.). This is necessary due to the fact that under previous regimes people of colour were denied opportunities and deliberately excluded from participation in the mainstream economy. Since the advent of democracy in South Africa in 1994, government has moved to reverse the negative impacts of apartheid through its B-BBEE policies.

The thrust is broad-based black empowerment – it is not just about ownership, but includes skills development, supplier development, socio-economic development and management control. This approach is designed to broaden the impacts of empowerment, to reward empowerment efforts of enterprises across a broad front, and to accommodate a diversity of business ownership structures in the transformation journey.

If implemented effectively, it will serve as a boost for the whole South African economy by unlocking the skills and talents of all of its people, and is also critical to the creation of a stable, productive and harmonious society that has been historically skewed by apartheid.

The Forest Sector also stands to gain much from effective transformation, and all enterprises engaged in forest sector business are encouraged to participate. Submitting B-BBEE reports to the Forest Sector Charter Council is not only a legal imperative, it is also a good place to start on the transformation journey.

Reporting is not difficult. It does require a bit of admin, but any business owner who has a good handle on his or her own business should have little trouble reporting against the five scorecard elements. Exempted micro-enterprises with a turnover less than R10 million a year only need to submit affidavits and/or their CIPC certificates to the FSCC to comply.

Effective transformation is therefore central to the South African Forest Sector’s sustainability, and it needs to make a positive impact in the boardroom and on the ground!

For more detailed info on the Forest Sector’s transformation journey, see the following reports:

• Annual Status of Transformation in the Forest Sector Report 2022/23 - http://www.forestsectorchartercouncil.co.za/reporting
• Sanlam’s Transformation Gauge Report - https://sanlamtransformationgauge.co.za/report-2023/