Transport Sector Codes. Is that a red light at the end of the tunnel?

The Department of Trade, Industry and Competition (dtic) has been under pressure to repeal or finalise the Transport Sector Code, and the 25 October 2021 call by the Department of Transport for nominations to re-establish the Sector Council indicates in which direction it would like this to go.  

The draft Amended Transport Sector Code made its first and only public appearance in February 2016, making it the only set of Sector Codes that has not yet been aligned to the Amended Generic B-BBEE Codes of Good Practice (Amended Codes). In the past sector codes were repealed if they are not aligned with the Amended Codes after a period of time.

Deon Oberholzer, CEO at Gestalt Growth Strategies, says that the call for Sector Council nominations is significant because it shows that the ministry wants to resurrect the discussions on the transformation of the wider transport industry. This may bring years of speculation to a close and provide some much needed clarity to an industry that have been battered and bruised by the COVID pandemic.  We do hope that the expected higher targets and costs will not break the back of struggling companies in this sector.

“If the Sector Code had to be repealed in a move similar to what we saw with the Construction Sector Code in 2016, it would shift the responsibility to the industry to come forward with a new proposed Sector Code. Companies in the Transport Sector would have to align with the Amended Codes until such time. However, there are significant differences between the Amended Codes and both the Current and draft Amended Transport Sector Code,” says Oberholzer. 

Although the dtic has resurrected the process, the timelines after the appointment of the new Sector Council are still unclear. Oberholzer says it could take several months to get the process back on track, which means it could be a long time before the transport industry has a gazetted set of codes. 

With the window for comments on the 2016 draft of the Transport Sector Codes closed, Oberholzer says the new Sector Council, depending on its mandate, may opt to consider the feedback already received and simply push to present a revised set of the Draft Codes for Ministerial approval.  Alternatively, they may be mandated to open the window for public comments again. This, he believes, would be the better option as a number of amendments to the Generic B-BBEE Codes have been implemented since 2016 when the draft Transport Sector Codes were released. 

According to Oberholzer, transformation to comply with the Amended B-BBEE or the published version of the draft Amended Transport Sector Code is significantly more expensive and complex than the current Transport Sector Code.  

“This is especially true with Skills Development Spending where the target doubles to 6% of payroll. The minimum points needed to achieve a Level 4 under the Amended Codes are also considerably higher than what is required under the Transport Sector Codes.  

“In a competitive space, if everyone is measured on the same scale, and the entire Sector drops by 4 levels, the race would be on to make up the shortfall if B-BBEE is critical to securing and keeping business. The finish line will be much more difficult to reach in a very tough economy. ”

He says that white-owned companies that embrace transformation face a hefty bill in order to comply with the Amended Codes and achieve a Level 1 or 2 rating while black-owned qualifying small enterprises (QSEs) with an annual turnover of between R10-million and R50-million are exempt at Level 1 or 2. 

Companies in the Transport Industry have been pushing for black ownership for some time now, and are increasingly being measured on black ownership first rather than B-BBEE compliance. This, says Oberholzer, has given rise to a plethora of schemes and scams to achieve ownership. 

“These range from the typical ‘rent-a-black partner’ arrangements to more sophisticated schemes and scams. A 51% shareholder is defined as the controlling shareholder and any structure that removes or attempts to remove their inherent rights is by definition a misrepresentation of the base concept of control, therefore a front.

“There are many ways in which companies can embrace transformation and be prosperous, including qualifying as a Black Owned or Black Women Owned Company, without getting on the wrong side of the law. In May this year, the Minister of the dtic, Ebrahim Patel, published an explanatory memorandum that sets out the correct approach and interpretations for broad based and employee ownership schemes, and it is mostly positive.  It is aimed at clarifying the requirements if companies want to include employees in a legitimate scheme or engage with a development scheme that helps with the meaningful development of black people. If companies are in doubt over the legitimacy of their ownership scheme, they should do something about it now.”  

Oberholzer concludes saying that companies in the transport sector need to understand the differences between the Transport Sector Codes and the Amended Codes because a revision or repeal of the codes will have a material impact on their B-BBEE ratings.  

“We stopped telling our clients to implement strategies to comply with the Amended Codes or the draft Transport Sector Codes some years ago, but companies should at least have a plan. The benefit of embracing the Codes and getting your business to Level 1 still remains a great competitive advantage in a tough industry, provided you do it right and cost effectively. It is important to understand how the requirements of the Amended Codes will affect your business and have an appropriate strategy to achieve a better rating in the most cost efficient way. 

“It is also critical to understand the risks of dodgy ownership schemes and respond well enough to future proof your business.”