The department of Trade and Industry (DTI) released the new draft codes on 31 May 2019 with the 1st of December 2019 being the effective date of the codes. Sector charter councils were instructed to follow suit and hence the draft release of the Tourism Sector Charter (TSC) unveiling their sector codes changes for commentary. The TSC draft codes were released on 27 September 2019.
The TSC has emphasised three main general principles:
- Unlike the generic codes which gave companies a six-month transitional period, the TSC has made it clear that there will be no transitional period for tourism sector businesses wishing to comply with the sector code. In other words, the effective date of the TSC is the date of gazette. This will have an enormously negative effect on tourism sector companies who were hoping to take advantage of the transitional period if granted in line with the generic codes. Note: The TSC has a 12-month transitional period for the process of finalising the codes. The 12-month period is between 30 June 2019 and 30 May 2020.
- Another noticeable addition to the TSC is the requirement to submit Employment Equity reports for designated employers who employ more than 50 employees or those who exceed the turnover thresholds as specified by the Department of Labour (DoL) However, both large businesses and Qualifying Small Enterprises (QSE) that employ less than 50 employees would have to provide sufficient evidence for verification purposes.
- Similar to the generic codes, the TSC has emphasised the Flow through principle especially where recognition as a black-owned QSE or Exempted Micro Enterprise (EME) is concerned. As in the generic codes, QSEs and EMEs can only get enhanced recognition if they have their black ownership via flow-through on the procurement scorecard.
The Tourism B-BBEE Charter Council (TBCC) will issue a practice note on how verification certificates, reports and sworn affidavits should be submitted to the Council.
Changes to the Skills development scorecard
In the Skills Development scorecard, the TSC has adopted the same indicators as those in the generic codes. The target spend for the first two indicators amount to a total 7% (4%+3%) of payroll for 11 points as opposed to the generic codes whose total target in the same indicators is 6% of payroll for 10 points. The fist indicator for training black people, in other words, employees and non-employees is 4% of payroll for 6 points. This is 0,5% more than the generic codes target on the same indicator (3,5%).
The second indicator which is for bursaries at higher education institutions has been set at 3% of payroll for 5 points. The generic codes have the target as 2.5% for 4 points.
Compared to the current Tourism sector code whose target is 6% of payroll for 5 points, the TSC has alleviated some burden on companies by increasing the number of points allocated to the first two indicators. This might encourage businesses to spend more on training both employees and non-employees to optimise their scorecards
The Disabilities target spend (0,3%) has remained the same but the weighting has dropped to 2 points instead of three as in the current gazetted TSC codes.
The TSC has made major changes in the categories: B, C and D learnerships, apprenticeships and internships respectively. The current TSC codes has a total target of 6,5% of headcount for 12 points and yet the draft is proposing a target of 6% of headcount for 7 points. This has a knock-on effect on businesses that have been banking on these points especially considering that skills development requires a 40% sub-minimum to avoid being discounted.
Absorption, which now refers to permanent employment has been pegged at 6 points instead of 5 with a 100% absorption target. This takes the TSC skills development scorecard to a total of 26 points instead of the current 25 points. This is also a positive move to encourage businesses to absorb learners in these categories.
Other general principles with reference to e.g. 25% cap on categories F, G and the skills development facilitator salary are similar to the generic codes.
Changes to the Enterprise and Supplier Development scorecard
The TSC made further changes in the Enterprise and Supplier Development (ESD) scorecard. These changes are more in line with the changes made to the generic codes scorecard except for a few areas. Some provisions in line with the generic codes are:
- Spend with a supplier that is at least 51% black owned or at least 51% black owned utilising the flow-through principle can be multiplied by 1.2. This would generally apply to QSEs and EMEs.
- Beneficiaries of Enterprise development and Supplier development now includes large entities. Large entities, i.e. entities with more than R50m in annual turnover. However, for large entities, this provision is based on that such a supplier must have been an EME or QSE at the first instance of receiving assistance from the measured entity. This recognition for Large Entities will only be allowed for 5 years from the first time of receiving assistance from the measured entity.
- The TSC has also clarified that a Supplier development beneficiary must have been a current supplier to the measured entity during the financial year under measurement. An Enterprise development beneficiary cannot be a supplier during the same measurement period.
- In the benefit factor matrix, minority investments recognition has been reduced from 100% to 70% whilst the recognition on guarantees provided on behalf of a beneficiary entity has been increased to 50% from 3%. This is a positive move that will encourage large entities to act as guarantees to boos t small business financing.
The weighting on the QSE scorecard has been increased to 4 points instead of the current 3 points but the target has remained the same at 15% of Total Procurement Measured Spend (TMPS). This is to encourage large entities in the sector to increase their purchasing from small business to enhance their growth considering that small businesses are the biggest employers in the South African economy.
The second change has been on the procurement from 51% black owned businesses. This target and weighting is in line with the gazetted generic codes of good practice with a target of 50% of TMPS and 11 points as the weighting. This change is in line with the generic codes. The increase in target is a tough ask considering that most companies are already battling to meet the current target of 40% of TMPS for 9 points.
In line with the generic codes, the TSC has introduced 2 bonus points in the procurement scorecard for purchasing from designated groups. This was not the case in the current gazetted TSC codes. Again, this is a positive move towards transformation as the tourism sector businesses have not been able to benefit from this indicator before.
In conclusion, businesses in the tourism sector must align themselves with the changes with immediate effect. The challenge that these entities face is that the codes are effective as of the gazette date. Key actions would include, preparing an as-is position, conduct a gap analysis, identify required interventions and implement. The 60 days commentary period ends on 30 November 2019.