General Interest

The Occurence of PDI beneficiary trusts in BBBEE transactions

23 March 2010

In South Africa, PDI beneficiary trusts are employed in a grander nation-building project, which consciously subscribes to the idea that development must be the responsibility of all sectors of society.

Community Trusts are increasingly popular as a vehicle for driving Broad Based Black Economic Empowerment (BBBEE).  However, there is very limited documented knowledge on the frequency of their use, their fitness for the purpose of furthering BBBEE goals, or the factors that enable and constrain their effectiveness.

Anecdotal evidence suggests that the realisation of the developmental objectives described in the BBBEE Codes of Good Practice persistently eludes Community Trusts and that even the immediate outcome for private enterprise – meeting the Ownership target obligation – is inherently problematic.  Considering the importance of BBBEE to the nation-building project, and the prominent controversies concerning its implementation, it is clear that an evidence base to confirm or contest assumptions about the utility of trust vehicles in realizing BBBEE objectives is sorely needed.

Tshikululu Social Investments has commissioned an in-depth study to investigate the role and effectiveness of community trusts in Black Economic Empowerment transactions.

The broad aim of the study can be specified in four objectives:

• To quantify the frequency of Trusts in BBBEE transactions;
• To explore the role of Trust vehicles in BBBEE;
• To document the factors that constrain or enable the success of Trust vehicles; and
• To distil lessons learned and make recommendations towards optimising the utility of Trust vehicles in realizing BBBEE objectives.

The study is a product of Tshikululu’s commitment to acting as a bridge between the needs of the social and formal economic sectors through thought leadership on the role of the private sector in development.  The research focuses in particular on a policy impact analysis of the Codes of Good Practice and the BBBEE scorecard.

Part Two – The Occurence of PDI beneficiary trusts in BBBEE transactions

There has been a significant increase in the number of documented BEE transactions over time, with a leveling off occurring from 2006 to 2008.  The number of trust entities included in BEE transactions has been increasing over time.

Qualitative data from press reports on BEE transactions for 2009 suggest that Trust vehicles are ubiquitous in the larger BEE transactions and increasing in popularity across all deals.

An initial review of the content of the Empowerdex database of BEE transactions, supplemented with additional research, suggests that there are a number of different types of PDI Beneficiary Trusts that can be distinguished.  An initial typology in this regard follows.

• Type 1: The Corporate Social Investment function of a private enterprise, whether constituted as an independent Foundation or simply a department or function within the business, often includes the term “˜Community Trust’ or the word “˜Trust’ in its name, and manages a Trust vehicle through which funds are channeled.

• Type 2: Entities that are founded by members of communities as a vehicle for raising and channeling resources from donors for development interventions, or for managing commonly owned existing resources.  In both cases these are often labeled “˜Community Trusts’.

• Type 3: Not-for-profit entities describing themselves as “˜Community Trusts’ that are involved in development work, but that have their roots in general civil society rather than in the private sector or a specific localized community.

• Type 4: Entities specifically constituted for the purposes of broadening the empowerment base of a particular BEE transaction.  These would include Trust vehicles benefitting a community or Workers Trusts designed to benefit employees.

Download Part Two of the study here or visit our Document Archive for Part One and future releases.

Disclaimer

While the views and conclusions contained in this study do not necessarily reflect those of Tshikululu, who owns the copyright to this work, it is shared with interested parties to encourage debate around and further study into the subject.

Any reference to this work must include acknowledgement of Tshikululu Social Investments.  The authors are members of the Feedback Research & Analytics team that conducted the study.