Amended Forest Sector Code (FSC) – Part 2 – Sector-specific principles and applications of the code

The Amended Forest Sector Code was published in Gazette 40803 on 21 April 2017.

This is the second in a series of articles listing the basics of this sector code.

SECTOR SPECIFIC PRINCIPLES

The Forest Sector has adopted the following sector-specific principles that guided the formulation of the FSC and are to be applied with respect to the implementation thereof:

A. B-BBEE is Broad-Based

Sector transformation needs to be broad-based both in terms of:

1. The spectrum of black people (including women, workers, youth, people with disabilities, and those living in rural areas) that benefit from the transformation process; and
2. The set of instruments to be used to achieve the empowerment objectives (ownership, management control, human resources and skills development, employment equity, preferential procurement, enterprise development, social investment and other industry-specific initiatives).

B. B-BBEE is an Inclusive Process

Sector transformation needs to be an inclusive process with the participation and commitment of all stakeholders in the sector, including all enterprises, whether large or small, both management and labour that operate within the sector, as well as community groups and relevant government departments that interface with the sector. Inclusiveness is required both in relation to the formulation of the FSC and its implementation.

C. B-BBEE and Economic Growth

The scope and sustainability of B-BBEE will depend in large measure on growth in the sector and vice versa. Being exposed to global markets, the sector needs to maintain its competitiveness and profitability to secure long-term sustainable growth. Growth-linked transformation needs to provide for the expansion of the country’s limited plantation resource, increased productivity, value-adding and SMME development in making B-BBEE work for the poor.

D. B-BBEE and Partnerships

The successful implementation of B-BBEE in the forest sector requires partnerships at different levels:

1. Between different sub-sectors because of vertical integration and horizontal interdependence between different operators in the value chain.
2. Between large corporate and small-scale enterprises that operate in the sector: their joint effort is needed to deal successfully with many of the challenges facing the sector and to secure the transfer of skills and mentorship support to empower Black-owned enterprises to be able to succeed and thrive in the competitive business environment.
3. Between the industry (with its managerial and technical skills as well as financial resources) and government (that contributes resources and controls the policy and regulatory environment in which the industry operates).
4. Between industry and local/rural communities: these communities should both benefit from B-BBEE and impact the socio-economic context in which the forest enterprises operate.

E. B-BBEE and Good Governance

Good governance must underpin B-BBEE. All participants in the sector (management, labour, communities and government) need to adhere to the highest standards of good corporate governance to improve the quality and transparency of business in the sector.

Good governance includes being compliant with legislation, following due process, applying fair labour practices, being socially responsible and applying environmentally sustainable business practices. Fronting as a disguise for B-BBEE will not be acceptable and will be dealt with in accordance with the B-BBEE Act as amended.

F. Shared Vision for the Industry

All role players need to commit to a shared vision for the forest industry and seek win-win approaches to tackling the transformation challenges arising. This needs to be underpinned by a common understanding of the challenges facing the sector and its sub-sectors and a commitment to implement the strategies and instruments for sustainable growth and broad-based empowerment throughout the forestry value chain. This Amended FSC represents the sector stakeholders’ shared vision for broad-based empowerment with growth for the Forest Sector, namely:

1. An inclusive and equitable forest sector in which Black women and men fully participate.
2. A forest sector that is characterised by sustainable use of resources, sustainable growth, international competitiveness and profitability for all its participants.
3. A forest sector that contributes meaningfully to poverty eradication, job creation, rural development and economic value-adding activities in the country.

G. Rural Development

The forestry sector is uniquely positioned to address rural development issues in that its operations are primarily situated in rural and underdeveloped areas. The industry therefore recognises its ability to have a meaningful impact on these communities and also on Black women within these communities. This understanding should guide the manner within which measured entities in this sector target and implement B-BBEE initiatives. It should also guide the development of sector-specific initiatives within the sector. As such, some of the objectives of the Amended FSC can be summarised as follows:

1. Bona fide enterprise development that ensures that the main beneficiaries of enterprise development are previously disadvantaged Black people, with a specific focus on marginalised groups.
2. The promotion of a linkage between enterprise and supplier development initiatives and the socio-economic challenges in forestry communities whose main economic activities are conducted in rural areas with a specific focus on building sustainable small businesses.
3. A focus on addressing the poor growth of Black women-owned enterprises through addressing access to finance and business development support, prioritising marginalised and rural Black women and improving their position in the value chain.
4. Addressing the structural issues of women and rural people’s enterprise and supplier development. In particular, the issue of empowering women in forestry should be addressed.
5. Promote the use of broad-based schemes such as cooperatives to prevent development initiatives (ownership, enterprise and supplier development) benefiting only a narrow base of beneficiaries. Emphasis should also be on rural beneficiation.
6. The restructuring of state-owned assets such as SAFCOL should emphasise rural and broad-based empowerment for current industry participants and minimise any detrimental impact on job security.

H. Accountability

The Amended FSC contains various commitments from industry, government, labour and other stakeholders. The stakeholders are interdependent on each other for the successful implementation of their respective obligations. More importantly, the participants in the sector recognise that the successful transformation of Black people in this sector is wholly dependent on these commitments being executed. All stakeholders in the sector are
therefore accountable for the commitments that they agreed to in terms of this FSC.

Accountability means that there are consequences to non-performance on commitments.

Given the fact that the B-BBEE scorecard is traditionally only an effective tool for incentivising the performance of one participant in the sector, namely Industry, the stakeholders have agreed that this sector code and its scorecard will incentivise performance from all stakeholders in the sector. Targets and weightings in the scorecards have therefore been aligned to stakeholders’ commitments in terms of the amended FSC.

APPLICATION OF THE FOREST SECTOR CODE

This code applies to all enterprises involved with commercial forestry and first-level processing of wood products. This covers the following sub-sectors:

1. Growers sub-sector (plantations, nurseries and indigenous forests).
2. Contracting sub-sector (forestry contractors in silviculture, harvesting, fire-fighting services and other forestry contracting services that are not covered by their own sector codes).
3. Fibre sub-sector (pulp, paper, paperboard, timber board product, woodchip and wattle bark manufacturers).
4. Sawmilling sub-sector (industrial, structural and mining timber sawmills and match producers).
5. Pole sub-sector (pole treatment plants).
6. Charcoal sub-sector (charcoal producers).

Non-timber forest product enterprises such as those involved in honey production and harvesting of mushrooms and medicinal plants, as well as forestry-based tourism enterprises, are not directly covered by the Code, as they are included in other Sector Codes. However, because forestry growers license these activities, non-timber forest product enterprises will be impacted by and benefit from the agreements reached within the FSC.

The South African Forestry Company Limited (SAFCOL) is a state-owned enterprise that has certain obligations in terms of this Forest Sector Code. SAFCOL is, however, excluded from the Forest Sector Code for purposes of its own measurement. It should apply the Specialised Enterprises scorecard (Code 000, Statement 004, Gazette 38766, 6 May 2015) when measuring its B-BBEE status level.

All measured entities falling within the scope of the amended FSC as set out above may only be measured for compliance in accordance with this amended FSC.

1. Where a measured entity operates in more than one sector, whether it requires a single entity verification or a consolidated verification for it as a group, it will be required to report in terms of the scorecard for the sector in which the majority of its core activities (measured in terms of revenue) are located.
2. Where the Measured Entity is the holding entity in a consolidated verification and any of its subsidiaries are subject to measurement in terms of a set of codes (sector or general) other than that which governs the Measured Entity, then such a subsidiary will not be able to tender the consolidated verification certificate of the Measured Entity as its own, notwithstanding the fact that it formed part of the consolidated verification. The subsidiary will have to be measured in terms of the set of codes (sector or general) applicable to it based on its own core activities (measured in terms of revenue).

The basis for measuring the B-BBEE compliance of an entity is:

1. In the case of an Exempted Micro-Enterprise or Start-up Enterprise (to be discussed in the next article).
2. The Generic Scorecard and QSE Scorecard, in the case of other measured entities.
3. The Amended FSC is a relevant code of good practice for the purpose of all activities listed in section 10 of the B-BBEE Act as amended.

The next article will discuss PRIORITY ELEMENTS, SUB-MINIMUM AND DISCOUNTING PRINCIPLES, and COMPLIANCE TO PRIORITY ELEMENTS, amongst others.