General Principles of B-BBEE: Not mandatory but highly recommended
Black Economic Empowerment (BEE) was a policy implemented aimed at levelling the economic playing fields that had been distorted by decades of apartheid economics where previously disadvantaged people were denied opportunities.
The initial policy was solely based on Ownership and Management Control which, as a result, limited opportunities for access to the broader economy to a limited amount of black people.
In an attempt to broaden the scope and beneficiaries of economic transformation in South Africa, Broad-Based Black Economic Empowerment (B-BBEE) was introduced through the BEE Act, Government Gazette No. 25899, Act 53 of 2003 and as amended by Government Gazette No. 37271, Act No. 46 of 2013. The expanded scope has come to now include 5 transformation pillars which, in addition to Ownership and Management Control, now include Skills Development, Enterprise, and Supplier Development (including Preferential Procurement), as well as Socio-economic Development.
Black Economic Empowerment (BEE) was a policy implemented aimed at levelling the economic playing fields that had been distorted by decades of apartheid economics where previously disadvantaged people were denied opportunities.
The interesting and noteworthy fact about the B-BBEE Act is that compliance is actually not mandatory by law for businesses. However, compliance with it has the advantage of entitlement to benefits such as:
• Enhanced or preferential business opportunities through the achievement of improved recognition levels;
• Increased access to state funding & public tenders;
• As well as, and most importantly, empowering the South African market.
Given the above-mentioned benefits, conversely, businesses that do not comply may have limited opportunities compared to those who do, making this non-mandatory policy a high impact one nonetheless. With the Act being customized for implementation through gazetted sector codes defining B-BBEE Compliance across South Africa’s major industries, most businesses in South Africa will have to jump on board this train or face growing consequences for their survival.
Statement 000 of the Codes of Good Practice on B-BBEE specify the interpretive principles and application of the codes for companies requiring measurement for their latest financial measurement period.
The codes define the following thresholds for companies requiring annual verification:
• Exempted Micro Enterprises (EME) with an annual turnover of less than R 10 million per annum are given a default level 4 contributor status. EMEs with 100% black shareholding automatically qualify as a B-BBEE Level 1 contributor while EMEs with 51% black shareholding automatically qualify as a B-BBEE Level 2 contributor. All EME’s only require the completion of the appropriate affidavit for their particular sector which can be requested from us at MSCT BEE Services.
• Qualifying Small Enterprises (QSE) have an annual turnover of between R 10 million and R50 million per annum. QSEs with 100% black shareholding automatically qualify as a B-BBEE Level 1 contributor while QSEs with 51% black shareholding automatically qualify as a B-BBEE Level 2 contributor. All other QSEs would be required to be rated on a full QSE Scorecard where all 5 elements (Ownership, Management Control, Skills Development, Enterprise and Supplier Development and Socio-Economic Development) would be applicable.
• Generic companies with a turnover above R 50 million per annum undergo a full verification on a generic B-BBEE scorecard which once again includes all 5 elements.
Further to this, the Codes of Good Practice have defined 3 “Priority Elements” which compliance should be planned for in order for companies to avoid being discounted a B-BBEE Level during their verification.
The Priority Elements are as follows:
- Ownership: The sub-minimum requirement is 40% of Net Value (40% of the 8 points)
- Skills Development: The sub-minimum requirement for is 40% of the total weighting points excluding bonus points.
- Enterprise and Supplier Development: The sub-minimum requirement is 40% of the total weighting points for each of the three categories, excluding bonus points, within the Enterprise and Supplier Development element, namely preferential procurement, Supplier Development and Enterprise Development.
A Large, Generic Enterprise is required to comply with all Priority Elements while a QSE undergoing a full verification is required to comply with Ownership as a compulsory element, and either Skills Development or Enterprise and Supplier Development.
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