On Thursday the 11th of February 2021, we witnessed a very different state of the nation address (SONA). Due to the impact of the COVID-19 pandemic on the nation, President Cyril Ramaphosa enlightened us on how he plans to revive the nation, just as fynbos does after a wild fire.
Ramaphosa mentioned many areas of improvement of which one area was focused on Broad-Based Black Economic Empowerment (B-BBEE). He confirmed that the BEE policy would continue to be used to improve the economy and that it’s here to stay for the foreseeable future. Many South African would wonder how this will be done, whilst others will simply agree and move on.
Considering its ongoing presence with us, it’s important to understand some of the fundamentals of B-BBEE which should be considered when planning and implementing your company’s B-BBEE strategy.
We should therefore start with the definition of Broad-Based Black Economic Empowerment as per the BEE Act, Government Gazette No. 25899, Act 53 of 2003 and as amended by Government Gazette No. 37271, Act No. 46 of 2013, which formed part of the president’s speech.
Considering its ongoing presence with us, it’s important to understand some of the fundamentals of B-BBEE.
‘Broad-based black economic empowerment’ means the viable economic empowerment of all black people, in particular women, workers, youth, people with disabilities and people living in rural areas, through diverse but integrated socio-economic strategies that include, but are not limited to —
(a) increasing the number of black people that manage, own and control enterprises and productive assets;
(b) facilitating ownership and management of enterprises and productive assets by communities, workers, co-operatives and other collective enterprises;
(c) human resource and skills development;
(d) achieving equitable representation in all occupational categories and levels in the workforce;
(e) preferential procurement from enterprises that are owned or managed by black people; and
(f) investment in enterprises that are owned or managed by black people;’
The above definition needs to be read slowly to ensure that one understands each requirement of the definition. In saying this, please continue to read the following definitions in conjunction with the above definition. The following definitions can be found in Government Gazette No. 42496, Schedule 1, dated 31 May 2019.
‘B-BBEE Owned Company’ means a juristic person, having shareholding or similar members interest, that is B-BBEE controlled, in which Black participants enjoy a right to Economic Interest that is at least 51% of the total such rights measured using the Flow Through Principle.
‘B-BBEE Controlled Company’ means a juristic, having shareholding or similar members interest, in which black participants enjoy a right to Exercisable Voting Rights that is at least 51% of the total such rights measured using the Flow Through Principle.
‘Economic Interest’ means a claim against an Entity representing a return on ownership of the Entity similar in nature to a dividend right, measured using the Flow Through and, where applicable, the Modified Flow Through Principles;
‘Voting Rights’ means a voting right attaching to an Equity Instrument owned by or held for a participant measured using the Flow through Principle or the Control Principle;
‘51% Black Owned’ means an Entity in which:
(a) Black people hold at least 51% of the exercisable voting rights as determined under Code series 100;
(b) black people hold at least 51% of the economic interest as determined under Code series 100; and
(c) has earned all the points for Net Value under statement 100;
Referring to an earlier post (https://www.msctbee.com/post/what-are-the-objectives-of-the-b-bbee-act) on the application and understanding the intent to meet the Objectives of the BEE Act, when applying the relevant definitions to the definition of Broad-Based Black Economic Empowerment, I would believe the intent is to form a business partnership or relationship that is enabling the business as a whole to become a more long term sustainable business, allowing for the business to explore avenues and identify opportunities that may not have been previously available.
It is important to note, the B-BBEE Amended Codes of Good Practice, Government Gazette No. 36928, issued on 11 October 2013 and amended with Government Gazette No. 42496, issued on 31 May 2019, allows for many different types of Ownership structures. The different Ownership Structures available to achieve compliance should be explored to ensure it meets the entities long terms sustainable goals and objectives.