A Cautious welcome to the new codes
EconoBEE is giving a cautious welcome to the new BEE codes which were gazetted by the dti minister, Dr Rob Davies on 11th October 2013. The codes will replace the existing BEE codes of Good Practice and must be followed within a year.
The codes contain a mixture of good aspects and some complexities:
They are fairly similar to the existing codes, although some weightings and names of some elements have been changed.
Instead of 7 elements, we now use 5. However they still contain mostly the same indicators as before.
The 5 elements are:
This has not changed significantly. The targets are still 25%, and weighting is 25 points. We are encouraged that there are some clarifications around how to score points.
The codes previously included 2 elements: management control and employment equity. Both elements have been consolidated into a single element, but with substantially the same indicators. Previously management control and employment equity were worth 29 points combined. The new combined element is only worth 19 points. In recent years employment equity has improved dramatically. Points are the incentive to businesses to become compliant. By dropping the points available and making the weightings more onerous could rebound in that companies may make less effort in this important activity.
Skills has increased from 15 points to 25 showing the importance of skills development in the economy. Some targets have increased: Target spend is now 6% of payroll, instead of 3%, but more points can be earned than ever before and we see this as a positive move.
Enterprise and Supplier Development:
The current codes speak of two elements: Preferential Procurement and also Enterprise Development. The new element Enterprise and Supplier Development (E and SD) is a simple combination of both elements. The two previously were worth 35 points. This has now increased to 44 points. A slight concern is it is now more difficult to reach targets on procurement in that the minister has defined “empowering suppliers” which is a more complex definition than having a simple recognition level. It implies that even if a company does reach a compliant level, it may not be sufficient to help its customers earn BEE points. The whole driver behind BEE compliance is that a company asks its suppliers for BEE certificates in order to earn points and therefore companies obtain certificates to satisfy their customers. If a company cannot meet the requirement of being an “empowering supplier”, even if it can reach a BEE level, it may discourage that company from continuing its transformation journey.
One of the indicators on the new element E and SD is for a company to spend 40% of its procurement from empowering suppliers that are at least 51% black owned. We know that there is a distinct lack of black industrialists and this target is going to be very difficult to achieve. Clever businesses will start the process now of identifying black businesses who can supply substantial values of goods and services. Since the new codes give a one year transitional period, there is not too much time. From a black industrialist’s viewpoint, this is an excellent opportunity to grow his business. If procurement works, BEE will pretty much have succeeded.
The last of the five elements is unchanged at 5 points.
The points on all elements add up to 118 (previously 107 for all seven elements).
Pointsl (incl Bonus)
|Enterprise and supplier development||
|Socio Economic Development||
New Points to Levels Table
As a result of the increased points available the minister has changed the points to levels table as follows.
≥95 but <100
≥85 but <100
≥90 but <95
≥75 but <85
≥80 but <90
≥65 but <75
≥75 but <80
≥55 but <65
≥70 but <75
≥45 but <55
≥55 but <70
≥40 but <45
≥40 but <55
≥30 but <40
We see this as an unnecessary complication to the codes. Everything could have been calculated out of 100%. Psychologically businesses may feel disappointed when they see their current level 3 become a 4 or a 5.
In addition the minister has exempted all businesses with an annual turnover of less than R10million (previously R5million) from all forms of BEE. Any organisation, no matter its ownership is automatically level 4. Furthermore, any business that is 100% black owned and has an annual turnover of less than R50million is automatically level 1. If that business is more than 51% black owned and less than 100% it is level 2.
A QSE (qualifying small enterprise) which is currently any organization/business with a turnover of between R5million and R35million and follows a far more lenient scorecard has been adjusted to R10million to R50million. However, other than for black owned businesses, it still has to follow the entire scorecard with very few allowances or easier aspects to its scorecard than the generic.
The minister has also defined three of the five elements as priority elements with additional targets.
- 40% on ownership’s net value
- 40% of the skills development score
- 40% of the Enterprise and supplier development score
If a generic business does not achieve all three targets (two targets for QSEs), it drops one level.
There is a general improvement in the targets which should result in better transformation. Some of the weightings and targets may be a disincentive.
At first glance the new points to levels table may be more onerous, but we see that most companies will be able to quite easily reach the same number of points as previously. There will be more work and planning required. It will be important to understand how the new code work, and a change in strategy will be required.
This will result in more and better transformation of the economy and we are therefore encouraged.
12th October 2013
CEO – EconoBEE
© EconoServ SA cc
The first three sentences of the preamble to the B-BBEE Act 53 of 2003 give a very clear indication of the act, and its objectives:
WHEREAS under apartheid race was used to control access to South Africa’s productive resources and access to skills;
WHEREAS South Africa’s economy still excludes the vast majority of its people from ownership of productive assets and the possession of advanced skills;
WHEREAS South Africa’s economy performs below its potential because of the low level of income earned and generated by the majority of its people.
Is the above true?
- Apartheid did use race to control people, and access to the economy.
- Apartheid did deprive people of access to skills.
- The economy still does show inequalities: Ownership of assets is still low amongst black people. Access to skills is still difficult. For example, a black man of 50 years old had no opportunity in 1980 due to apartheid and today still has less opportunity than people more privileged by apartheid. Latest Commission for Employment Equity reports confirm an improvement in black people having access to top jobs, but it still has not redressed the past.
- SA’s economy would improve if more people had more skills and better jobs.
BEE is therefore aimed at redressing some of the problems caused by apartheid that still remain with us:
increased skills (note how skills is used twice in the first two sentences of the preamble).
Giving those people assistance in gaining access to productive resources
In order to increase low levels income to grow the economy
The number of SANAS Accredited agencies continues to decrease. As at today there are 68 accredited agencies. This is more than 10% down on the peak number.
Some agencies have migrated to IRBA, while a couple have closed down.
The following list was sourced from the SANAS web site:
|BVA140||AAA BEE Verification Agency CC||Durban|
|BVA086||Abacus Verification (Pty) Ltd||Cape Town|
|BVA073||ABC for BEE (Pty) Ltd||Pretoria|
|BVA162||ABEERate Verification Agency (Pty) Ltd||Johannesburg|
|BVA122||Acacia Compliance Solutions (Pty) Ltd – KZN||Durban|
|BVA166||Afri-BEE Verification Services (Pty) Ltd||Durban|
|BVA021||AQRate (Pty) Ltd||Cape Town|
|BVA102||AQRate Gauteng (Pty) Ltd||Pretoria|
|BVA019||AQRate KZN (Pty) Ltd||Durban|
|BVA092||Ardent Business Partners (Pty) Ltd||Johannesburg|
|BVA110||Aspigon 91 t/a HR Planning Inc||Johannesburg|
|BVA098||BBBEE Linked CC t/a Goal Achievement Partners||Johannesburg|
|BVA074||BBBEE Rating Agency CC||Godrons Bay|
|BVA040||BEE BIZ Compliance (Pty) Ltd||Walmer, Port Elizabeth|
|BVA057||BEE Empowered and Labour Consultancy CC||Cape Town|
|BVA038||BEE Online (Pty) Ltd||Johannesburg|
|BVA044||BEE Professional Assignments CC||Johannesburg|
|BVA149||BEE Rated Verification Agency CC||Durban|
|BVA049||BEE Rating Solutions (Pty) Ltd||Weltevreden Park|
|BVA014||BEE Verification Agency CC||Cape Town|
|BVA115||Beescore (Pty) Ltd – Johannesburg||Johannesburg|
|BVA031||BEESCORE (Pty) Ltd – Kwa-zulu Natal||Durban|
|BVA026||Black Economic Empowerment Verification Agency t/a Beever Agency||East London|
|BVA071||Brentwood Kolisa (Pty) Ltd||Johannesburg|
|BVA152||Business Empowerment Experts (Pty) Ltd||Pretoria|
|BVA023||Client King CC||Port Elizabeth|
|BVA065||Codex Ratings (Pty) Ltd||Stellenbosch|
|BVA056||DRG-Siyaya Verification Agency (Pty) Ltd||Durban|
|BVA030||Empowerdex (Pty) Ltd||Johannesburg|
|BVA141||Empowerdex (Pty) Ltd||Cape Town|
|BVA101||Empowerdex Northern Regions (Pty) Ltd||Pretoria|
|BVA142||Empowerdex Verification Services KZN (Pty) Ltd||Durban|
|BVA018||EmpowerLogic (Pty) Ltd||Johannesburg|
|BVA143||Express Verification Services (Pty) Ltd||Johannesburg|
|BVA017||Grant Thornton Verification Services (Pty) Ltd||Port Elizaberth|
|BVA131||Grant Thornton Verification Services (Pty) Ltd||Cape Town|
|BVA133||Grant Thornton Verification Services (Pty) Ltd||Johannesburg|
|BVA155||Hluka Verification Agency CC||Pretoria|
|BVA046||Honeycomb BEE Ratings (Pty) Ltd||Johannesburg|
|BVA034||Inforcomm (Pty) Ltd||Pretoria|
|BVA126||Inkomba Verification Agency CC||Durban|
|BVA059||Izikhulu BEE Ratings CC||Durban|
|BVA123||Kairos B-BBEE Verification Agency CC||Pietermaritzburg|
|BVA022||KBonga BEE Verification Agency||Cape Town|
|BVA033||Lesego Van Godimo Consulting CC||Pretoria|
|BVA117||M-PowerRatings (Pty) Ltd||Johannesburg|
|BVA127||Marisimo Verification Agency (Pty) Ltd||Pretoria|
|BVA041||Mazars – East London||East London|
|BVA090||Mindwalk Consulting (Pty) Ltd||Cape Town|
|BVA025||Moloto BEE Verifications CC||Pretoria|
|BVA080||Mosela Rating Agency (Pty) Ltd||Pretoria|
|BVA159||Mosela Rating Agency (Pty) Ltd||Cape Town|
|BVA163||Muthelo-BEE (Pty) Ltd||Johannesburg|
|BVA020||National Empowerment Rating Agency (Pty) Ltd||Johannesburg|
|BVA047||PKF BEE Solutions (Pty) Ltd||Johanensburg|
|BVA100||Premier Verification (Pty) Ltd||Johannesburg|
|BVA013||Prostart Traders 24 (Pty) Ltd||Johannesburg|
|BVA069||Provincial Verification Agency cc t/a BLogic Verification Agency||Nelspruit|
|BVA139||Renaissance SA Rating (Pty) Ltd||Pretoria|
|BVA121||SERA Western Cape (Pty) Ltd||Cape Town|
|BVA094||Simunye Resources CC||Johanensburg|
|BVA027||SME Verification CC||Pretoria|
|BVA105||South African Black Economic Rating Agency||Durban|
|BVA129||Symphony Investor Communications (Pty) Ltd||Johannesburg|
|BVA116||Ukuthenga Verification Solutions CC||Cape Town|
|BVA078||Vericom (Pty) Ltd||Johannesburg|
The dti minister has gazetted the final Agriculture B-BBEE Sector Code. All organisations in the agriculture sector will now follow the agri code, instead of the B-BBEE Codes of Good Practice.
The 7th of December 2012 was a landmark day in terms of B-BBEE legislation. State owned enterprises, such as Eskom, Telkom, ACSA, Transnet – business listed on schedules 2 and 3 of the PFMA, are now required to follow the revised PPPFA regulations that take into account the B-BBEE status of supplies for tender purposes.
In June 2011 the finance minister gazetted revised regulations for the PPPFA (preferential procurement policy framework act) which government and all state owned enterprises must follow when they do any procurement or issue tenders. The new regulations of the PPPFA,(sometimes known as the tender act) uses the well known 80/20 or 90/10 rules whereby 90% of the tender is evaluated via the price quoted, and 10% is based solely on the verified B-BBEE status of the tenderer.
Therefore 10% (or 20% in the case of smaller tenders below R1million) of the tender evaluation is based on a valid B-BBEE certificate. The higher the BEE level, the better the chance of winning the tender.
The regulations came into affect on 7th December 2011. This applied to all organs of state and state owned enterprises. It meant that for procurement purposes, government were given a rigid and objective approach to evaluating all tenders received. Unfortunately, on the same day, the minister of finance issued an exemption notice whereby all state owned enterprises could choose not to follow the 80/20 rule and the apply the BEE status of tenderers. This exemption applied to all state owned enterprise, but not government departments. The exemption was for a year, ending December 2012. Treasury has not issued any new documentation around the exemption which implies that as of now, all tenders issued by, for example PRASA, ESKOM, ACSA and all other state owned enterprises has to strictly follow the new PPPFA regulations.
Until now it can be said that government has not applied B-BBEE principles in its own activities – nearly 6 years after the codes were gazetted. From now on all spheres of government will have to apply the new regulations in their adjudication of your tenders.
In practice, many SEOs did somewhat follow BEE principles. For example the following tender issued by ACSA gives a pre-qualification criteria. It includes the statement “Bidders must be a minimum Level 4 B-BBEE Contributor verified in accordance with the Codes of Good Practice for B-BBEE”. At the time that the tender was issued, pre-December 2012, ACSA was allowed to pre-qualify tenders in this way. The new regulations do not allow for the exclusion of anyone who does not have a valid B-BBEE certificate or specified level. However, the new regulations do take into account the status achieved if any. So even if a company does not have a valid BEE certificate, it could still win the tender if the price quoted is markedly below that of the competition that has a valid BEE certificate.
Recently Saatchi and Saatchi lost the ESKOM account because they did not have at least 50% black ownership. If the tender had been issued post December 2012, ESKOM would not have been able to use black ownership as a pre-qualification criterion.
A good BEE level will be essential to win the tender. Without a good level the only way to win the tender will be to discount prices by up to 11% for large tenders, and up to 22% for small tenders. Black ownership is not a per-requisite, though without black ownership a company may struggle to obtain a high score. The target for black ownership is 25%, not 50%. From now on for businesses wanting to do business with government or state owned enterprises, a BEE certificate alone is not enough – it has to show a high verified level.
The good news is it is still very easy to comply and to reach good B-BBEE levels.
The dti minister, Dr Rob Davies has issued a gazette, notice 922 of 2012 on 7 November 2012 covering the shorter payment periods, and the definitions of Measurement Period and Measurement Date.
Background: Shorter payment periods is used as a method of performing Enterprise Development. Code 600 identifies many activities that will be recognised as ED. This includes a grant, minority investment in a black owned EME or QSE and shorter payment periods.
Shorter payment periods is described in code 600 as follows:
“18.104.22.168 settlement of accounts with beneficiary entities over a shorter period of time in relation to the Measured Entity’s normal payment period, provided the shorter period is no longer than 10 days;”
Annexure 600 gives the recognition value of each of the ED activities. For example a grant contribution is recognised at 100%. i.e if you spend R100 on a grant contribution to an ED beneficiary then you can recognise R100 * 100% = R100 as ED spend, and this counts towards the 15 points for generic companies.
Code 600 also defines exactly what constitutes ED:
“3.2.1 Enterprise Development Contributions consist of monetary or non-monetary, recoverable or non-recoverable contributions actually initiated and implemented in favour of beneficiary entities by a Measured Entity with the specific objective of assisting or accelerating the development, sustainability and ultimate financial and operational independence of that beneficiary. This is commonly accomplished through the expansion of those beneficiaries’ financial and/or operational capacity.”
Codes 600 also defines who can be beneficiaries of ED:
“(a) Category A enterprise development contributions involves enterprise development contributions to exempted micro-enterprises or qualifying small enterprises which are 50% black-owned or black-women owned;
(b) Category B enterprise development contributions involves enterprise development contributions to any other entity that is 50% black-owned or black-women owned; or 25% black-owned or black-women owned with a BEE status of between level one (1) and level six (6);”
Annexure 600 describes the recognition of shorter payment periods as follows:
“Percentage being 15 days less the number of days from invoice to payment”.
When we first saw this we contacted the dti for clarity. The chief director of dti gave an explanation that if payment was received on the same day as invoice, i.e zero days after invoice received, then the calculation would be (15-0)/15 = 100%. If payment was received one day later, the formula would be (15-1)/15 = 14/15 = 93.3% and so on. This has always been a controversial aspect a it was deemed “too easy” to earn points. What many people did not realise is the huge benefit to many EMEs that this provided. Our own ED beneficiary, Msizi Ngwenya of Mabuya Glass has a dream of selling thousands of glass whiteboard to one of the big corporations. His biggest fear is he will land the deal and not be able to pay his glass supplier. He has not yet won the deal, but if he could have benefited from shorter payment periods, and his customer earned points it would have given him the kickstart he needed. Like many others we also felt that this concept was abused, by both measured entities and their “ED Beneficiaries” that sometimes were large corporations. The error that was made was in allowing those “beneficiaries” to be considered ED beneficiaries, as the activities offered to them did not meet the definition of enterprise development.
Many agencies followed the dti’s letter, while some did not. Those that did not followed the logic that if you paid on the date of invoice you would recognise 15% of the invoice value. If you paid one day later you could recognise 14% of invoice value and so on to a maximum of 10 days late where you could recognise (15-10) = 5% of invoice value.
It gave rise to the ridiculous situation where a company could spend say R10000 on shorter payment and earn either 15 points or 2.25 points depending on which agency was chosen to verify your business. This is a 12.75 points differential – two levels.
Notice 922 issued by the minister on 7nd November 2012 (replacing an earlier gazette dated 2nd November 2012 gives a detailed explanation of how the minister would like this to be followed.
The public has 30 days to comment. The methodology that is being proposed is to use the “15-x”% principle.
The wording in the gazette is:
“The refined principle relating to shorter payment periods”
(a) In terms of recognition of enterprise development beneficiaries as per the Codes of Good Practice, shorter period means settlement of accounts with beneficiary entities over a shorter period of time by the measured entity.
(b) In order to claim points for shorter period, the payment must be made within a period of fifteen (15) days from the date of the invoice.
(c) This means that if payment is at least made within the first fifteen (15) days from the date of invoice by the qualifying supplier, then the amount that can be claimed is a percentage of the invoice amount which is equal to 15 minus the number of days from invoice to payment date.
Example: Say that the invoiced amount is R10 and that the measured entity makes payment thereof 5 days after the invoice date then the measured entities. contribution to Enterprise Development is measured as follows:
R10 x (15- 5)% = R10 x 10% = R1 (contribution amount)
(d) This mechanism is only applicable to shorter payments made to Exempted Micro Enterprises (EMEs).
The proposal is to recognise shorter payment up to 15 days (increased from 10 days). It also proposed that the lower calculation (maximum 15%) should be used. It further limits this benefit only to EMEs.
Shorter payment was heavily used, and did go to benefit some tiny black owned businesses that could otherwise not won any business. It was abused. The new method will be more expensive and not used as much as previously, to the detriment of some tiny businesses.
The limit to EMEs is acceptable, though we would like to see QSEs included. The minister should also clarify that it should only apply to ED beneficiaries.
Code 600 states:
5 The Benefit Factor Matrix
The Minister may from time to time, by notice in the gazette, revise or substitute the Benefit Factor Matrix. Any changes will only be applicable to Compliance Reports prepared for a Measured Entity in respect of the first 12-month period following the gazetting of a revision or substitution.
The question is whether the minister himself recognises that the move from 100% recognition to 15% is a revision of the codes. The gazette uses the term “refinement principle”
This is important because it will guide us to whether the new rules around shorter payments comes into effect on the day that it is gazetted, or gives a transition of a 12 month period. It will also help verification agencies know where they stand because even today some agencies use the 15% principles, whereas the majority use the 100% rule. We need to know what is going to happen for the next 12 months after the rules are gazetted.
It sounds so simple. The measurement period is the period of your financial year under review, on which your verification will be based, and the measurement date is the last date of that financial year.
In practice it has become a minefield. Verification agencies do use financials, or in some cases management accounts for the preceding 12 months.
The difficulty comes in that they only use the financials for 4 of the elements:
1) Skills development: the actual spend during the financial period
3) Enterprise Development
4) Socio-Economic Development
For other three elements are verified, not at the end of the financial year, or any other time, but on the date of the site visit during verification. It can happen therefore that the financial period under review is 1st March 2011 to 28th February 2012, but the verification and site visit is only October or November of the same year. We have even seen verifications taking place up to 18 months AFTER the financial year end. So while procurement and enterprise development is based on data that is maybe a year old, ownership, management control and employment equity is verified on the date of the visit – a year later than the financials.
Key principle 2.3 of the BEE codes states:
2.3 The basis for measuring B-BBEE initiatives under the Codes is the B-BBEE compliance of the measured entities at the time of measurement.
Key principle 2.7 of the BEE codes states:
2.7 Wherever a Standard Valuation Method applies to measuring an indicator, the same standard should apply, as far as reasonably possible, consistently in all other applicable calculations in this statement.
Principle 2.3 talks of “time of measurement” whereas 2.7 says you should be consistent.
We have been calling on the dti to give a better explanation on the measurement date for many years – see http://blog.econobee.co.za/2011/01/06/call-for-changes-to-bee-certificates/
In July 2012, the dti published a gazette 548 which stated:
“Furthermore. the dti seeks to advise that the measurement period means the immediate twelve (12) months preceding the measurement date.”
It did not clarify the measurement date, though it did imply that measurement activities should take place for exactly 12 months prior to the measurement date. Therefore if an agency believed that the measurement date was the date of verification, then it should based the measurement period on the 12 months preceding this date. This is obviously not what should occur and in practice nothing changed. Most agencies continue to base verification on whatever financials are available, but only award ownership, management control and employment equity points on the situation on the date of the site visit.
On 7th November 2012, the minister issued another gazette explaining what “measurement date” is. This notice states:
In terms of the Codes of Good Practice unless the context otherwise requires:
a) Measurement period is the period of 12 (twelve) consecutive months prior to the measurement date, for measurement and verification of B-BBEE Compliance.
This period may coincide with the measured entity’s financial period.
b) Measurement date refers to the date when the application/agreement to be verified was signed by the measured entity and the verification agency.
This does not make sense: Paragraph (a) says the period is the immediate 12 months preceding the measurement date. Paragraph (b) says the measurement date is the date on which the verification agreement was signed. If your financial year end is 29th February 2012, and you appoint a verification agency on 12th August 2012, then the measurement period is 13th August 2011 to 12th August 2012.
A bigger question now is what is the purpose of knowing the measurement date? Is this going to refer to the measurement period which is the period on which verification is to be based? Paragraph (a) seems to suggest so. If this is the case, then an entity will have to produce their audited financials based on the random date chosen by the transformation manager to appoint a verification agency, or else a company is going to have to appoint and sign the verification agreement on the exact same day that its financial year ends, e.g. end February. This is a ridiculous situation. Few companies will be happy to appoint an agency and pay a deposit up to a year prior to when the work actually starts. The agency may not even be in existence 12 months hence.
Measurement date should simply refer to the last date fo the financial period under review.
What the gazette has still not covered is that all elements should be verified based on a measurement on the same day, ie the measurement date. It should clearly state that all elements must be verified based on the same measurement period, a standard valuation method as per key principle 2.7. At the moment most verification agencies follow the rule that they use financials for verifying skills, procurement, enterprise development and socio-economic development, but use the date of the site visit to verify ownership, management control and employment equity.
Many companies are hooking into what they consider a unique way to front and misrepresent their BEE status.
The BEE codes define an EME (exempt micro enterprise) as one that has an annual turnover of less than R5 million. The codes also state that a start-up must be measured as an EME in the first year following their formation or incorporation.
Section 6 of Code 000 states:
6 Start-up enterprises
6.1 Start-up enterprises must be measured as Exempted Micro-Enterprises under this statement for the first year following their formation or incorporation. This provision applies regardless of the expected total revenue of the start-up enterprise.
6.2 Start-up Enterprises are deemed to have a B-BBEE Status of “Level Four Contributor’ having a B-BBEE procurement recognition of 100% under this paragraph
6.3 In order to qualify as a Start-up Enterprise, the enterprise must provide an independent confirmation of its status.
6.4 Despite paragraph 6.1 and 6.2, Start-up Enterprises must submit a QSE Scorecard when tendering for any contract, or seeking any other business covered by section 10 of the Act, with a value higher than R 5 million but less than R35 million. For contracts above R35 million they should submit the generic scorecard. The preparation of such scorecards must use annualised data.
The idea that many companies have is to form a new business, that does the exact same work as the old business, but regard themselves as an EME in the first year.
What they don’t know is that “start-up enterprise” is defined in the codes as:
Means a recently formed or incorporated entity that has been in operation for less than one year. A start-up enterprise does not include any newly constituted enterprise which merely a continuation of a pre-existing enterprise;
Note the grammar error “which merely a continuation”.
Also paragraph 2.5 of Code 000 states:
2.5 Initiatives which split separate or divide enterprises as a means of ensuring eligibility as an Exempted Micro-Enterprise, a Qualifying Small Enterprises or a Start-Up Enterprise are a circumvention of the Act and may lead to the disqualification of the entire scorecard of those enterprises concerned.
This has not stopped hundreds of companies choosing to ask their verification agency for an EME status. Some companies are getting quite innovative. They don’t inform their verification agency that they are a start-up – they simply produce audited statements for the first year of operation of this new business. If they have not fully transferred their activities across to this new entity, then the entity will have a turnover of less than R5 million and be an EME. The Codes for Complex Structure and Transactions & Fronting do talk about how complex structure should be verified.
It is certainly a circumvention of the Act to produce or issue an EME certificate if the entity is not an EME.
The B-BBEE Amendment Bill makes allowances for up to 10 years in jail for fronting offenses.
The long awaited draft B-BBEE Codes were officially launched by dti Minister Rob Davies on 2nd October 2012.
The B-BBEE act requires that any changes to the BEE Codes be gazetted as a draft, giving the public a 60 day commentary period. Thereafter the dti minister can gazette the codes in terms of Section 9(1) which becomes the final codes. In practice it takes far longer than 60 days – usually about a year before draft codes, particularly as far reaching as these drafts can be finalised and put into practice.
It is important to understand the draft codes, to be able to comment if necessary, and also to begin preparing to change your B-BBEE strategy for when the final codes are gazetted.
DISCLAIMER: This article is written based on the minister’s presentation. The formal draft codes giving the detail are not yet available
Draft Codes – Generic Scorecard
|Enterprise and Supplier Development||40|
There is some good news for small businesses:
EMEs (Exempt micro enterprises – businesses that are exempt from calculating a B-BBEE scorecard): The threshold has increased from up to R5 million annual turnover to a maximum of R10 million. EMEs are automatically given a level 4, but 100% black owned EMEs are level 1 and 50% black owned EMEs are level 2.
QSEs (Qualifying small enterprises – businesses that followed a more lenient scorecard): The threshold has increased from between R5 million annual turnover and R35 million to R10million up to R50 million.
The codes have defined three priority elements:
Enterprise and Supplier Development
If a generic does not achieve minimum targets on all three of the priority elements, it calculated BEE level will decrease 2 levels. For example if your company has no black ownership but reaches level 4, it will be dropped down to level 6.
A QSE has to comply with Ownership and any one other priority elements. Otherwise it will drop one level.
Summary of each element:
Ownership – points available: 25
Little significant changes other than to points on indicators.
New entrant threshold increased from R20 million to R50 million
An enterprise must achieve at least 40% of the net value targets (points?) in order to comply with the priority requirements. If they do not, then they drop 2 levels.
Management Control – points available: 15
The indicators for management and employment equity have been combined into one element.
Still awards points for board members, directors
Points for top management (senior top and other top have been removed)
Points for Senior management
Points for Middle management
All points for junior management have been removed
The calculation for adjustment for gender has been removed and poits awarded specically for black women and black people (same effect)
Skills Development – points available: 20
Target spend has gone up from 3% to 6%.
5 extra points awarded for “absorption of learners”. Refers to providing permanent employment of learners after they complete their learnership program
Is a priority element: 40% threshold is a requirement – alternatively the company drops 2 levels
Enterprise and Supplier Development – points available: 40
Is a simple combination of both preferential procurement and enterprise development, with additional indicators
Is a priority element: 40% threshold is a requirement – alternatively the company drops 2 levels.
Recognition levels thresholds have changed.Recognition only awarded for value-adding suppliers.
ECONOBEE note: Details are not fully available. Most companies are not value adding suppliers and have no way of becoming a value adding supplier. Therefore their certificate cannot be used by their supplier and they have no incentive to produce a BEE certificate. If they have no need or ability to produce a BEE certificate, then they will have no incentive to ask their suppliers to produce a BEE certificate. BEE has been driven by large companies asking their own suppliers for scorecards.
Recognition from all suppliers: Target increases to 80% (previously 70%) – only 8 points awarded (previously 12)
Recognition from 50% black owned suppliers: Target increased to 40% (previously 12%) – 9 points awarded (previously 3)
Points awarded for enterprise development – sector specific programs
Bonus points for new venture creation
Clarification that early repayments may only be used to earn points for assisting black owned EMEs and QSEs, and limiting points to 15% of the available 15 points
Socio-Economic Development – points available: 5
No change, other than an emphasis on sustainable access to the economy, job creation
As more information becomes available and we analyse the codes, we will give more commentary.
EconoBEE will be holding a series of briefings on the new codes and provide a submission to the dti. Watch this space for details.
DATE: 2 OCTOBER 2012
TO: ALL JOURNALISTS AND EDITORS
BEE REMAINS AN IMPERATIVE IN SOUTH AFRICA – MINISTER DAVIES
The Minister of Trade and Industry, Dr Rob Davies says black economic empowerment remains an imperative in South Africa. Minister Davies was speaking at the launch of the revised Broad-Based Black Economic Empowerment Codes of Good Practice in Midrand, today.
“Black economic empowerment is not just a social and political imperative. We need to make sure that in the country’s economy, control, ownership and leadership are reflective of the demographics of the society in the same way the political space does. That’s why we are saying BEE remains an economic imperative. We cannot expect to grow and develop as a country if the leadership of the economy is still in the hands of only a small minority of the society,” said Minister Davies.
He added that the talent pool that is available in the country will not be drawn in its totality if the majority of the country’s population was still excluded from the control of the economy.
“We will only be able to realise the number of benefits of the demographic and democratic changes when all our people have the opportunities which they ought to be having in terms of the values of our Constitution. So BEE is also an economic imperative,” added Davies.
Minister Davies said the revised Codes sought to amend the secondary legislation arising from the Broad-Based Black Economic Empowerment Act to make sure that people were truly and broadly empowered in South Africa, and genuine broad-based black economic empowerment took place. The amendment of the BEE Act and the revision of the Codes, said Minister Davies, would go a long way in plugging the gaps that businesses have taken advantage of such as fronting, “tick-box” compliance, and the exorbitant amounts of money that small enterprises have to pay to consultants to prove they were BEE compliant.
“The current generic scorecard contains seven elements and these have been reduced to five in order to align the elements more closely with the trajectory of the economic growth and development in the country, with a total of 105 points assigned to the five elements. All companies, except the exempted micro enterprises (EMSs) should comply with all the elements of the scorecard. There is also some adjustment to the points allocated and the qualification criteria. There is also an enhanced recognition of the status of black-owned micro enterprises,” said Davies.
He said one of the new things being proposed in the revised Codes was the introduction of minimum requirements for priority elements. These are ownership, skills development and enterprise and supplier development. Qualifying small enterprises are required to comply with two of the elements, although ownership is compulsory, while large entities will have to comply with all of the requirements.
Minister Davies said the launch of the Codes signalled the opening of a sixty-day period in which business and all other members of the public can submit their comments on the Codes for consideration before the amendments are finalised.
The CEO of the Black Business Council, Mr Xolani Qhubeka said the Codes of Good Practice should be the minimum standard for all sectors in the country’s economy, adding that the revised Codes were a step in the right direction although there was still a lot that needed to be done.
Sidwell Medupe-Departmental Spokesperson
Tel: (012) 394 1650
Mobile: 079 492 1774
Issued by: The Department of Trade and Industry
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