Back to basics with B-BBEE
Back to basics with B-BBEE
With the implementation of the amended B-BBEE Codes, broad based transformation has entered a new phase of diversity, requirements, dimensions and facets and is not limited to ownership and management considerations as some individuals may believe.
For ease of interpretation we have compiled this informational blog where we touch on the basics of B-BBEE.
What is B-BBEE?
Board-Based Black Economic Empowerment (B-BBEE) is a programme launched by the South African government in an attempt to address the inequalities caused by apartheid. The Act is aimed at offering previously disadvantaged groups who are South African citizens, namely Africans, Coloureds, Indians and some Chinese, economic opportunities that were previously not available to them. These include measures such as Ownership, Management and Control, Skills Development, Preferential Procurement and Socio-Economic Development.
An important distinction must be made between B-BBEE (as it is technically known) and affirmative action, despite employment equity forming part of both. B-BBEE is an ongoing strategy aimed at empowering those less fortunate and previously underprivileged.
When does an Enterprise have to be verified in terms of a Sector Code?
There are various Industry Sector Codes that were formulated through a lengthy process. A committee of industry representatives customized the general DTI codes for the specific needs of major industries such as agriculture, construction and transport. If the nature of the enterprise and/or business accounts for 50% or more of its performance and falls within the scope of an existing sector code (which is mentioned in every sector code), the sector code will determine the method used to conduct your verification. You are obliged to disclose this to your consultant and/or the verification agency rating you.
If the nature of your operations is not covered by any of the existing sectors, you will be verified in terms of the Generic Codes of Good Practice which were recently amended.
What are the types of scorecards for B-BBEE?
There are three types of scorecards to be considered for purposes of the B-BBEE Act. They are EMEs (Exempt Micro Enterprises) QSEs (Qualifying Small Enterprises) and Generic Companies. It is important to mention from the outset that these general guidelines may differ depending on the applicable Sector Codes.
- Exempt Micro Enterprises - EMEs
An EME is an entity whose annual turnover is below R10 million. All EMEs are exempted from B-BBEE compliance and receive an automatic recognition level 4.
An EME with 51% black ownership will receive an automatic recognition of level 2 whilst 100% black ownership earns an EME an automatic level 1.
In addition, EMEs need only obtain an affidavit signed by a Commissioner of Oaths.
- Qualifying Small Enterprises - QSEs
A QSE is a business with an annual turnover of between R10 million and R50 million and is measured in terms of the QSE scorecard.
A QSE with 51% black ownership, much like an EME, receives an automatic recognition level of 2, whilst 100% black ownership qualifies an enterprise for an automatic level 1 via an affidavit. QSEs whose ownership is less than 51% are measured by an accredited verification agency in terms of the scorecard under each of the elements for B-BBEE. The latter will receive a B-BBEE certificate.
- Generic Companies
A generic entity has an annual turnover in excess of R50 million and is measured in terms of the generic scorecard. No automatic levels or sworn affidavits are applicable. All generic entities are measured in full under each of the scorecard elements as prescribed by the applicable legislation.
What are the new B-BBEE scorecard Codes?
Several changes have been made to the relevant legislation over the past few years, the most significant being the change from 7 (seven) elements to 5 (five) and, more recently, the changes to Enterprise & Supplier Development as well as Skills Development.
What are priority elements on a B-BBEE scorecard?
Three of the 5 elements are priority elements, namely Ownership, Skills Development and Enterprise & Supplier Development. This essentially means that certain sub-minimum points must be achieved, for example Ownership – 40% of net value (40% of 25 points = 8) in order to fulfil the requirements of the said element, failing which, an entity will be discounted (drop) one level. Discounting, however, can only take place once.
The amended Codes also stipulate that generic enterprises are required to comply with all the priority elements, while QSEs are required to comply with Ownership, as a compulsory element, and either Skills Development or Enterprise & Supplier Development.
The above is a brief overview of B-BBEE. It is undoubtedly a vast field with many variables that are constantly being changed and adapted to suit an ever-changing environment. SERR Synergy strives to keep abreast of B-BBEE changes and keep our clients fully informed.
About the Author: Nadiya Hattia is a Project Manager who joined SERR Synergy in October 2017 in the Pretoria B-BBEE department. She obtained an LLB degree from the University of South Africa and is an Admitted Attorney of the High Court with 4 years’ legal experience.