B-BBEE: Two things worth knowing

B-BBEE (Broad Based Black Economic Empowerment) has been with us for quite some time. The process of including the previously disadvantaged into the economy has not been without controversy but the reality is that it will not be going away any time soon.

1. Exempted Micro Enterprises: B-BBEE Certificates can be issued for you by your Independent Reviewer, Auditor or Accounting Officer

EMEs (Exempted Micro Enterprises) are enterprises with annual turnover of R5 million or less (possibly increasing to R10 million shortly – see below). Some sectors’ codes have prescribed different turnover thresholds to qualify as an EME, for example, the Tourism Sector Code is R2.5 million or less while the Construction Sector is set at R1.5 million or less.EMEs automatically qualify as B-BBEE level 4 contributors and thus have B-BBEE procurement recognition level of 100%. Those EMEs that are more than 50% black owned can get promoted to a level 3 contributor status. A recent joint notice issued by SAICA (South African Institute of Chartered Accountants) and the Department of Trade and Industry, confirmed that chartered accountants, auditors or any person that qualifies to act as an accounting officer may issue a certificate confirming your business qualifies as an EME. Thus, if you are a business that qualifies as an EME, it will be both time efficient and cost-effective to use your independent reviewer, auditor or accounting officer for your certificate.

2. What we can expect in the future
   Minister of Trade and Industry, Rob Davies, has asked for comment on proposed changes to the B-BBEE Codes of Good Practice.The number of elements in the scorecard will be reduced from seven to five – employment equity would be joined with management control whilst preferential procurement and enterprise development would also merge and be called enterprise and supplier development. Ownership, skills development and socio-economic development would remain as the other three elements. The stated aim of these intended amendments is to broaden the base of black participation in the economy. It is worth looking at the consequences that some of these proposed codes may have on your business. 
   1. The qualifying turnover
      This is scheduled to change. For EMEs, the proposed threshold would increase from R5 million to R10 million. This will take pressure off businesses with turnover from R5 million to R10 million as they are spared doing the B-BBEE scorecard and they can obtain exemption certificates as in 1 above. QSEs’ (Qualifying Small Enterprises) turnover threshold increases from R10 million to R50 million versus R5 million to R35 million in terms of the current code.
   2. Procurement
      One avenue open to businesses to bolster their B-BBEE points is to buy from B-BBEE accredited suppliers. In fact many of these businesses have pressurised their suppliers to get B-BBEE certification which has considerably increased the number of B-BBEE compliant businesses.
      The new codes propose that B-BBEE procurement points can only be claimed from value adding suppliers – defined as “entities whose profit before tax added to their salary costs is to exceed 25% of their turnover”. In essence, the codes are favouring businesses with high labour content. A survey estimates that around 30% of businesses will be value adding. Many of the 70% who will not be value adding will have no incentive to remain B-BBEE compliant as their customers cannot get B-BBEE points from buying from them.
      Not only will entities lose B-BBEE points if they cannot buy from value adding suppliers but non-compliance with this element could result in the measured entities’ B-BBEE status level being discounted by two levels.
   3. Ownership
      This element is given priority in the suggested codes. Under the current codes, businesses can make up points in other elements if they do not meet the ownership criteria. In terms of the proposed codes, businesses’ B-BBEE contributor status will drop two levels if they fail to get 40% compliance in this element. Groups, such as multi-nationals will face some very difficult decisions and it could potentially affect investment in South Africa.
   4. QSEs
      In terms of the current codes, QSEs can choose the best four of the seven elements when having their B-BBEE compliance measured. The proposed codes require QSEs to comply with all five elements. This will make the process more difficult for QSEs.
      As opposed to larger entities which stand to drop two contributor levels when they do not meet compliance targets in priority elements, QSEs will only drop one level.

The proposed codes have some adverse consequences for many enterprises and, if the changes are important to you, it is worth lobbying Government to alter the codes before they come into effect. There is no time to lose here – you have only until 3 December to submit comments to the DTI.

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