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Amended BEE Codes of Good Practice gazetted

Trade and Industry Minister Dr Rob Davies
Trade and Industry Minister Dr Rob Davies

14th October 2013

By: Natasha Odendaal
Creamer Media Senior Deputy Editor

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Companies would be granted a one-year transitional period to align with and prepare for the implementation of the revised broad-based black economic-empowerment (BBBEE) Codes of Good Practice following its gazetting on Friday.

This seemed to be the only good news to emerge out of the newly gazetted codes, global audit, tax and advisory firm Mazars national BBBEE leader Tony Balshaw noted on Monday.

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Trade and Industry Minister Dr Rob Davies hailed the amended codes as a “new beginning” aligned to government’s transformation ambitions.

But Balshaw said the revisions had – contrary to government’s stated policies – shifted black economic empowerment from a broad-based form to a narrow-based, ownership-centric structure that would have a far-reaching, counterproductive impact on all businesses in South Africa.

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“The impact of these amendments to the codes will be disastrous for business, civil society and our economy as a whole. We can now expect to see phantom share schemes and opportunistic so-called ‘tenderpreneurs’ being the conduit for delivery of goods and services, something we have been trying to rid the system of,” he warned.

The revised codes deliver a reduction of elements, from seven to five, within the generic scorecard, comprising ownership, skills development, enterprise and supplier development, management control and socioeconomic development, and changes to the points required for compliance.

All companies, barring microenterprises, would be required to comply with the five elements of the BBBEE scorecard.

The thresholds for exempted microenterprises and qualifying small enterprises had been adjusted and black-owned businesses generating revenue of less than R50-million a year were no longer required to be verified by an accredited verification agency or auditor.

An exempted microenterprise was defined as any entity generating revenue under R10-million a year, while companies with yearly revenue of between R10-million and R50-million were classified as a qualifying small enterprise.

Exempted microenterprises and qualifying small enterprises that were 51%-owned by black people automatically qualified as a Level 2 contributor, while 100% black-owned firms qualified as Level 1.

Balshaw pointed out that family-owned, owner-managed, small, medium-sized and large businesses without majority black ownership were unlikely to achieve more than a Level 7 recognition on the scorecard and that the median would probably be Level 8.

Further, Mazars noted that the qualifying small enterprises would also need to comply with the same complex scorecard as generic scorecard entities and could attract penalties for not achieving priority element subminimum targets that apply to the three priority elements.

The amended codes outlined that large companies were required to comply with all three priority scorecard elements, namely ownership, skills development and enterprise and supplier development.

The codes set the minimum requirement for ownership at 40% of net value, with skills development accounting for 40% of the total weighting points, and enterprise and supplier development required a subminimum requirement of 40% within each enterprise and supplier development element, namely preferential procurement, supplier development and enterprise development.

“The new enterprise and supplier development element comprises 40 points of which 23 points require majority black ownership. The procurement cascade effect of having good BBBEE credentials has been diluted to 12 points, of which only five points relate to all suppliers with black economic empowerment credentials (80% target), three points to qualifying small enterprise suppliers and four points for exempt microenterprises with a 15% target each,” he said.

Balshaw added that: “This places large corporates or, for example, fuel distributors, at a disadvantage, as they can never expect to have 30% of their total spend with the latter.”

The codes introduced an empowering supplier aspect to the enterprise and supplier development element, designed to encourage that the BBBEE-compliant entity’s production and value-adding activities, including job creation and skills transfer, took place in South Africa.

Balshaw, however, pointed to the reduction of the points required for socioeconomic development – from 25 to 5 – which would negatively impact the contributions received by needy local communities.

“Black communities will be the worst affected,” he stated.

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