The final Broad-Based Black Economic Empowerment (B-BBEE) Codes of Good Practice (Codes) were gazetted on Friday 11 October. This follows a period of debate and further amendments to the draft Codes which were released by the Minister of Trade and Industry (Minister) in October last year. Click here to read our E-Alert on the draft Codes.

This alert provides a general overview of the key changes brought about by the final Codes since the draft Codes were released in October last year. To find out more about the final Codes please see our invitation to a client seminar below.

Under the final Codes, enterprises have been given a one year transitional period starting 11 October 2013 to align their affairs with the Codes' requirements, which is to be welcomed. During this transitional period, enterprises may elect to be measured in terms of the generic scorecard under the final Codes or the historic generic scorecard under the old Codes. However, enterprises which are governed by Sector-specific Codes will continue to be measured in terms of those Sector Codes.

Another noteworthy point is that the compliance net is widened by the final Codes. The following persons will be subject to measurement under the final Codes:

• all organs of state and public entities; and
• natural or juristic persons who conduct a business, trade or profession in South Africa, which undertakes any economic activity with organs of state or public entities.

The generic scorecard in the Codes provides that all enterprises will be measured in terms of five B-BBEE elements, being ownership, management control, skills development, enterprise and supplier development and socio-economic development.

The Codes introduce the following sub-minimum targets for three priority elements, namely ownership, skills development, and enterprise and supplier development:

• 40% of net value points for ownership, net value being one of the measurements for ownership which looks at the extent to which shares (held by black shareholders) are free from encumbrance;
• 40% of the total weighting points for skills development; and
• 40% for each of preferential procurement; enterprise development and supplier development.

Large entities must comply with all three priority elements, while qualifying small enterprises (QSE) must comply with at least two of the three priority elements, one of which being the ownership priority element. The Codes provide for the downgrading of the B-BBEE status level of both large entities and QSEs by one level in the event that the above targets are not met. This is good news for large entities for under the draft Codes, it was originally proposed that large entities be subject to a two level downgrade. Large companies will find in any event that the more stringent targets in the final Codes are likely to have a negative impact on current B-BBEE ratings, even without the additional one level downgrading that has been finally introduced.

Another significant change brought about by the final Codes is the increased threshold in points required to achieve a better B-BBEE status. For example, a company currently needs 65 points to achieve a level four B-BBEE status (and 100% recognition level). Under the final Codes, a company would need at least 80 points to achieve that same status.

The thresholds for enterprises to qualify as Exempted Micro Enterprises (EME), QSEs or large entities, are as follows:

• EME increased from ZAR 5 million to ZAR 10 million;
• QSE increased from ZAR 5 million - ZAR 35 million to ZAR 10 million - ZAR 50 million; and
• large entities increased to ZAR 50 million and above.