The Department of Trade and Industry (DTI) on Tuesday opened a 60-day period for comment on the revised broad-based black economic-empowerment (BBBEE) codes of good practice.
Speaking at the launch of the revised BBBEE codes, Minister Rob Davies said BEE remained an imperative in South Africa.
“It is not just a social or political imperative . . . but an economic imperative as well. Control of companies in the country should be reflective of the demographic and we cannot expect to grow as an economy if business leadership is in the hands of the small minority.”
The current generic scorecard contains seven elements and these have been reduced to five, 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.
The thresholds for EMEs and QSEs have also been adjusted, with EMEs increasing from R5-million to R10-million and QSEs increasing from between R5-million and R35-million to R10-milion and R50-million. The Minister explained that inflation was the rationale behind the increases.
All entities would be forced to comply with priority elements under the following conditions: QSEs would need to comply with at least two of the priority elements, which include compulsory black ownership and education for sustainable development or skills development; while large entities would need to comply with all priority elements.
Entities that did not meet the thresholds in these elements would be discounted in BBBEEE levels.
In terms of fronting, Davies said that the bill has also been amended to include much more comprehensive definitions of fronting. “We are also establishing a commissioner who will be responsible for the investigating of these kinds of practices. We are also looking into penalties attached to those kinds of practices.”
Law firm Webber Wentzel stated that the revised codes contained a controversial amendment, which could result in a reduction of companies’ empowerment ratings.
Webber Wentzel partner and BEE expert Safiyya Patel said the most sweeping proposed amendment was likely to be the introduction of sub-minimum targets for the priority elements.
“If the amendments are processed in their current form, companies will be required to achieve a minimum compliance of 40% of the targets for the priority elements.
“If they do not achieve the minimum compliance for any of the priority elements, their overall contributor status will be reduced by two levels if they are large entities or by one level if they are qualifying small enterprises. “
Patel noted that this meant that companies that had until now overlooked any black shareholding requirements and focused on all the other elements of BBBEE would be adversely impacted.
“For example, a large company that may have 7% black ownership, but is a level three contributor, will be automatically reduced to a level five contributor because it does not meet the 10% minimum black ownership target,” she added.
Meanwhile, Davies said that the manufacturing sector, which was seen as critical to the development of the economy, was, by and large, not transformed.
“We certainly want to promote local production. . . but we are not able as government to put targets down and tell private sector to buy from certain local manufacturers.
“However, we have signed a localisation accord with Cosatu, which saw us setting up a 75% procurement target. Very little has happened in this regard, and even our own government designations are behind.
“We need to look at how we can make localisation a tool and once that happens, we need to look at how we can get black-owned companies much more active in this space,” Davies noted.
He pointed out that other countries, particularly in Asia, made use of symbiotic relationships between small and large business. “They have active supplier development as they want to insure inputs come from the small players. These large business also partake in active mentoring, skills development, trading and capacity building.
“This is the sort of model that we need to create and develop in this country. Through incubation programmes, which are running in the country at the moment, larger companies could assist smaller companies to become productive players in the economy,” he said.
Davies announced at the recent International Small Business Congress in Sandton that the DTI had established an incubation support programme for small businesses, which would see 250 incubators set up through the country by 2015.
The programme would encourage private sector partnerships with government to foster collaboration between small and big businesses, whereby big businesses assist small, medium-sized and micro enterprises with skills and technology transfer, supplier development and creating marketing opportunities for small businesses.
Gestalt Growth Strategies