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BEE Legislation

Overview of the BEE Legislation


As a black owned organisation we are in a good position to understand the challenges that are there to overcome, in order to reach sustainability. Gazetted in February 2007, and amended in 2013, the B-BBEE Act 57 has objectives to ensure equal opportunities are afforded to majority of South Africans previously disadvantaged by the past policies.

It is our view that BEE scorecard if well implemented can lead to the following:

–        Poverty eradication

–        Access to education

–        Access to infrastructure

–        Access to healthcare

–        Access to basic conditions affording everyone the opportunity to further their ambitions.

The Legislation

South Africa has enjoyed consistent growth since 1994, and given its past colonial legacy and the current economic meltdown, the country is not performing badly when compared with other developing countries. The economy has been growing, although steadily and the introduction of new policies saw the country in 2006/07, posting its first ever budget surplus, of 0.3%.

Unfortunately the extent of growth hasn’t been shared equitably across the large spectrum of the South African population, and the only way to ensure sustainable growth is to have all South Africans meaningfully integrated into the economy. Following the governments’ introduction of B-BBEE Act, No. 53, 2003 which was passed into law in 2004, the Department of Trade and Industry introduced the Codes of Good Practice as a framework for implementation and measurement of BEE.

The use of scorecard measure three core elements of BEE:

  • Direct empowerment – Ownership and Management Control,
  • Human resource development – Employment Equity and Skills Development,
  • Indirect empowerment – Enterprise and Supplier Development, and Socio-Economic Development.

The scorecard also allows government departments, state-owned enterprises, and other public agencies, to align their own procurement practices and individual BEE strategies.

Enterprise and Supplier Development

Small Micro Enterprise can be supported through Enterprise and Supplier Development to ensure access into the market and overall long term growth and sustainability. Statistics have proven that SMME’s are most likely to fail in the first 3 years of operation, due to lack of access to the market, access to finance and general lack of business management skills.

Through support offered to black owned SMME’s large organisations ensure that a large pool of suppliers are created in order to develop a competitive market due to large supply of required products and/or service by potential suppliers.

The current targeted spend for a measured entity on Supplier Development and Enterprise Development is at least 2% and 1% of Net Profit after Tax respectively.

Skills Development

Companies that do not recognise employees as their greatest resources fail to realise the long term business growth potential. Through Skills Development organisations train and develop employees into experts and future leaders, and such organisations position themselves as leading employers of choice thus enabling them to be competitive in the ever fast growing business arena that is driven by growing customer demand for instant gratification, growing technology and globalisation.

We believe that Transformation is not a nice to have; rather an economic imperative.

Companies are thus required to spend at least 6% of Leviable payroll on training both its employees and unemployed black people.

Preferential Procurement Framework and Policy

Preferential Procurement is the pillar/driver of BEE scorecard and it’s an effective instrument to promote BEE in the economy. It encourages procurement from black-owned enterprise, black women owned enterprises and black empowered enterprises. The BEE legislation provides that government departments, state-owned enterprises and public agencies take into account the codes of good practice when determining and implementing their procurement policy.

The current scorecard requires that companies must spend at least 80% of their expenditure on BEE compliant entities, and within that 80% at least 30% must be spend on QSEs (15%) and EMEs (15%); and a further requirement that at least 50% be spend on Black Owned entities, of which at least 12% is spend with entities that are at least 30% Black Women Owned.

Overview of the B-BBEE Elements

This element measures the extent to which an organisation is owned and controlled by black people. Equity can be held by individuals, trust, private organisations, broad-based schemes, cooperatives etc. The target for Generic measurement is 25%+1 vote in the hands of black people and 10% inclusive in the hands of black women. In event that that shares held by black people in the organisation are encumbered (not fully paid off) or there is third party rights to those shares, the measured entity will not be able to score a point for Ownership Fulfilment, however will score the 8 points for Net Value if they can proof that the black shareholders are on track in paying back the loans for the shares in accordance with the repayment schedule.

However with the amended Codes of Good Practice, should the shares repayment as per the graduating repayment schedule be behind, Ownership as a critical element will be discounted and the measured entity will be discounted a level.

Due to the history of South Africa, most organisations are still owned and managed by white people, due largely to the fact that black people’s education level didn’t allow them to progress within organisation to control and manage organisation, and that only a few black people owned successful enterprises from which they can manage and control its direction.

This element measures the extent to which an organisation is managed and controlled by black people at board and executive level. The current maximum target for this indicator is 50% of black directors and 40% management, therefore not obliging an organization to replace its management with an entire black management.

With more than 87% of the population of the South Africa being black, (Black, Indian, Colored, Chinese), it makes sense that the same should be represented in the corporate world. This is measured at Senior, Middle and Junior Management to ensure that black people are equally represented in the workplace. In interpretation of the Codes of Good Practice, many people fail to acknowledge that the Codes work interdependently and should thus be implanted in a logical manner to achieve a holistic result. That means if your performance on Skills Development (below) is poor, the chances of promoting people from bottom level (Semi and unskilled levels) is quite slim and therefore an organisation will not be able to perform well under Employment Equity. An organisation should strive to employ and train its own employees in order to ensure internal growth to achieve the bottom line.

If you employ people it means you must also train those people in order to ensure that your organisation can be competitive in the industry and deliver best products or services to its customers. This means an organisation must train its employees in core areas that will contribute to more competent employees to enable the organization to achieve the best results. The target for training ONLY black employees is 6% of Leviable payroll, therefore when budgeting for training an organisation must budget at least more than 6% to cater for non-black employees.
Moreover there is a target for appointment of Learners in a learnership programme (Apprenticeship, Learnership, Internship etc.) at a target of 5% of total staff in the organisation. A tracking system must be developed to ensure that a measured entity at all times knows there whereabouts of the learners it did not employ from the learnership./p>

Enterprise & Supplier Development

Preferential Procurement

Procurement as a tier in the BBBEE scorecard requires that at least 80% of the spent must be with BEE compliant suppliers that are empowering organisation. From the 80% at least 30% must be procured from Empowering QSE and EME suppliers. Most of the points are allocated to ensuring that at least 40% of the 80% spend is with Empowering Suppliers that are more than 51% Black Owned – 11 points. At least 12% must be spend with Empowering Suppliers that are more than 30% Black Women Owned for 4 points. Bonus points are allocated for procurement from Designated Group Suppliers.

A question can be asked what a BEE compliant enterprise is. With a level 04 enterprise an organisation can claim 100% of the value of the spent with a specific supplier, and level 05 only 80%; a level 03 a measured entity can claim 110% of the value of the spend. Therefore an optimum level an organization must aim for is a level 04 or better.

Enterprise Development and Supplier Development

Enterprise Development measure the extent to which a measured entity development SMMEs owned by black people. Contributions can be either monetary or non-monetary towards sustainable development of the beneficiary. The target for this element is 3% of Net Profit after Tax.

Beneficiary Categories

Beneficiaries of Supplier Development and Enterprirse Development:

–      More than 51% Black Owned or more than 51% Black Women Owned EME or QSEs.

An organisation without resources for roll out of their Enterprise Development programme can outsource the project to a third party organisation. All funds paid over to the third party are recognisable as Enterprise Development.

Socio-Economic Development

This element measures the extent to which organisations contribute toward socio-economic initiatives geared towards projects that will provide access to the economy for the beneficiaries. This can be viewed as a long term investment into society in that donation to a charity will only realise economic benefits of the young black child once they have grown up. The important factor is that they were provided with food, security, education (bursaries, school material), health care etc. to contribute to their wellbeing and development.
The target for this element is 1% of Net Profit after Tax which can be monetary or non-monetary contributions.