HOW ENTREPREURS CAN BENEFIT FROM THE SHIFT FROM BLACK ECONOMIC EMPOWERNENT TO BROAD BASED BLACK ECONOMIC EMPOWERMENT
Under the revised Codes, the number of elements in the B-BBEE Generic Scorecard will be reduced from 7 – Ownership, Management Control, Employment Equity, Skills Development, Preferential Procurement, Enterprise Development, Socio-Economic Development to 5 as follows:
1. Ownership – This measures the equity that black people hold in the business according to their voting rights, economic interest (including entitlement to dividends, capital gains and other rights of shareholders) and realisation points (the accumulation of net economic interest in the hands of black shareholders). The number of points allocated to this element will increase from 20 to 25 under the revised Codes.
2. Management Control – This element will be consolidated to include Employment Equity from the existing code. Management Control measures the extent to which black employees participate at the Board level and are employed in senior management positions. Employment Equity measures the percentage of black staff employed in the business. The number of points allocated to this element will increase from 10 to 15 under the revised Codes.
3. Skills Development – This element measures the extent to which the company has invested in the development of skills among black employees. The points allocated to this element will increase from 15 to 20 in the revised Codes, an illustration of the increased importance assigned to skills development in the new codes.
4. Enterprise and Supplier Development – Preferential Procurement, which is one of the elements in the existing Codes, will be merged with Enterprise Development to form the revised element of Enterprise and Supplier Development. This amended element will measure the extent to which a company uses the services of black-owned or B-BBEE compliant businesses, and provides business development support to such businesses. It will be based on the empowerment level of the businesses that are supported and the businesses that are the suppliers. Some 40 points will be allocated to this element, an increase of 5 points from the Enterprise Development and Preferential Procurement elements in the existing Generic Scorecard. This is an indication of the increased emphasis that will be placed on enterprise and supplier development.
5. Socio Economic Development – This element measures the investment that a company makes in uplifting black individuals, communities or groups, mostly through charitable means. The number of points allocated to this element will remain unchanged at 5 points.
The revised Codes introduce the notion of sub-minimum requirements and ‘priority elements’. Ownership, Skills Development and Enterprises and Supplier Development will be considered as ‘priority elements’. Companies will be required to achieve a minimum compliance of 40% of the targets for these 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 a qualifying small enterprise (QSE) (i.e., companies with an annual turnover of R10 million to R50 million. Under the existing code the annual turnover threshold for QSEs is R5 million to R35 million). This means that companies – particularly large companies – that have until now overlooked any black shareholding requirements and have focussed on some of the other elements of BEE will be seriously and adversely impacted. If they seek to qualify to tender for government work or to supply private sector companies reliant on state work, they will have to demonstrate a Level 4 Contributor category or above. This will require major investments in the ‘priority elements’.
Recognition Status of Exempt Micro Enterprises
Under the existing codes, businesses with an annual turnover of less than R5-million fall into the Exempt Micro Enterprises (EME) bracket. The EME turnover threshold will now increase to R10-million a year, a substantial increase. EMEs that are 100% black-owned will automatically qualify as Level 1 B-BBEE Contributors. If they are more than 50% black-owned they will automatically qualify as level 2 Contributors. Currently, EMEs are automatically deemed to be a Level 4 Contributor if they are less than 50% black-owned, or a Level 3 contributor if they are more than 50% black-owned.
Opportunities for Entrepreneurs
When the B-BBEE Bill and the B-BBEE Codes are passed into law, which is expected to take place some time in 2013, companies are likely to be given a period of time in order to comply with the new Codes and regulations. However, given the considerable shift in strategic thinking and the additional resources and development efforts that will be required to comply with the new B-BBEE regime, many companies that are committed to doing business with government have already begun to prepare for the introduction of the revised Codes.
This has provided many new opportunities for black-owned and B-BBEE compliant small and medium enterprises. The sub-minimum requirements in particular will require many large companies to increase their levels of black ownership and their investments in black skills development, and black enterprise and supplier development.
In order to take advantage of these opportunities, entrepreneurs will need to acquaint themselves with the details of the new B-BBEE framework and position themselves as companies of choice for large companies that are seeking to boost their B-BBEE credentials. Small businesses can use the proposed Skills Development and Enterprise and Supplier Development codes to access mentorship and investment from big business. Becoming B-BBEE compliant and making your business an attractive enterprise and supplier development investment can open up doors to immensely beneficial partnerships with forward looking big businesses. The same codes can enable your small business to join the procurement database of a range of large corporate, something that would be considerably more difficult to achieve without the leverage of B-BBEE. The revised codes will also boost your chances of winning government contracts.
An investment in skills development will provide your business with multiple long-term benefits while ultimately earning you B-BBEE points; and involvement in community and social upliftment projects can boost your brand and build morale and loyalty among staff. Programmes that fast-track the development of black employees into management positions can widen your network of business contacts and provide you with access to a broader market.
The time to prepare for the introduction of B-BBEE is now!
BY DR. FITZROY AMBURSLEY, DIRECTOR ANANSI CONSULTING