New B-BBEE Codes – bust or business gold?
Let’s face it. Thus far, South African news headlines have not been telling stories of growth and prosperity in 2016. And if you’re a business owner, you’ll be forgiven for breaking into a cold sweat every time you read about our impending junk status, another fuel hike or the rand taking another dive against foreign currencies. So, at a time when South African business feels like it’s taking hit after hit, we approach yet another hurdle – the new B-BBEE Codes.
Tricky? Complicated? Intimidating?
Perhaps. At first glance it may seem like one hurdle too many, one bridge too far. But your business’s BEE rating shouldn’t be the proverbial straw that breaks the camel’s back. With the right team in place to offer guidance and clarity, you can take your BEE rating from bust to business gold.
What has changed?
The Amended Broad-Based Black Economic Empowerment (B-BBEE) Codes that came into effect on 1 May 2015 introduced many changes:
- The former seven B-BBEE scorecard elements have been consolidated into five elements, namely Ownership, Management Control (MC), Skills Development (SD), Enterprise and Supplier Development (ESD) and Socio-Economic Development (SED).
- All companies, except Exempted Micro Enterprises (EMEs), must comply with all the scorecard elements.
- Higher points are now required to achieve the same level, and higher targets have been imposed. Total points have been increased from 100 to 105.
- Large businesses will be classified as generic entities only once their revenue exceeds R50 million.
- Entities with revenue below R10 million are classified as EMEs.
- Qualifying Small Enterprises (QSEs) now fall in the revenue category of between R10 million and R50 million.
- The term ‘Value Adding Supplier’ has been replaced with ‘Empowering Supplier’.
How will the new codes affect my BEE rating?
Businesses still have time until the end of April 2016 to complete their audits under the familiar ‘old’ B-BBEE Codes.
Keep in mind that the new codes are more stringent. From 1 May 2016, all businesses that do not fall under one of the Sector Codes listed in the Government Gazette will be rated under the new, stricter B-BBEE Codes.
Businesses will be rated on the existing ‘old’ Sector Codes until such time as they are repealed by the Department of Trade and Industry (DTI), or replaced with new, aligned Sector Codes.
Priority scorecard elements – a new concept
The amendments will affect broad-based empowerment and employee share ownership schemes. These elements no longer count as much as individual share ownership on the B-BBEE scorecard.
A new concept of three priority elements has been introduced, comprising Ownership, Skills Development (SD), and Enterprise and Supplier Development (ESD). The weighting of the Ownership scorecard has been increased from 20 to 25 points. Sub-minimum scores are now attached to each of the three elements. If the sub-minimums are not met, the measured entity is penalised by dropping one level.
An entity must achieve a threshold of 40 per cent on Net Value annual targets to avoid discounting of its overall score.
QSEs will only have to meet the sub-minimum for Ownership, and one of the other priority elements.
How are the sectors affected?
On 17 February this year, the DTI issued a Government Notice to repeal the Construction and Chartered Accountancy (CA) Sector Codes. This implies that with effect from 17 February, these two Sector Codes cease to exist. All measured entities operating in the Construction and CA sectors are now required to use the amended B-BBEE Generic Codes of Good Practice. These businesses will be rated under the General B-BBEE Codes for financial periods ending before 1 May 2015, and under the Amended General B-BBEE Codes, should their financial year end after 30 April 2015.
The aligned amended Codes have been published for the Tourism sector. The aligned Tourism Sector Codes will be applicable to all entities in this sector, using a measurement period which ends after 31 October 2015.
What is the best way to approach the new codes?
Complying with the amended Codes is certainly more difficult than before. The harsh reality is that most businesses will face level drops. Unless you are a majority black-owned EME or QSE, the only way to approach the amended Codes is to be well prepared.
Our resident BEE expert and partner at Middel & Partners, Anton Fourie, has the following advice for businesses. ‘Start by conducting a BEE gap analysis in your business to see where you would fall under the more onerous provisions of the new codes. Because of the increased targets, it is highly likely that the results will be disappointing. See this as the first step in bettering your BEE level and not the final nail in the coffin.’
As with most things in life, it will take some time for businesses to understand and get used to the new B-BBEE Codes. The right partnership with an expert BEE Consultant in this case is essential.
To discuss your BEE needs or ask advice from Anton and his team at the B-BBEE Verification Assurance Division, contact us by email at email@example.com, or call 011 958 0702.
Middel & Partners is registered with the Independent Regulatory Board for Auditors (IRBA) as B-BBEE Approved Registered Auditors.