In 2007 the Codes of Good Practice were put in place to govern Black Economic Empowerment, these have recently been revised and were meant to be effective from 2013 but due to various delays will be effective from November 2015. One of the major changes is the number of elements against which a company is scored which have been reduced from 7 to 5. Please see below the difference;
| 2007 Codes of Good Practice | 2013 Codes of Good Practice |
| Ownership | Ownership |
| Management control | Management control |
| Employment equity | |
| Skills development | Skills development |
| Preferential procurement | Enterprise & supplier development |
| Enterprise development | |
| Socio-economic development | Socio-economic development |
The Revised Codes of Good Practice are stricter in scoring because of the new requirements. The critical aspects business owners should be aware of are the priority elements: ownership, skills development & enterprise and supplier development.
The grouping on the new codes has changed slightly. There are 3 groups namely the EME (Exempted Micro Enterprise), QSE (Qualifying Small Enterprise) & GEN (Generic Enterprise).
To qualify as an EME company the turnover threshold is between R0 to R10 million, this is great for small companies as they don’t have to go through the hassle of an audit; they can simply get an affidavit and attain either level 1, 2 or 4. In the old codes there only used to be level 3 and level 4 but this has subsequently changed to level 1, 2 & 4. To attain a level 1 the black ownership has to be 75% and above. For a level 2 the black ownership has to be 51% and above but if a company has black ownership that is 50% and below or a white-owned company then they would be a level 4. For an affidavit to be held credible and true, it must be signed by a commissioner of office.
QSEs are companies with a turnover of R10 million to R50 million. With a QSE it’s a little different in that companies have a choice to either do an affidavit or a verification. Please see the pros and cons of each option.
| Aspect | Pros | Cons |
|
Using an affidavit |
Its quick, easy and cheap |
Most government agencies and compliant companies would require a BEE certificate for winning tenders and other work. |
| Using a BEE verification certificate | Its costly, time consuming & labour intensive | Gives a company an upper hand when it comes to tendering. The better the company score is the great the chance of acquisition of business. |
GEN are companies with R50 million and above turnover. A Generic company has to go through verification and be verified in all the 5 elements. The requirements that need to be met are a lot more stringent and all the compliance companies would have to meet most of the requirements below;
Critical aspects
Critical aspects of the new codes: the empowering suppler & priority elements
Empowering supplier
Empowering supplier is a compliant company with all the regulatory requirements of the BEE codes of Good Practice. As a Generic a company must meet at least 3 requirements and a QSE can meet at least 2 of the following requirements:
- At least 25% of cost of sales excluding labour cost and depreciation must be procured from local producers or local suppliers in SA. For the service industry labour costs are included but capped to 15%.
- Job creation – 50% of jobs created are for black people provided that the number of black employees since the immediate prior verified B-BBEE Measurement is maintained.
- At least 25% transformation of raw material/beneficiation which includes local manufacturing, production and/or assembly, and/or packaging.
- Skills transfer – minimum of 12 days per annum of productivity deployed in assisting black EME and QSE beneficiaries to increase their operation or financial capacity.
- At least 85% of labour costs should be paid to South African employees by service industry entities.
It is important to note though that all EMEs are regarded as empowering suppliers. The implication of not being an empowering supplier as a company is that your BEE certificate means nothing, it’s the same as not having it.
Priority elements
This is new to the BEE world but what it means is that there are now 3 elements that companies have to maximise their scoring and meet all their requirements including a 40% target. These elements are ownership, skills development & enterprise and supplier development.
- For ownership a company would have to meet 40% of the debt incurred by black shareholders for the acquisition of shares to the company.
- For skills development a company would have to do training for both the staff and unemployed learners and in doing so attain at least 8 points which would mean meeting the 40% target.
- For enterprise & supplier development a company would have to meet 40% of the points at 3 different points; procurement, supplier development & enterprise development.
Confused? The Revised Codes of Good Practice can be daunting. The Mindworx Empowerment Advisory team are specialists in customised B-BBEE consulting, facilitation and implementation solutions.
Contact Nelson on nelsons@mindworx.co.za or download the team’s service brochure here.