Broad-Based Black Economic Empowerment

Black Economic Empowerment Act of 2003 is an elective legislation which seeks to reward entities who commit to the economic transformation strategies outlined by Government though the allocation of pricing, concessionary, licensing and incentive preference.

This legislation was refined in 2007 with the implementation of the Broad-based Black Economic Empowerment Codes of Good Practice to increase the pace of economic transformation encouraging closer alignment to the demographics of the Economically Active Population statistics and recognizing that an organizations commitment to this legislation could not only be measured by their ownership and management control credentials.

On the 11th of October 2013 the Amended Codes of Good Practice (ACoGP) were gazetted. The revision to the Broad-based Black Economic Empowerment Codes of Good Practice (CoGP) gazetted in 2007 was scheduled to be rolled-out over a 12 month period (during which an organization could choose to measure under the ACoGP or the CoGP). The ACoGP will apply to any measured entity without a Sector Charter that is making use of a financial period that is after 1 May 2015.

In addition to the General Broad-based Black Economic Empowerment Codes of Good Practice there were 9 Sector Specific Codes gazetted outlining industry specific targets namely the Agri-BEE sector charter, Financial sector charter, ICT sector charter, Property sector charter, Chartered Accountancy sector charter, Integrated Transport sector charter, Forest sector charter, Construction sector charter and the Tourism sector charter. All these charters need to be aligned to the ACoGP by 31 October 2015 or they risk being repealed.

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Who are Black people as contemplated by the Codes?
They are defined as natural persons who are citizens of the Republic of South Africa by birth or descent; or are citizens of the republic of South Africa by naturalization:
    a) Occurring before the commencement date of the Constitution of the Republic of South Africa of 1993; or
    b) Occurring after the commencement of the Constitution of South Africa Act of 1993, but who, without the Apartheid policy would have qualified for naturalization before then

How are businesses which don't fit into the Sector listed above classified (under the CoGP of 2007)?
Unless there is a specific charter for the businesses industry, it is adjudicated based on its size as not to disenfranchise smaller/micro enterprises.

The classification of entities is as follows:

  • Exempt Micro Enterprises (EME) - businesses with a turnover of less than R10 million p.a. an entity with no black ownership would qualify for a level 4 contributor status, 51% or more black ownership elevates them to a level 2 and 100% black owned businesses would receive a level 1 contributor status.
  • Qualifying Small Enterprises (QSE) - businesses with a turnover of R10 million > R50 million pa. These businesses are measured against the amended QSE scorecard gazetted on 10 October 2014. A QSE with 51% or more black ownership is exempted and would receive a level 2 contributor status and a QSE with 100% black ownership would receive a level 1 contributor status.
  •  Generic Enterprises (GS) - businesses with a turnover of more than R50 million p.a. A Generic organization is measured against the Generic Scorecard elements and their targets are more onerous than the smaller QSE businesses

There are five elements which are measured to assess the level of a business' contribution toward Broad-Based Black Economic Empowerment. The weighting, targets and validity of these elements are dictated by the size of the entity.

• Ownership (the percentage black equity stake within the measured entity relative to the targets outlined within the amended codes)
• Management Control (the percentage black participation at all levels of management within the measured entity relative to the targets outline within the amended codes)
• Skills Development (the skills development investment placed in black employees by the measured entity relative to the targets outline within the amended codes)
• Enterprise and Supplier Development (the B-BBEE compliance level of measured entities supply-chain relative to the targets outlined within the codes as well as the investment made by the measured entity in qualifying black owned businesses relative to the targets outline within the amended codes)
• Socio-economic Development (the investment made by the measured entity in black people relative to the targets outlined within the amended codes)

How are businesses scored?
The level of an organization's contribution is described on a scale of non-compliant to a level 1 contributor status based on their scores out of 100 for both Generic & QSE entities. There are now 3 priority elements these being Ownership (Net Equity Section), Skills Development and Enterprise & Supplier Development. In the event that a Generic entity does not achieve the 40% subminimum for each of these elements they will be discounted by 1 level. A QSE is required to achieve the subminimum for Ownership and one other priority element or they too will be discounted by 1 level.

What does score/contributor status mean?
The score a company achieves against the targets are proportionate to their investments and translates to a defined level of contributors’ status. This contributor status can determine a business's eligibility for licensing and incentives and designates the pricing advantage it carriers for government supply under the PPPFA, not to mention the percentage of the total spend made with them which can be measured against their clients B-BBEE preferential procurement targets.

Empowering Supplier Status:
A QSE is required to meet one of the following criteria and a Generic enterprise needs to meet 3 of the following criteria:
1. At least 25% of cost of sales excluding labour and depreciation must be procured from local producers or local suppliers in SA, for service industry labour cost are included but capped to 15%.
2. 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.
3. At least 25% transformation of raw material/beneficiation which includes local manufacturing, production and/or assembly, and/or packaging.
4. Skills transfer – at least spend 12 days per annum of productivity deployed in assisting black EME and QSE beneficiaries to increase their operational and financial capacity.
5. At least 85% of labour costs should be paid to South African employees by service industry entities.

Principals of preferential procurement measurement:
Exempt micro enterprise (EME < R 10 mil annual t/o)
EME’s are not required to complete a procurement rating
Qualifying small enterprise – (QSE R 10 mil < R 50 mil annual t/o)
The target for QSE clients would be to spend split up amongst the following empowering suppliers:
1. 60% of TMPS needs to spent on qualifying suppliers to get 15/21 points
2. 15% of TMPS needs to be spent on a qualifying supplier with 51% or more black ownership for 5/21 points
3. 1% of their TMPS from Designated Group Suppliers would are at least 51% black owned (1/21 points)
Generic enterprise (Generic > R 50 mil annual t/o)
A generic company has 5 targets under the preferential procurement element as well as a bonus point target for a maximum of 27/105 points
1. 80% of their TMPS from any supplier according to their scorecard (5/27 points)
2. 15% of their TMPS from suppliers which are QSE according to their scorecard (3/27 points)
3. 15% of their TMPS from suppliers which are EME according to their scorecard (4/27 points)
4. 40% of their TMPS from any 51% or more black owned supplier irrespective of annual t/o (9/27 points)
5. 12% of their TMPS from any 30% or more black women owned supplier irrespective of their annual t/o( 4/27 points)
6. 2% of their TMPS from Designated Group Suppliers would are at least 51% black owned (2/27 points)

What is the PPPFA and how does B-BBEE influence government tenders?
National Treasury has provided the Preferential Procurement Policy Framework Act of December 2011 as a framework on how all government procurement/tenders (including local, municipal, provincial and national government as well as State owned Enterprises) should be adjudicated based on an 80/20 principle (in the case of tenders of less than R 1 mil) or 90/10 (for tenders which are above R 1 mil) where 80 or 90 points are allocated on price and local content and the balance on B-BBEE status.

 Description  ACoGP Points Procurement Recognition  PPPFA 90/10 point allocation  PPPFA 80/20 point allocation
 Level 1 contributor ≥ 100 135% 10 points 20 points 
 Level 2 contributor ≥ 95 <100 125% 9 points 18 points
 Level 3 contributor ≥90<95 110% 8 points 16 points
 Level 4 contributor ≥80<90 100% 5 points 12 points
 Level 5 contributor ≥75<80 80% 4 points 8 points
 Level 6 contributor ≥70<75 60% 3 points 6 points
 Level 7 contributor ≥55<70 40% 2 points 4 points
 Level 8 contributor ≥40<55 10% 1 points 2 points 
 Non-compliant contributor <40 0% 0 points 0 points

 

How can Siyaya help?
Whether against the General Broad-based Black Economic Empowerment Codes of Good Practice, the Amended Codes of Good Practice or one of the 9 sector specific Codes Siyaya assists clients identify their B-BBEE compliant investments establishing their current level of conformity and monetizing the difference of their naturally occurring compliance and the initiatives required to achieve the contributor status they aspire to.

Our team is able to deliver this compliance at the lowest average cost as a result of integrating the mandatory compliance with the Skills Development Levies Act and Employment Equity Act ensuring that any organization investment occurs once and counts against all 3 pieces of legislation. We assist businesses to identify the highest action/investment to point’s ratios, ensuring the highest yield while vigilantly seeking supporting legislation to assist our clients fund the initiatives required and achieve their aspirations.

The B-BBEE advisory service is available on request as a value-add to Skills Development Facilitation clients and on a project, retainer or hourly rate for clients who wish to engage this service in isolation.

Our services include:

  • Explanation of the B-BBEE Codes in terms of the Employer’s business;
  • Analysis of the current level of compliance with the B-BBEE Codes;
  • Preparation of B-BBEE scenarios highlighting actions required by the client in order to achieve the desired contributor status;
  • Implement and manage a B-BBEE strategy in conjunction with the clients allocated resources;
  • Formulation of corrective strategy (if required) and reports;
  • Provision of evidentiary templates (subject to availability);
  • B-BBEE file assembly;
  • B-BBEE file evaluation and scoring prior to verification;
  • Verification preparation;
  • Facilitation of verification appeals/objections (if applicable).

Visit the Contact Us Page to make a request or contact them directly on 0861 00 99 04.

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