Broad-Based Black Economic Empowerment
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Broad-Based Black Economic Empowerment (B-BBEE) is a form of Economic Empowerment initiated by the South African government in response to criticism against Narrow Based Empowerment instituted in the country during 2003/2004. While Narrow Based Black Economic Empowerment led to the enrichment of a few black (Black African, Coloured or Indian) individuals, the goal of Broad-Based Empowerment is to distribute wealth across as broad a spectrum of black South African society as possible. In contrast, Narrow Based empowerment measures only equity ownership and management representation.
The Broad-Based Black Economic Empowerment Act (53/2003): Codes of Good Practice on Black Economic Empowerment was gazetted on 9 February 2007 in the government gazette 29617. It was put in place to replace earlier editions of the act. An Interpretive Guide was added in June 2007.
The Act is broken up into 9 Subsections
- Code 000: Framework for Measuring Broad-Based Black Economic Empowerment
- Code 100: Measurement of the Ownership Element of Broad-Based Black Economic Empowerment
- Code 200: Measurement of the Management Control Element of Broad-Based Black Economic Empowerment
- Code 300: Measurement of the Employment Element of Broad-Based Black Economic Empowerment
- Code 400: Measurement of the Skills Development Element of Broad-Based Black Economic Empowerment
- Code 500: Measurement of the Preferential Procurement Element of Broad-Based Black Economic Empowerment
- Code 600: Measurement of the Enterprise Development Element of Broad-Based Black Economic Empowerment
- Code 700: Measurement of the Socio-Economic Development Element of Broad-Based Black Economic Empowerment
- Code 800: Measurement of Qualifying Small Enterprises of Broad-Based Black Economic Empowerment
The first Codes of Good Practice, dealing mostly with Ownership and Management, were released 1 November 2004, and the second set, incorporating special codes for SMMEs (small, medium and micro enterprises) and the remaining 5 pillars, were released 20 December 2005. These codes were open to public comment until end March 2006.
The transitional period between narrow based BEE and broad-based B-BBEE originally expired on 9 February 2008 but was extended to 31 August 2008. BEE is referred to by the ANC as 'positive discrimination'.
Broad-Based Black Economic Empowerment is measured using seven pillars, each with a relative weighting. Unlike Narrow Based Empowerment, Ownership & Management account for only 30% of the total contribution.
- Direct Empowerment:
- Equity Ownership – 20%
- Management – 10%
- Indirect Empowerment:
- Employment Equity – 15%
- Skills Development – 15%
- Preferential Procurement – 20%
- Enterprise Development – 15%
- Socio-economic Development – 5%
Verification & B-BBEE Certificates
It is not mandatory to get a verification agency to audit a BEE Scorecard. It is however a requirement to have suitable documentation/evidence to score any points. SANAS (South African National Accreditation System) and IRBA (Independent Regulatory Body for Auditor) has been mandated with accrediting the Verification Agencies. This accreditation has been put in place to ensure the consistency of the independent verification of B-BBEE contributions.
BEE Certificates can be issued by any Verification Agency so long as they are approved to do so by SANAS or IRBA. Accounting officers registered in term of the Close corporation act of 1984 can also issue the BBBEE certificates for EMEs
The Certificate can only be issued once a full verification has been performed and the documentation presented by your company has been verified.
On the certificate, the following information should be listed:
- Company name and number:
- Type of Certificate (Group/Entity/Division)
- BEE Category (EME/QSE/Generic)
- BEE Level (1–8)
- Procurement Recognition %
- Black Ownership %
- Black Women Ownership %
- Value Adding Supplier (Yes/No)
- Certificate Issue Date
- Certificate Expiry Date
No additional information is required to be provided to a business' customers. A BEE Certificate is sufficient evidence of a business' B-BBEE Compliance.
Industry Specific Measurement
Companies may choose to be measured using the Generic Scorecard (as described above and created by the government) or their individual sector scorecards. Various Sector scorecards have already been finalised, including construction, tourism, forestry, transport, finance, information technology, mining, petroleum and others. Industry scorecards are created to address industry specific issues and complications with regard to implementing BBBEE.
All industry specific scorecards must align themselves to the generic scorecard. Companies may not measure their suppliers according to their own sector scorecards. For example, a large banking institution may not measure their ICT service providers according to the financial sector scorecard. The ICT company will present a verification certificate to the financial institution based on the generic scorecard or the ICT sector scorecard.
Development of Legislation
The Broad-Based Black Economic Empowerment Bill along with the BEE strategy document of South Africa serves as guideline and driver for developing Codes of Good Practice that describe measurement criteria, targets, audit requirements and definitions for each of the 7 pillars in detail. Additional Codes of Good Practice have also been released with regards to complex structures, broad-based ownership schemes, fronting practices and verification agencies.
The codes are developed by the BEE task team set up by the South African Department of Trade and Industry (DTI) and comprises individuals representing various areas: private and public sectors, various industries, research and BEE measurement etc. They are Cyril Ramaphosa, Saki Macozoma, Derek Cooper, Patrice Motsepe, Gloria Serobe, Danisa Baloyi, Buhle Mthethwa, Vuyo Jack, Ronnie Ntuli, Loyiso Mbabane, Imogen Mkhize, Alan Hirsch, Philisiwe Buthelezi and Lionel October.
Companies in South Africa that deal with the government or parastatals must be empowered as required by the Preferential Procurement Act. In return, these companies require their suppliers to be empowered to improve their rating at government. Thus Broad-Based Empowerment is driven down the supply chain. Various other legislation supports the BEE effort, including the Skills Development Act and Employment Equity Act.
Enterprise size's effect on B-BBEE
In terms of Act 53 (2003) Codes of Good Practice for Black Economic Empowerment all enterprises in South Africa are divided into one of three categories:
- Generic Enterprises (turnover greater than R50 Million) (Says R35 Million below -?)
- Qualifying Small Enterprises (turnover between R5 Million and R50 Million)
- Exempted Micro Enterprises (Turnover Less than R5 Million)
In Terms of Act 53 (2003) each of these categories have differing sets of measurement criteria.
Generic enterprises are those enterprises that have a turnover of greater than R35 Million. It is estimated that only 4% of South African Enterprises Fall into this category. Generic Enterprises must apply all seven pillars of BBBEE to calculate their score as per the Generic Scorecard.
Generic Enterprises Must Apply Code 000-700 of the act and apply stringent reporting techniques.
Qualifying Small Enterprises (QSE)
Qualifying Small Enterprises (QSEs) are enterprises that have a turnover between R5 Million and R35 Million, they apply code 800 to calculate their scorecards. Code 800 is a simplified version of Code 000-700 which includes less stringent scorecards for each element. QSEs can choose the best four of their seven elements, with each element accounting for 25% of their scorecard out of 100.
While code 800 is a simplified version of the other 7 pillars it has been ruled by the DTI that in any issues not specifically discussed in Code 800 should be applied as per Code 100–700.
Exempted Micro Enterprises (EME)
Exempted Micro Enterprises (EMEs) are enterprises with a turnover of less than R5 Million. EMEs do not need to be rated, but they do need to be able to provide reasonable evidence that they are EMEs. EMEs automatically qualify as 100% contributors towards Preferential Procurement. If they are greater than 50% black owned they Qualify as 110% contributors towards Preferential Procurement.
The impact of BBBEE is difficult to measure as the Codes of Good Practice were only promulgated in February 2007. According to the Institute for Justice and Reconciliation's Economic Transformation Audit, the number of Black Management and Professionals has increased from 216,772 in 1995 to 359,438 in 2005.
- Broad-Based Black Economic Empowerment Act 53 of 2003
- South African National Accreditation System
- South African Department of Trade and Industry
- South African BEE Certification for Exempt Companies
- The Department of Trade & Industry Economic Empowerment