Broad Based Black Economic Empowerment
Overview
Broad Based Black Economic Empowerment (BBBEE) is a form of Economic Empowerment initiated by the South African government. The goal of Broad Based Empowerment is to distribute wealth across as broad a spectrum of South African society as possible.
Although the Broad-Based Black Economic Empowerment Act was passed seven years ago (53/2003) the Codes of Good Practice on Black Economic Empowerment were only gazette on 9 February 2007.
Even then, it took until February 2010 before the accredited Verification Agencies became the sole source of government-approved BBBEE rating certificates.
The Codes of Good Practice begin with Code 000 – Framework for Measuring Broad-Based Black Economic Empowerment, followed by seven Codes, each with a relative weighting, as follows:
Code 100: Measurement of Ownership 20%
Code 200: Measurement of Management Control 10%
Code 300: Measurement of Employment Equity 15%
Code 400: Measurement of Skills Development 15%
Code 500: Measurement of Preferential Procurement 20%
Code 600: Measurement of Enterprise Development 15%
Code 700: Measurement of Socio-Economic Development 5%
An additional Code 800: Measurement of Qualifying Small Enterprises deals with smaller organizations, as described below:
All enterprises in South Africa are divided into one of three categories:
- Generic Enterprises (turnover greater than R35 Million)
- Qualifying Small Enterprises (turnover between R5 Million and R35 Million)
- Exempted Micro Enterprises (Turnover Less than R5 Million)
Each of these categories has a different set of measurement criteria.
Generic Enterprises
Generic Enterprises are those organizations that have a turnover of greater than R35 Million. It is estimated that about 4% of South African companies fall into this category. Generic Enterprises must apply all seven Codes (100 to 700) in order to calculate their score.
Qualifying Small Enterprises (QSE)
Qualifying Small Enterprises (QSEs) are organizations with a turnover between R5 Million and R35 Million and 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.
Verification & B-BBEE Certificates
It is not mandatory to get a verification agency to audit your BEE Scorecard. It is however a requirement to have suitable documentation/evidence to score any points. SANAS (South African National Accreditation System) has been mandated with accrediting the Verification Agencies. This accreditation has been put in place in order to ensure the consistency of the independent verification of Broad-Based Black Economic Empowerment (B-BBEE) contributions. The first batch of accredited verification agents was released during February 2008 and can be viewed on the ABVA website. According to ABVA the release of the accredited agents is a watershed moment for the BBBEE industry.
Your Certificate
BEE Certificates can be issued by any Verification Agency so long as they are approved to do so by SANAS.
The Certificate can only be issued once a full verification has been performed and the documentation presented by your company has been verified.
On your certificate you should find the following information:
- 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
You do not need to provide any additional information to your customers. Your BEE Certificate is sufficient evidence of your 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 finalized, including construction, finance, ICT, 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.
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.
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