The Department of Trade and Industry published two draft statements on 29 March 2018 which contain a number of notable amendments to the current BEE Codes of Good Practice and provide for a 60 day period to provide comments on the proposed amendments (“Code Amendments”).
If the Code Amendments pass, it will afford generic companies (companies with a turnover of more than R50 million) with the ability to also obtain automatic BEE recognition as is currently the case with EME and QSE companies. This means that a generic company with 51% or more black ownership will achieve an automatic level 2 BEE status and a 100% black owned company will achieve an automatic level 1 BEE status. This is a big advantage for such companies as they will only need to verify their ownership to obtain these recognition levels and won’t need to meet the other elements of the generic BEE scorecard. One can presume that the inevitable and planned result of these Code Amendments will be a general increase in the impetus of large companies to increase their ownership to more than 51% black shareholding to leverage the benefits of such automatic recognition, setting the scene for more black industrialists to emerge. A consequence of automatic recognition for large companies may however hold a reduced emphasis in the long run on other elements of the BEE scorecard such as skills development, employment equity, preferential procurement and enterprise and supplier development.
A brand new element introduced by the Code Amendments relates to Youth Employment Service or YES for short. This new element, if approved, will create a framework for the education and employment of black youth between the ages of 18 and 35, with companies that are successful in implementing YES initiaitives allowed to improve its BEE status by as much as 2 levels. This would mean that a company that would otherwise achieve a level 4 rating could potentially move up to a level 2 rating if it meets the requirements of the YES element. The YES requirements can be summarized as follows:
• Must obtain the sub-minimum points for the 3 priority elements of your BEE scorecard.
• Must meet the minimum required number of learners for the programme.
• The learners must be black youth.
• They must be placed on a 12 month contract of employment.
A further change introduced by the Code Amendments, relates to the splitting of the skills development expenditure target for generic companies. Currently the target is set at 6% of what is essentially payroll expenditure. The Code Amendments propose reducing the target to 3.5% of skills development programmes and introducing a new 2.5% of payroll target for expenditure on bursaries to black learners. The total skills spend thus still remains 6%, but with emphasis on tertiary education bursaries introducted through the new 2.5% target.
It will be interesting to see if the Code Amendments are passed as proposed, although it is clear that they align strongly with current Government’s policy. If they are passed, it will require generic companies to have a major rethink of their current BEE strategy and planning.