Has the bell-tolled for broad-based BEE?

“My business is reliant on a good BEE certificate and I try and keep my ear to the ground about changes that may affect my business. Recently there seems to have been quite an active debate about the proposed new amendments to the BEE Codes. I must say, many of them seem quite positive. So what is all the fuss about?”

On 29 March and 15 June 2018 respectively, the Minister of Trade and Industry issued proposed amendments to the General Principles, the Definitions, the Enterprise and Supplier Development Statements and Skills Development Statements of the Codes of Good Practice on Broad Based Black Economic Empowerment of 2013 (“Proposed Amendments”) and requested public comment thereon. The proposed amendments have been met with a mixed response and have resulted in the public debate you have alluded to. 

Some of the most important (and possibly controversial) suggested amendments are summarised below:

Proposed amendments to the General Principles Statement

51% Black-owned and 100% Black-owned Exempt Micro Enterprises and Qualifying Small Enterprises that seek to benefit from the enhanced recognition principles through which it can be recognised as automatic Level 2 or Level 1 contributors to BEE, can no longer utilise the modified flow through principle to do so.

Generic Enterprises (enterprises with an annual total revenue of R50 million or more) that are 100% Black owned (measured using only the flow-through principle) and large enterprises that are at least 51% Black-owned (measured using only the flow-through principle) can gain enhanced recognition to Level 1 and Level 2 contributors respectively. Such large enterprises will only be required to obtain a BEE verification certificate which verifies their ownership.

Enhanced BEE recognition can be gained where participating entities could move up 1 or even 2 BEE levels on the generic scorecard, if they achieve targets in respect of the so-called YES Initiative, which initiative is aimed at creating jobs for Black youth (ages 18 to 35). In order for a measured entity to be eligible for enhanced BEE recognition through the YES Initiative it must meet certain qualification criteria, such as, in the case of a large enterprise, achieving the sub-minimum for each priority element or an average of 50% across all three priority elements and ensuring that it maintains or improves its BEE status level. A further criterion which required an enterprise to also achieve full points under a specific sub-element of the skills development element has now been dropped by the Department of Trade and Industry (“DTI”) due to resistance and criticism from the business community to the inclusion of this criterion.

All companies participating in the YES Initiative must determine its YES target for new job creation based on criteria stipulated in the Proposed Amendments. Entities that are unable to create a sufficient number of new jobs in order to meet their targets may also qualify by sponsoring new placements in Exempt Micro Enterprises or Qualifying Small Enterprises.

Proposed amendments to the Enterprise and Supplier development Statements 

The key amendments which are proposed here are the introduction of a multiplier factor of 2 for 51% Black Owned or 51% Black Women Owned Entities under the Preferential Procurement Scorecard; the combination and reallocation of points and targets for procurement expenditure on EMEs and QSEs under the Preferential Procurement Scorecard; and the recognition of Enterprise Development or Supplier Development initiatives irrespective of the growth in turnover of the relevant enterprise or supplier development beneficiary.

Proposed amendments to the Skills Development Statement

Skills development expenditure on bursaries for Black students at Higher Education Institutions has been proposed as a new sub-element under the skills development scorecard. The compliance target is 2.5% of the leviable amount – essentially an entity’s annual payroll – for 4 points on skills scorecard.

The target for skills development expenditure on learning programmes in the learning programme matrix is however proposed to be reduced from 6% to 3.5% of the leviable amount for 6 points in order to accommodate the new bursary sub-element.

The provision that legitimate training costs such as accommodation, catering and travelling cannot exceed 15%   of the total value of skills development expenditure will not apply to the target for bursaries for Black students at Higher Education Institutions, allowing such expense items to be included for recognition under the new bursary sub-element.

Reaction and way forward

The proposed amendments, specifically pertaining to enhanced recognition for Black-owned Generic enterprises, have been met with widespread criticism from various sectors and have been hailed as a proposal for “the death of Broad-Based BEE”. It is expected that further dialogue will take place on this aspect between the DTI and relevant industry role players. The proposals regarding the YES Initiative and recognition for bursaries to Black students under the skills development have on the other hand been more positively received and should in all probability find their way into the amended BEE Codes. For the moment, it is still a waiting game to see what will come of the Proposed Amendments and in particular whether the DTI will press through with the controversial enhanced recognition for Black-owned Generic enterprises.

July 12, 2018
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