Some of the dust is beginning to settle after the recent flurry of revisions to the already revised B-BBEE Codes. So is there now enough certainty on key issues to allow you to start reworking your B-BBEE strategy to meet the changes?
Yes, there is, says Saul Symanowitz, divisional manager of Sage Pastel BEE 123.
But before looking at what’s certain, here’s one huge question that’s still uncertain and the answer to it could make a huge change to your ownership strategy:
Broad-based or entrepreneur-based black empowerment?
The old Codes gave you full points for ownership through a broad-based or employee-share ownership scheme. But the first clarification notice, published on 5 May, effectively reduced this to just 3 points out of 25, while individual share ownership could count up to the full 25 points.
After a shocked response from business, the DTI announced that BBBEE deals “concluded prior to 1 May 2015 will not be affected” and that Minister Rob Davies “will appoint a technical task team which will explore the appropriate balance between active (direct) and passive (broad-based schemes) ownership”. The team will make its recommendations within 30 days.
Subsequently a revised clarification notice was published by the DTI on 15 May, which repealed and replaced the earlier clarification notice. The updated notice no longer contains the provision limiting ownership under broad-based or employee-share ownership scheme. So for now they are back in and retain their full points scoring status.
It would however appear the reversal is likely a temporary measure, while the task team investigates the issues and the DTI restrategizes how to better engage with the market on the subject. The underlying issues around broad-based and employee-share ownership scheme are very much still on the table and further amendments are definitely expected, which are likely to be in the form of tightening up the rules around broad based and employee ownership schemes. However, until there is this certainty, our advice would be to not make plans to change the ownership of your business.
BBBEE is a strategic issue
With the new Codes, BBEEE is not a 4- to 5-week process anymore. To achieve the scores to meet compliancy and, more important, give your company a competitive advantage, you need to approach BBEEE strategically. That means setting objectives at the start of the assessment period based on accurate information and then building your scorecard steadily over the 1-year period.
As you’ll see below, the new Codes add complexity to the process, so for medium to large companies it’s advisable to implement automated systems tailored to handle this.
How the new codes have changed the playing field
The key changes include:
* Revised Turnover Thresholds ease the burden for EMEs and QSEs: Your business is now exempted if its turnover is below R10-million (increased from R5-million). It is classified as an Exempted Micro Enterprise (EME). Qualifying Small Enterprises or QSEs (threshold increased to R10 – R50-million from R5 – R35-million) with 51% or more black ownership are also exempt and automatically Level 2 compliant, while those with 100% black ownership are exempt and qualify at Level 1. A turnover of R50-million or more makes your business a Generic enterprise and, together with QSEs that have less than 51% black ownership, subject to all aspects of the new Codes.
* Amended Assessment Elements make compliance tougher: The assessment elements have been reduced from seven to five (see table below) and QSEs now have to qualify in five out of five elements compared to the previous four out of seven. This means a major adjustment for QSEs.
Old Codes Scorecard New Codes Scorecard
| Old Codes Scorecard | New Codes Scorecard | |||||
|
|
Element |
Points
GENERIC (7/7) |
Points
QSE (4/7) |
Element |
Points
GENERIC (5/5) |
Points
QSE (5/5) |
| 1 | Ownership | 20
|
25 | Ownership* | 25 | 25 |
| 2 | Management Control | 10
|
25 | Management Control | 19 | 15 |
| 3 | Employment Equity | 15 | 25 | Skills Development* | 20 | 25
|
| 4 | Skills Development | 15 | 25 | Enterprise & Supplier Development* | 40 | 30
|
| 5 | Preferential Procurement | 20 | 25 | Socio-Economic Development | 5 | 5 |
| 6 | Enterprise Development | 15 | 25 | |||
| 7 | Socio-Economic Development | 5 | 25 | |||
| Total: | 100
+ 7 bonus points |
100
+ 7 bonus points |
109
+ 9 bonus points |
100
+ 8 bonus points |
||
* = Priority elements
* New Priority Elements could lower your compliance status: A major change is that three of the elements shown above (Ownership, Skills Development and Enterprise and Supplier Development) have been designated as priority elements to ensure their urgent implementation. Each of these elements includes a 40% subminimum achievement level that, if not reached, will cause a drop of one level for Generics. QSEs will drop one level if the 40% subminimum is not achieved in Ownership AND Skills Development OR Enterprise and Supplier Development.
Example: A QSE without black ownership will lose 25 points. As the table below shows, that would mean that, at best, it could achieve only 83 points (108-25) and thus a Level 4, but discounted to a level 5 due to not having achieved the ownership priority element sub-minimum. This of course assumes that the business achieves 100% of the points in all other elements, which is highly unlikely. So the business would realistically probably achieve a Level 7 or 8.
However, the good news is that ownership can be gradually changed over 10 years, the subminimum in Year 1 being only 10%. Nevertheless, that puts significant pressure on QSEs to start the process as soon as possible.
Points Scoring
The points scoring table has been adjusted under the new Codes, as set out below:
| BEE
Status |
Original
Qualification |
Revised
Qualification |
Recognition
Level |
| Level 1 | ≥100 points | ≥100 points | 135% |
| Level 2 | ≥85 but <100 points | ≥95 but <100 points | 125% |
| Level 3 | ≥75 but <85 points | ≥90 but <95 points | 110% |
| Level 4 | ≥65 but <75 points | ≥80 but <90 points | 100% |
| Level 5 | ≥55 but <65 points | ≥75 but <80 points | 80% |
| Level 6 | ≥45 but <55 points | ≥70 but <75 points | 60% |
| Level 7 | ≥40 but <45 points | ≥55 but <70 points | 50% |
| Level 8 | ≥30 but <40 points | ≥40 but <55 points | 10% |
| Non-Compliant | <30 points | <40 points | 0% |
As can be seen, under the new Codes in addition to tougher compliancy requirements, businesses will need to be doing relatively more to maintain their current status levels.