Amended Codes sub-minimum requirements – EconoBEE Newsletter 30 June 2015
We always felt Preferential Procurement using the old codes was a particularly genius idea. The knock on effect from one business to another somewhat indirectly forced each business to get a scorecard. Add competition to that mix and suddenly customers had a choice of many, many different suppliers with a similar level. Suppliers very quickly realised that if they wanted to get business from certain customers then they needed a good BEE scorecard.
The DTI had created a piece of legislation that didn’t need to be followed as a law, but was still implemented, because basic economic principles resulted in businesses voluntarily complying. The criteria has now changed with the Amended BEE Codes, but the expectation of transformation has not. Perhaps even more importantly the requirements around transformation have become even more important.
The business environment has changed. We wrote an article back in 2006 entitled “A new Business Environment“.It is as relevant today as it was in 2006 when it was originally published.
Amended Codes sub-minimum requirements
The Amended Codes have sub-minimum requirements for three elements: Ownership, Skills development and Enterprise and Supplier Development. If an entity does not meet the minimum requirements on all three elements its calculated BEE level will drop by a further 1 level.
Sub-minimum element – Ownership:
The sub-minimum is 40% of the Net Value element. Net value takes into account the percentage of shares sold with economic Interest in the hands of black people. It also takes into account any debt outstanding on the purchase of those shares. Effectively it looks at how much value has been created in the hands of black people. The Net value calculation allows up to 9 years to repay the debt.
In the first year after the purchase the requirement is the shareholder pays 10% of the debt to earn full points. In the second year the target is to repay 20%. For years 3 and 4 the target is 40%, and so on. If the business value (share price rises) the shareholder will be seen to have more net value than his repayment.
For example if a black person has:
Purchased 25% of the business, and paid 10% of the debt in the first year for it, the full…
Small business owners with a turnover of less than R10m stand to benefit from the amended BEE codes.
While confusion still surrounds the implementation of the amended Black Economic Empowerment (BEE) codes of good practice and the qualifying small enterprise codes that came into effect last month, business owners with an annual turnover of less than R10 million remain mostly unaffected.
Under the new codes, businesses with an annual turnover of less than R10 million a year (up from R5 million a year under the previous codes) are classified as exempted micro enterprises (EMEs) and as such are exempted from having to undergo a BEE rating.
Firms classified as EMEs will also gain an automatic BEE level 4 status, even if they have less than 51% black ownership….
However, Keith Levenstein, director of consultancy EconoBEE, says though the codes have been gazetted, confusion remains over many issues and how to interpret them. Referring to the final QSE codes that came into effect in May, he says: “To say QSEs have not had a lot of time to prepare is an understatement. The QSE codes state that if your financial year is prior to 30 April then you must use the old codes even if your company was verified after 1 May.
However, if a company’s financial year end is after 1 May then it must use the new QSE codes just released which means the company had no idea what the new codes were going to say and could not prepare. This will seriously disadvantage them and lead to lower scores.”
Levenstein says the BEE verification manual, which is intended to provide guidance to verification agencies and auditors has also not been published.
“Furthermore, the sector-specific codes have not been issued. This is a huge problem because the sector codes first needs to be gazetted as a draft before it can be issued. It results in uncertainty for those sectors,” he says. The spokesperson for the department Sidwell Medupe says industry associations have requested more time from the minister in order to finalise the alignment processes.
He added that the minister is currently considering their request. However, he could not say when the verification manual would be published.
We have many clients who procure from SANAS (SA National Accreditation System), see www.sanas.co.za. In many cases this is an exclusion to a company’s eligible procurement, but it can be that it does count towards the procurement score, so we regularly call SANAS to ask them for their own BEE certificate. The BEE codes have specifically been designed to allow public enterprises and govt agencies to obtain their own BEE certificate. The Specialised Enterprises scorecard has been in existence since 2007 for this purpose. It has even been aligned in line with the Amended Codes. Many govt agencies, NPOs, state owned enterprises have successfully been rated. The list includes ESKOM, SAA, TELKOM, SABC, SABS, SA Weather Service and even IRBA.
Preferential Procurement – Save Time by using the BEE Procured database containing over 60 000 BEE Certificates. Managed Service: Our consultants can phone your suppliers for a BEE certificate – Managed Service.
While there is demand for a B-BBEE Scorecard someone will be taking advantage, shouldn’t that someone be you…
EconoBEE is an expert BEE consultancy. EconoBEE helps businesses Become BEE Compliant, prepare for verification, earn maximum BEE Points and ensure that they achieve the BEE Level they need to get more business.