New BEE codes ‘will hurt small white businesses’

by Carol Paton, 17 October 2013, 08:49 – BusinessDay

SMALL white-owned businesses will be disadvantaged by the new codes of good practice for black economic empowerment (BEE) which, according to analysts, will make it difficult for most of them to reach compliant status.

The codes, promulgated last week but which will come into effect after a year, set out the elements of the empowerment scorecard, by which the empowerment rating of a company is determined.

Companies wishing to do business with the government, whose clients do business with the government, or are under government regulation, aspire to at least a level 4 on the eight-rung scorecard. While micro-enterprises — companies with a turnover of R10m or less — will be exempt and immediately qualify for level 4, small companies with a turnover of between R10m and R50m will have a harder time of it, unless they are 100% black-owned.

Small enterprises will immediately qualify for level 1 status if 100% black-owned and level 2 if 51% black-owned.

EconoBEE CEO Keith Levenstein said on Wednesday that due to changes in the scorecard “it will be 100% more difficult for white-owned small businesses to maintain their current rating. These small family businesses will have a dramatic drop in their score. A company that was on level 3 could drop to level 8 or even into non-compliant status.”

At the heart of the change is that in the past, “qualifying small enterprises”, (the term used in the codes) were scored only on four of the seven elements of the scorecard, making it less onerous for small companies to achieve respectable ratings. The new scorecard has been reduced to five elements, with three of these — ownership, skills development and procurement — compulsory.

Failure to achieve minimum scores in these three areas leads to the discounting of one level on the ladder. Small enterprises are now also scored on all the elements of the scorecard.

“Now there is hardly any benefit to being a qualifying small enterprise, unless you are black-owned. There is a minor benefit in that the method used to calculate procurement points is slightly less onerous than it is for large companies,” Mr Levenstein said.

While previously it had been too easy for small companies to reach level 4, it may now be too difficult, which could prompt small companies to give up on empowerment, he said.

The imbalance in the codes, say analysts, is in part a result of the absence of an effective small-business lobbying organisation. While black business and big business lobbied effectively to have many of their interests addressed, small business had not.

Brandon Darroll, project manager of the SBP, a business environment specialist with a particular interest in small business, on Wednesday said small enterprises were the “growth engine” of the economy. “They are already trying to deal with quite onerous legislation and we are seeing a high number of failures, ” he said.

“There isn’t a small business lobby. Most belong to chambers of commerce, but the focus of the chambers is on the bigger companies. Legislation like this is the effect of government not thoroughly engaging with small business,” Mr Darroll said.

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