The Amended Codes have sub-minimum requirements for three elements: ownership, skills development and enterprise and supplier. 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 black hands. 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 pay 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 net value of 8 points will be earned
- Purchased 10% of the business and paid 10% of the debt in the first year for it, a pro-rata net value of 3.2 points will be earned
- Purchased 25% of the business, and paid 4% of the debt in the first year for it, a pro-rata net value of 3.2 points will be earned
- Purchased 25% of the business, but paid no debt, but the share price has risen by 10%, the full net value of 8 points will be earned. Conversely if the share price has dropped net value will decrease accordingly.
Minimum requirements to avoid dropping a level:
Net value must achieve 40% of the 8 points available, ie 3.2 points.
How to Reach the sub-minimum:
- Sell 10% of shares, with economic interest and ensure that the minimum debt is repaid for each year, ie 10% in the first year, 20% in the second 40% in years 3 and 4 and so on.
- Sell up to 25% of shares, with economic interest and ensure that the minimum debt is repaid, or any combination between 10% and 25%.
Best practice: How much Black Ownership?
- 10% reaches the subminimum on the priority element status
- 25+1 vote is the Amended Codes target
- 30% black female will assist your customers through the procurement element
- 51% black people will assist your customers through the procurement element
Sub-minimum element – Skills Development:
25 points are available for skills development. An entity must achieve at least 40%, ie 10 points in order to reach the sub-minimum and not drop a level.
Sub-minimum element – Enterprise and Supplier Development:
This element includes procurement, enterprise development and supplier development.
The Amended Codes state that an entity must achieve a minimum of 40% of each of the targets for procurement, enterprise development and supplier development.
This includes procurement from all suppliers, procurement from EMEs, QSEs, suppliers that aware at least 51% black owned and suppliers that are at least 30% black women owned. 25 points are available – the sub-minimum target is 10 points.
It also includes supplier development which has 10 points and requires a minimum of 4 points and enterprise development which has 5 points and requires a minimum of 2 points.
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