BEE codes for small companies chided
by Samuel Mungadze, 13 October 2014, 05:58 – Business Day

NO SOONER had the Department of Trade and Industry published new codes that require black economic empowerment (BEE) in small business than critics emerged, arguing that the move would stymie small business.

The government and private sector are being urged to promote small to medium enterprises, which are expected to create 90% of the 11-million jobs the National Development Plan says SA needs by 2030.

The new requirements were gazetted on Friday, with the comment period ending on November 14. They are for businesses with a R10m-R50m annual turnover.

The codes are aimed at boosting small business participation in the mainstream economy.

They are due to come into effect on May 1 next year.

BEE verification agency Veri-Com’s CEO Deon Oberholzer said that the new regulations were bound to mostly affect white-controlled companies. “For black business it will be fine, actually better. Only white-controlled companies will need to comply.”

BEE advisory company EconoBEE CEO Keith Levenstein said small enterprises that were subject to the codes would “find it extremely difficult to get any reasonable score, due to the harsher points to level the table”.

The Department of Trade and Industry promised to issue a statement on the issue on Friday, but had not done so by Sunday.

Democratic Alliance (DA) shadow minister for small business development Toby Chance said the codes’ emphasis on increasing black ownership in white-owned businesses would do nothing to stimulate the formation of entirely new businesses, which the economy needed to create jobs.

They would also hamper the growth of small black-owned businesses, he said.

“Whites who were growing their businesses larger than the exempted small enterprise and qualifying small enterprise turnover thresholds of R10m and R50m can often not find a suitable black partner so are not incentivised from growing above these thresholds.”

Mr Chance said the codes would promote the undesirable practice of “fronting”, and SA’s low total early-stage entrepreneurship rate would not improve. “One of the perverse effects of the codes is that they punish small black entrepreneurs who want to take on a white partner, because by doing so their black ownership score will go down.

“Under the new codes a business owned 50/50 by a black and a white partner will only get a Level 4 rating. At a time when we are trying to promote small business development by all means possible, and when many small black entrepreneurs are looking for partnerships and assistance from possibly more experienced white business people, this provision in the codes does not make sense.”