Original publish date – Wed, 03 Oct 2012 07:13:12 +0000, Keith

The long awaited draft B-BBEE Codes were officially launched by dti Minister Rob Davies on 2nd October 2012.
The B-BBEE act requires that any changes to the BEE Codes be gazetted as a draft, giving the public a 60 day commentary period. Thereafter the dti minister can gazette the codes in terms of  Section 9(1) which becomes the final codes. In practice it takes far longer than 60 days – usually about a year before draft codes, particularly as far reaching as these drafts can be finalised and put into practice.

It is important to understand the draft codes, to be able to comment if necessary, and also to begin preparing to change your B-BBEE strategy for when the final codes are gazetted.

DISCLAIMER: This article is written based on the minister’s presentation. The formal draft codes giving the detail are not yet available

Draft Codes – Generic Scorecard

Management Control15
Skills Development20
Enterprise and Supplier Development40
Socio-economic Development5

Salient Features:

There is some good news for small businesses:

EMEs (Exempt micro enterprises – businesses that are exempt from calculating a B-BBEE scorecard): The threshold has increased from up to R5 million annual turnover to a maximum of R10 million. EMEs are automatically given a level 4, but 100% black owned EMEs are level 1 and 50% black owned EMEs are level 2.

QSEs (Qualifying small enterprises – businesses that followed a more lenient scorecard): The threshold has increased from between R5 million annual turnover and R35 million to R10million up to R50 million.

Priority Elements
The codes have defined three priority elements:

Skills development
Enterprise and Supplier Development

If a generic does not achieve minimum targets on all three of the priority elements, it calculated BEE level will decrease 2 levels. For example if your company has no black ownership but reaches level 4,  it will be dropped down to level 6.

A QSE has to comply with Ownership and  any one other priority elements. Otherwise it will drop one level.

Summary of each element:

Ownership – points available: 25
Little significant changes other than to points on indicators.
New entrant threshold increased from R20 million to R50 million
An enterprise must achieve at least 40% of the net value targets (points?) in order to comply with the priority requirements. If they do not, then they drop 2 levels.

Management Control – points available: 15
The indicators for management and employment equity have been combined into one element.
Still awards points for board members, directors
Points for top management (senior top and other top have been removed)
Points for Senior management
Points for Middle management
All points for junior management have been removed
The calculation for adjustment for gender has been removed and poits awarded specically for black women and black people (same effect)

Skills Development – points available: 20
Target spend has gone up from 3% to 6%.
5 extra points awarded for “absorption of learners”. Refers to providing permanent employment of  learners after they complete their learnership program
Is a priority element: 40% threshold is a requirement – alternatively the company drops 2 levels

Enterprise and Supplier Development – points available: 40

Is a simple combination of both preferential procurement and enterprise development, with additional indicators
Is a priority element: 40% threshold is a requirement – alternatively the company drops 2 levels.
Recognition levels thresholds have changed.Recognition only awarded for value-adding suppliers.

ECONOBEE note: Details are not fully available. Most companies are not value adding suppliers and have no way of becoming a value adding supplier. Therefore their certificate cannot be used by their supplier and they have no incentive to produce a BEE certificate. If they have no need or ability to produce a BEE certificate, then they will have no incentive to ask their suppliers to produce a BEE certificate. BEE has been driven by large companies asking their own suppliers for scorecards.

Recognition from all suppliers: Target increases to 80% (previously 70%) – only 8 points awarded (previously 12)
Recognition from  50% black owned suppliers: Target increased to 40% (previously 12%) – 9 points awarded (previously 3)
Points awarded for enterprise development – sector specific programs
Bonus points for new venture creation
Clarification that early repayments may only be used to earn points for assisting black owned EMEs and QSEs, and limiting points to 15% of the available 15 points

Socio-Economic Development – points available: 5
No change, other than an emphasis on sustainable access to the economy, job creation

As more information becomes available and we analyse the codes, we will give more commentary.

EconoBEE will be holding a series of briefings on the new codes and provide a submission to the dti. Watch this space for details.