14Dec, 2017

Amended Codes Sub-Minimum requirements

Introduction: 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. © EconoServ SA cc

30Jun, 2012

ED Re-visited

Original publish date – Thu, 20 Sep 2012 07:49:02 +0000, Keith

Enterprise development is worth 15 points on the generic scorecard and 25 on the QSE. The revised codes are talking of combining ED with Preferential Procurement and calling the new element Supplier Development.

ED has always been an integral part of the BEE codes. It helps grow the economy and create employment. The link between procurement and ED is also very important. We believe that a business has a better chance of succeeding if it is supported via extra business, than simply providing seed capital.

One of the ways to perform ED with a supplier has been to assist with cash flow – specifically by arranging early payment of invoices. Many large corporations have red tape to the extent that it can take many months to be approved as a vendor and up to three months to be paid. Small businesses simply cannot afford to finance their big customers. They need the cash flow to purchase raw materials, pay expenses – rent , salaries and wages. Almost by definition if the business is small and in need of ED support it has no, or limited, financing or overdraft. We know of small businesses whose biggest dream, but also nightmare is that they will win a big contract with a large company due to cash flow constraints. That is why the BEE codes suggested that a company that pays ED suppliers early – less than 10 days from issuing of invoice to payment would earn points on the ED scorecard.

Let us re-look at the definition of ED:

“…with the objective of contributing to the development, sustainability and financial and operational independence of those beneficiaries”.

Lately we see too many ED activities that do NOT meet this definition. A company will identify a potential beneficiary that meets the requirements for being a beneficiary – i.e at least 25% black owned (with various other clauses not important to this discussion). The company will then pay invoices from that beneficiary early and claim points. Verification guidelines require that the beneficiary agree to being appointed as an ED beneficiary and supply a “request for assistance letter” and “thank you” letter.

If you visit your local supermarket (let’s assume it meets the definition of being a beneficiary) and you pay your invoice at the till, i.e within 10 seconds of receiving the request, can this really be seen as you performing ED because you have paid for your goods COD? We generally say that if your usual terms to your supplier is 30 days, and he approaches you and explains his financial constraints, and you then decide to change your financial policy towards him and ensure that he receives payment within 10 days, then you will earn ED points.

We have seen many situations where large companies that meet the definition of being a beneficiary are given ED assistance in the form of early payment of invoices. All companies will, naturally, accept any form of cash flow benefit because it makes business sense. We would ask whether the beneficiary could genuinely state that they are receiving ED assistance. We have seen these standard form letters – we even designed them, but we expected them to be used to state the truth!

Put another way would a large listed company that has a annual turnover of many billions be prepared to put out a SENS announcement stating: “

We would like to thank XYZ company for appointing us as their enterprise development beneficiary. The early payment on our invoice no. 34567 dated 31st August to the value of R1596.87 will assist us to develop our business further. This assistance will contribute to us becoming sustainable. We hope that we will eventually become financially and operationally independent”

The acid test is:

Does the business meet the definition of an ED beneficiary?

Are you doing something different to your usual treatment of him and other similar suppliers?

Do your activities meet the definition of ED as above?

30Jun, 2011

ED and SED Proposed Changes

Original publish date – Tue, 01 Mar 2011 06:50:45 +0000, Keith

The minister has gazetted proposed changes to the B-BBEE Codes of Good Practice.

The proposals are gazetted in terms of Section 9(5) of the act, which gives interested persons the opportunity of commenting for a period of 60 days from the date of publication of his notice. (18th February 2011).

The proposals affect enterprise development (codes 600/806) and socio-economic development (codes 700/807).

1) Enterprise Development – Shorter payment periods:

Change in shorter payment periods: The existing codes state that you can earn ED points by offering shorter payment periods to suppliers. The codes say that if you pay COD, you can claim 15/15 (i.e 100%) of the value of the payment. If you pay one day after receiving the invoice you can recognise 14/15th of the value. If you pay 5 days after receiving the invoice you can recognise 10/15th , ie. 66.6% of the payment value and so on. The old codes stated that you cannot go beyond 10 days for your payment.

The actual formula used is (15 minus number of days from date of invoice)/15

The proposed amendment allows you to take as long as 15 days to repay. It should actually be only 14 days though!

If you take 14 days to pay then you can recognise (15-14)/15 of your payment: ie 1/15th of the payment – 6.67% of the payment.

If you take 15 days to pay, the formula is (15-15)/15 = 0% which is why we stated that it can only be 14 days!

Commentary:
This is an extra dispensation given to companies and public enterprises that find it difficult to arrange payment as fast as 10 days. The extra benefit is very small though. If you take 12 days to pay an invoice to an approved beneficiary, you can only recognise 3/15th, ie 20% of your payment spend.

What is more interesting is the fact that the minister has given this dispensation on the shorter payment periods. Without doubt shorter payment periods is the most controversial ED activity. In the past many agencies used to regard only a small portion of the shorter payment as being recognisable ED spend. They use the formula of (15 – days to pay) as a percentage. so, if you paid COD, ie zero days, they saw it as (15-0)% of the payment = 15% of payment. We had asked the dti for an explanation and they gave us the interpretation as we have always used. Recently ABVA issued practice notes reverting back to the old arrangements. Fortunately only a few verification agencies are following this incorrect method.

There must be a reason for the dti emphasising shorter payment period, and maybe this is it. In our own submission, we will recommend that the dti issue a very specific explanation and worked example to ensure consistency.

2) Enterprise Development/Socio-economic development – Change from average annual spend to annual basis:

The codes state that ED and SED contributions are measured cumulatively (average annual) from date of inception of the codes, or even up to 5 years prior to the codes (which were issued in 2007.). This means that if your NPAT (net profit after tax) in 2007 was R1m and R1.5m in 2008, R1.3m in 2009 and R2m in 2010, then for your ED calculation our target is set at 3% of the cumulative profit of R5.8m = R174 000.

Your spend is also cumulative so if you spent R24 000 in 2007, R100 000 in 2008, R50 000 in 2009, then you would have reached target in 2010 by 2009 already, and would earn full points in 2010. We used to use the phrase “you can bank your overspend”, so if a company had overspent one year, the overspend would be carried forward to the next. There are good reasons to use the cumulative method: No one really knows what their net profit after tax will be until after their audit and their tax assessment. The best they can do prior to the year-end is use estimates and budgeted figures. With the new proposal, to be on the safe side, a company will have to overspend slightly just in case it turns out that their net profit after tax is higher than expected. The overspend will be lost next year.

Other considerations:

Many companies have not yet begun their empowerment journey. Some have spent no money on ED or SED, so they would have had to make up a huge amount of spend if the cumulative had applied. This could have been asking them to spend 12% of NPAT on ED and 4% on SED over the past 4 years. Since the majority of businesses are not yet compliant they will be happy with the new proposed ruling. Businesses that have overspent on their ED and SEC will be unhappy.

Transitional period: There is no direct transitional period for the proposed changes. Paragraph 5 of code 600 and code 700 does state: “The Minister may from time to time by notice in the gazette revise or substitute the Benefit Factor Matrix. Any changes will only be applicable to Compliance Reports prepared for a measured entity in respect of the first 12 month period following the gazetting of a revision or substitution.”

The benefit factor matrix (annexe 600 (a)) lists the various types of contributions that can qualify as ED (and similar with SED). Paragraph 5 states that any changes to this annexure comes into effect only after 12 months. The Minister’s proposed changes however affect both the benefit factor matrix – the early payment periods , and the actual code 600 – the change from average annual to annual.

The shorter payment period will therefore only come into operation in 12 months time, but the change from cumulative to annual would come into effect as soon as it is gazetted.

Overall Commentary:

We do not disagree with the proposed amendments, though we will recommend that the minister allow a transitional period for those companies that have overspent on their ED and SED targets. We welcome the fact that the minister is issuing amendments, proving that B-BBEE is still top of mind. We still have huge problems with lack of standards, fronting and lack of clear interpretations of the codes. Even these proposed changes will not clear up many issues and we will be issuing our comments to the dti recommending that when they issue this amendment, they clarify some of the issues referred to.

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Issued by EconoBEE

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1Dec, 2009

I WANT TO GO INTO BUSINESS – HOW CAN BEE REALLY HELP ME?

Keith Levenstein, CEO of EconoBEE – SA’s leading BEE Consultancy – comments on the lack of understanding of BEE at the grassroots level and how small start ups can benefit from the B-BBEE Act.

“In a recently published business article the author commented that while big corporates generally have a good understating of B-BBEE, people in township and rural areas have very little understanding of B-BBEE issues and how the government’s B-BBEE policies can actually assist them when engaging in business. Although it is called B-BBEE, for ease of use we tend to call it BEE, but always remember that we are referring to broad-based black economic empowerment.

I have the great opportunity of speaking at business workshops and conferences for corporates through to small businesses and have often been asked the following question by black people: ‘I want to go into business or I am already in business – how can BEE help me?’ This article addresses black-owned businesses or black people who want to go into business.

BEE, or more accurately B-BBEE is an economic policy of the government that encourages economic growth and redress the inequalities inherent in the economy. As a policy it has the broad intention of improving all our lives and the economy. It is a macro-economic policy, not a micro-economic policy aimed at assisting a specific person.

Many people who ask me “how can I access BEE funds, or benefit from BEE” do not realise that BEE is slowly (in my opinion too slowly) benefiting the economy and them indirectly. What some business people want to see is a direct link between, for example, being black and business flowing their way. The perception is that some black businessmen and women know how to benefit from the system and others would like the same recipe. Personally I’d like to know Bill Gates’ secret so I to can become half as successful. Unfortunately it does not work that way in real life. Most of us have to work very hard in order to just survive. The few that do succeed beyond your wildest dreams are special people – Bill Gates, Richard Branson, Raymond Ackerman, Patrice Matsepe, Brian Joffe, and no doubt they are hard-working, and extremely competent people.

B-BBEE is not a recipe for everyone to become as successful as the abovementioned people. However it does contain policies that encourage South African businesses and the government to support certain businesses over others.

The best way to try to benefit from BEE is to understand how BEE works so you can design the business plan around benefits your business can offer to your customer.

BEE works by encouraging businesses to increase their BEE scorecard – to become more compliant. In order to benefit from BEE, you need to understand the seven elements that go into building up the scorecard and see how your business or proposed business can help other companies improve their scorecard. Ironically government does not follow B-BBEE so it is impossible to benefit from B-BBEE via government policies. You can potentially only benefit from companies that are intent on building up their scorecard. (Government has announced a plan to reconcile the preferential procurement policy framework act with the B-BBEE act at which point B-BBEE principles will apply. This is not to say that black businesses do not benefit from government policies, they just do not benefit via the B-BBEE act!)

If your business can offer ways of helping businesses earn those additional points, you will have a good opportunity of getting assistance and indirectly benefiting from “BEE”.

The seven elements that are built into the BEE scorecard and how you can benefit are as follows:

1) Ownership:

This refers to the ownership of the organisation. The BEE codes encourage black ownership up to 25%, and especially favour black women. The codes award extra points for fulfilling the sale of the shares and paying for them in full. This of course is why some companies favour doing deals with people like Cyril Ramaphosa who has the finance to be able to pay for the shares (notwithstanding his excellent track record as a businessman).

Businesses can also earn points via taking in a black partner, via selling shares in their business or merging with an existing black-owned business. If your small business is reasonably attractive to the bigger business, then being black-owned will be even more attractive, and the more likely that the business will want to sell you shares, maybe at a discount, or offer to purchase shares in your business.

2) Management:

This refers to the management of the organisation – the directors and top management. The codes encourage the appointment of black directors, especially black women. Anyone who falls into this category is potentially more likely to be appointed by companies looking for suitable applicants. If your black-owned company has strong management then there is greater potential for a takeover or merger as your business will help companies earn points via both ownership and management

3) Employment equity:

This refers to all other employees in an organisation, and has no real impact on a black-owned company that wishes to go into business. Of course a recruitment agency that specialises in recruitment of black management and staff could be very successful.

4) Skills development:

This refers to training of existing staff. The same comments are relevant as for employment equity. Again it is interesting to note that any business that specialises in training of staff could be successful due to the extra emphasis placed by the codes on skills development.

5) Preferential procurement:

This refers to all spend by companies on procurement of goods and services. Businesses earn points by spending their money with other businesses that have a good BEE score, i.e. that have complied with all seven of the elements being discussed here. It must be noted that black owned business do not necessarily earn more points than say white -owned business, or that black-owned businesses are exempt from all forms of BEE. However a start-up business is exempt from BEE, and is automatically allocated level 4 (a good score). A black-owned start-up business is allocated level 3 (an even better level). The requirement to produce a scorecard only kicks-in once the business’s turnover exceeds R5 million per annum. So, being a black owned start-up business will benefit your customer’s own procurement score substantially. In addition the procurement calculation offer additional points to companies that purchases from black owned (50%), and especially black women owned (30%) businesses. Most large companies cannot reach their targets in purchasing from black-owned companies and therefore lose up to 5 BEE points. Being black-owned will make your business more attractive to support. I strongly recommend that any black-owned company explain the potential benefits the customer can get by supporting your business, as in many cases your own customers are confused as to the benefits that accrue.

Many tenders from businesses specify that a vendor must have reached a particular BEE level and sometimes lays down requirements for black-ownership. ESKOM have a procurement policy aimed at following the BEE codes and supporting black-owned business.

Indirectly therefore B-BBEE can help a black-owned business by encouraging its customers to support it. It is very easy to identify potential business areas or services to offer simply by talking to big companies and looking at their own BEE scorecard and see where they are losing points.

6) Enterprise Development

This BEE element encourages big companies to spend 3% of their net profit after tax supporting small black owned businesses. This is closely aligned with element 5 – procurement. Many black-owned businesses have benefited by the support of larger businesses that have assisted them in various ways – cash grants, discounts on products purchased, loans and loans with preferential terms, shorter payment periods to suppliers, coaching and mentoring, professional services provided, even encouraging investments in the smaller black-owned business.

7) Social economic development

This BEE element refers to contributions towards socio economic development and has no direct benefit to a black-owned business.

Conclusion:

It should be recognised that BEE is not going to directly help a black-owned business get started. It is a policy that indirectly encourages businesses to partner with and support black-owned businesses. There is no official “B-BBEE fund” that allocates money, and there is no official database of black-owned businesses that can “register with BEE”. However banks do have specialised units and do offer preferential terms to black-owned businesses. Various agencies like SEDA and the Youth Portal also try to assist. There are other funders like Business Partners, IDC, National Empowerment Fund etc.

For more information on benefitting from the BEE Act as a an SMME or SME contact EconoBEE on (011) 483 1190 or www.econobee.co.za

30Jun, 2009

Enterprise Development Opportunities Everywhere

Original publish date – Fri, 06 Mar 2009 13:39:14 +0000, Gavin

This last weekend I went through to the Bruma Flea market. It has been a very long time since I was at a flea market and found it quite fascinating. Hundreds of tiny businesses selling just about everything. The true entrepreneurial spirit is still very much alive in these flea markets.

While browsing I noticed a very nice looking painted picture. The lady selling the art work asked me what I was looking at, which I replied positively, she then asked what I did and where I worked and then eventually I told her that I worked in the BEE Compliance field.

Immediately her eyes opened – her little business selling various artistic things needs help. She even went as far as taking my contact details so she could contact me later.

This opportunity is available everywhere. South Africa has so many businesses, many of which are tiny “subsistence” businesses who have potential to grow but not the skills. Many others are small with lots of potential and given a chance will thrive.

Enterprise Development is everywhere. It is incredibly easy to find the right beneficiary who fits in with your business. Enterprise Developments goal is quite simple, get successful well trained businesses/business people to assist small black businesses succeed.

Finally it is simple, find a business that you can help and help them!

30Jun, 2009

BEE points for large corporates for trading with smaller businesses

Original publish date – Wed, 08 Jul 2009 11:31:55 +0000, Cornilius

The B-BBEE codes have encouraged the growth of small businesses (those with annual turnover below R35 million) and Black owned businesses through the element of Preferential Procurement. Generic companies (companies with annual turnover of more than R35 million) earn 8 points for spending just 25% with suppliers with annual turnover below R35 million as well as Black owned and Black women owned businesses.

This certainly encourages large generic companies to buy from suppliers who need support to grow leading to more empowerment of the more deserving entities and individuals. The growth of any company heavily hinges on the number of customers that they have. Having customers in the form of large corporates is more desirable for any small business because they have more capacity to pay for orders.

In other words, there is a benefit to the generic companies in the form of getting more BEE points while helping the sustainability of the smaller businesses.

30Jun, 2009

All companies have procurement

Original publish date – Mon, 07 Sep 2009 15:00:35 +0000, Cornilius

Every company in South Africa has procurement spend. When the codes of good practice talk of procurement they include even the milk for the staff members’ tea, the paper for printing, the office fan, to mention but a few instances. More often companies tend to ignore the smaller amounts spend from their procurement calculation. This has led to some companies claiming that they are net importers and so they will not get any points under the Preferential Procurement element of the scorecard. The fact that imports are eligible exclusions from the scorecard calculation makes it sometimes even easier to score more points. Even more pleasant for a company that imports the majority of their procurement is the fact that the small amount of local procurement is likely going to be from small suppliers. The small suppliers are likely going to be EMEs (businesses with annual turnover below R5 million) or QSEs (businesses with annual turnover between R5 million and R35 million). For procuring from these businesses an entity’s spend gets an enhancement because such procurement counts under two indicators. More still, it makes the calculation of Preferential Procurement points easier to follow and also easy to get scorecards from the fewer suppliers.

30Jun, 2009

Wow, a new procurement system

Original publish date – Fri, 14 Aug 2009 06:57:26 +0000, Keith

While procurement is worth 20 points on the B-BBEE scorecard, many people perceive it as being very admin intensive and generally a difficult tasks. You have to identify all your procurement by supplier and type of expense, then go through the big effort of asking each supplier for a BEE scorecard. Then you need to know what to do about the certificate you get from the supplier. Each certificate must be examined for accuracy, expiry date etc. You need to capture the data by supplier, by his type of enterprise, his value adding status, his ownership etc etc. Then there are the calculations itself. you need to remember to take into account and calculate the score for each indicator etc etc etc.

The etc,etc,etc etc sometimes become just too much for many businesses and they just give up, or simply lack the time and skills to do the job properly. After all you job is to make a profit, not get tied down in admin. There is a solution: We are working on our BEE Procured system, which takes the admin and pain out of procurement and maximises your points.

Imagine making a list of suppliers and spend, uploading it to our BEE Procured system, spending a couple of minutes working on the system and already earning the points. Imagine not have to call every single supplier – we already have many scorecards, so why duplicate the effort by phoning the supplier again. Imagine the system automatically looking up in our system for scorecards, and once you have confirmed the right scorecard it takes into account all the right details, and calculates the score you have earned. It identifies the suppliers without scores to be followed up, optionally by ourselves and instantly produces a report, that is perfect for your verification agency ensuring you earn all the procurement points you deserve.
The above is no longer a dream. We have been working on this system for the past 6 months to make it so easy to use that it will, GUARANTEED (*), cut your time and effort of doing procurement by 80% or increase your scorecard points by 30%. Procurement is going to become the easiest element on which to earn points, and your cost per point will be the lowest of any element of the element on the scorecard.

(*) Your money back, no questions asked!
This amazing system is nearing completion and will be available in time for our forthcoming Procurement and ED Conference. Delegates who book and pay for the event get a free one year license. Everyone else will have the opportunity of purchasing an annual license at a very reasonable rate shortly.

In my many years of developing cost effective solutions this is the one that has excited me the most because it has the potential to save our clients more time and money than anything prior and ensure they earn the points. 8 years ago I developed EconoSMS, an SMSing system, that is still in use at many clients. Their computer gave in before the system did! I am very proud of EconoAccounting, also an 8 year old product that does your accounts in a way that others have never done before (we call it the 5 minute per day accounting system). Our popular EconoBEE V3 is an easy to use system that helps you calculates your own BEE score and understand how BEE works.However BEE Procured is going to save more time and remove more aggravation than all our other systems put together.

I’m really excited, you should be too!

30Jun, 2009

Why sustainable development – from an ED viewpoint?

30Jun, 2009

Strength of a Black Business

Original publish date – Tue, 24 Feb 2009 07:59:33 +0000, patience

A database of black owned business will help in the implementation of BBBEE. However black businesses also need to play their part. Using SWOT analysis, a powerful and simple tool, used in the first stage of strategic planning and that helps a business focus on key issues, 50% black ownership and a good BEE score is a strength to a black enterprise. This strength should be used to take advantage of the opportunity that has been presented by preferential procurement and enterprise development.

Black owned enterprises especially EMEs and QSEs that have good BEE scores are not realising and utilising their status to their advantage. A 50% black ownership and a good score incorporated in the marketing and sales activities should not only result in better chances of getting the much-needed business, but will also make the business a candidate for enterprise development.

30Jun, 2009

Small enterprises are crucial to economic growth

Original publish date – Thu, 19 Mar 2009 06:44:28 +0000, Cornilius

Large corporates in South Africa are failing to absorb the swelling number of candidates looking for employment. This is due to various factors. The most recent one being that they have felt the impact of the global economic meltdown more than the the small enterprises. Most processes in large firms require much more advanced skills and expertise. The other reason is that it is easier for huge corporates to employ from internal sources instead of going to the external labour market.

On the contrary, small businesses have been employing many potential job candidates. This is because they do not have the money to pay very skilled and experienced employees. They do not have the manpower to head-hunt or advertise widely. They do not have complicated processes that require very skilled people. As a result, they can afford to recruit newly qualified graduates. In so doing they are playing a critical role in reducing unemployment and poverty levels.

In view of this, large corporates can play their part by supporting small enterprises, most of which are Black-owned, and earn points under their enterprise development element of the scorecard. The support may not be directly monetary but it can be helping them market their products and services, training their employees, paying COD and allowing discounts. The small enterprises’ capacity to absorb more people from the labour market will be boosted as a result. By so doing the BEE goals will be met sooner rather than later and the economy will grow at a better rate.

30Jun, 2009

Preferential Procurement

Original publish date – Mon, 27 Jul 2009 12:41:14 +0000, patience

Preferential procurement encourages procurement opportunities to be made available to B-BBEE compliant suppliers. It is the immediate reason for companies and government entities to request B-BBEE scorecards from suppliers and potential suppliers and the B-BBEE cascading effect begins with preferential procurement. The self-regulation of B-BBEE is also centered on this element.

Companies can easily earn and continuously improve their points by preferring to procure from B-BBEE compliant suppliers. However in most cases earning points and calculating the preferential procurement score can be an administration irritation. A quick look at the top 200-empowerment companies on the JSE shows that only 1 company out of the 200 companies earned all the maximum 20 points on Preferential Procurement. According to President Zuma’s recent comments on B-BBEE "Access to government procurement opportunities by black firms has been raised as a serious challenge.” This undoubtedly is happening because enterprises and government departments do not have an understanding of Preferential Procurement and also do not have the proper systems in place.

With an understanding of preferential procurement and a system aligned to BEE initiatives, private companies and government entities can begin the kazien or improvement of preferential procurement and the procurement points. Our upcoming Procurement and Enterprise Development Conference can definitely help you in understanding preferential procurement, overcome the administration irritation and ultimately improve your B-BBEE points.

30Jun, 2009

I Feel Good After Enterprise Development

22Jun, 2009

Value adding supplier – Preferential Procurement

Please note! The concept of a value adding supplier is no longer in the B-BBEE Codes. View our news & resources for up to date info.

Value adding supplier

A value adding supplier is a BEE compliant company that the measured entity (the company whose scorecard is being worked on) acquired goods/services from whose total labour costs plus the Net Profit Before Tax is more than 25% of annual turnover. The total amount procured from such a value adding supplier is multiplied by a factor of 1.25. Example:

Company B (the supplier)
Annual turnover	R10 000 000
25% of Turnover	R2 500 000
Payroll spend	R1 000 000

Net Profit Before Tax	R2 000 000

Sum of payroll spend and Net Profit Before Tax	R3 00 000

Since the sum of payroll spend and the net profit before tax is more than 25% of annual turnover company B is a value-adding supplier.

Benefit to company A (the measured entity)

Total procurement from company B	R50 000

Company B’s BEE recognition level (for example)	100%

Recognised BEE spend with company B	R50 000 X 1.25 = R62 500

Thus, it is of more benefit to company A to acquire goods/services from a company like company B.

22Jun, 2009

Enterprise Development Beneficiaries

Category A ED beneficiaries

This category comprises of ED beneficiaries who are EMEs (Exempt Micro Enterprises) and QSEs (Qualifying Small Enterprises) who are 50% Black owned or Black women owned. Thus, any company with annual turnover, which is less than R35 million and is Black owned or Black Women owned, qualifies as a beneficiary under this category. Any company that helps a company in this category to grow financially or to achieve operational independence will earn points under this category. The contributions made to category A ED beneficiaries are multiplied by a factor of 1.25 Example: A company gives an interest-free loan without security requirements to a business with annual turnover of R4 million Assuming the outstanding amount is R5 000 the contribution will be multiplied by a benefit factor of 100% which will be further multiplied by 1.25 resulting in R6250 of ED contributions The company will claim ED contributions of R6 250 for the outstanding loan amount of R5 000. This means any company will reap more BEE points on their ED scorecard by making an ED contribution towards category A ED beneficiaries.

Category B ED beneficiaries

This category comprises of ED beneficiaries who do not fall into category A and are 50% Black owned or Black women owned. Another group of companies that falls into this category are companies that are 25% Black owned or Black female owned but with a BEE compliance status between levels 1 to 6. ED contributions to beneficiaries in this category are not multiplied by any factor. Beneficiaries that fall into this category can be generic companies (companies with annual turnover of R35 million or more). An example of ED contributions under this category would be buying shares in a company like MvelaPhanda or Dimension Data. QSEs and EMEs who are at least 25% Black owned or Black women owned but less than 50% Black owned or Black women owned will also fall into category B ED beneficiaries.

19Jun, 2007

Enterprise Development

Enterprise Development is worth 15 points on the generic scorecard and 25 on the QSE scorecard.

The aim of enterprise development is to assist black owned businesses – to ensure they become economically viable – that they grow and become profitable.

In all cases, true enterprise development is sustainable enterprise development that will achieve the objective of helping the business become and remain viable.

Our aim is to ensure that your enterprise development contribution reaches the right businesses, and is put to best possible use via:

Assistance with management – ideas, coaching mentoring

Assistance with finance – managing and controlling the accounts
Assistance with marketing – identifying the market and implementing marketing activities
Assistance with sales – finding customers

Our view is that we need to help the company itself to grow, not only the person in it. Far too many organisations concentrate on theory, without offering practical assistance and implementation that is required to make the business a success.

EconoBEE, with Dinoka (a partner with EconoBEE) is able to offer a turnkey enterprise development service. We can help:

Identify enterprise development beneficiaries
Analyse the business plan or help design it
Manage the amount of spend on ED projects
Implement ED activities in a hands-on manner
Report-back on the ED activity to ensure you receive maximum points.

22May, 2007

Support Bakery Enterprise Development Project

This project got off the ground in 2004. An opportunity for unemployed and unskilled individuals to become not only skilled bakers, but business owners.

Pick ‘n Pay provided and managed a small food safe facility to trial this project, to ensure the new companies were viable, self sufficient entities. We quickly realised the size constraints would stifle the enormous potential that this project offered to both Company members and meeting the Pick ‘n Pay Store demand. In 2005 we moved to new premises in Isando. We have now made the move from 250 square meters to 4000 square meters and our capacity and Product Range grew, exponentially. Our new premises were modified and equipped at great expense to Pick ‘n Pay, however the benefit of having a guaranteed supply of unique core range products, with consistent quality, has proven worth while.

Two years later, the twenty seven business owners baking a range of 20 products has quickly grown to the present 44 business owners baking 76 different products, exclusively for Pick ‘n Pay. Not only have business owners become skilled but the skills have been transferred to the countless employees employed by the six companies. We have assisted 48 Support Bakery employees in obtaining a Craft Baking and Flour Confectionary Qualification.

The Support Bakery concept can be summarised as a small group of individuals who form a Small Medium Enterprise (SME) and are assigned a range of products which become exclusively theirs, to produce for Pick ‘n Pay. These SME’s effectively become Pick ‘n Pay suppliers and are governed by all of Pick ’n Pay’s product specifications as well as hygiene & food handling rules. The procurement of ingredients is exclusively through Pick ‘n Pay approved suppliers and the dispatch of product from the facility in Isando is through Pick ‘n Pay’s distribution network. Every SME is independently managed by it’s Member group with the assistance of an independent accountant. Pick ‘n Pay makes every effort to ensure the success of these businesses with the assignment of a mentor to guide and educate the members with regards to Profit & Loss & Human Resource issues. Furthermore, we frequently introduce new products and sales promotions to ensure viability and sustainability. This formulae has proven to be enormously successful. Many of the original Members have been able to buy their own homes and in some cases have even purchased their own vehicles.

The Homestyle cakes company has reached volumes of iced cakes exceeding 36 000 cakes per month & iced cup cakes exceeding 180 000 units. The company responsible for the muffin production has exceeded 400 000 units per month. This brings us to the point where we need to look at mechanisation. Pick ‘n Pay is willing to now take the next step in making these companies totally independent. We are willing to facilitate an interest free loan which will allow the companies to purchase all their own equipment and pay it off over a fixed period. The result will be a Pick ‘n Pay supplier who has all their own equipment, and has the ability to take their companies to new heights.

Due to the fact that this project has been such a success we are now in a position to launch signature lines. We have launched Lifestyle breads, Continental Cakes, Croissants and Danish made with only the finest ingredients like real butter.

The success of this project lies in the symbiotic relationship between Pick ‘n Pay and the BEE Initiative of the Support Bakery. The guaranteed sustainability of this project lies in that everyone benefits. Pick ‘n Pay: through the extension of it’s bakery range. The BEE
Companies are created and made successful creating new employment, and lastly the fulfilment of one of Pick ‘n Pays four founding principles: Corporate Social Responsibility.

Article originally published in Pick n Pay Talk.

5Apr, 2007

Procurement – imports

The new codes have changed the way imports are handled. Previously certain imports were exempt but you could only reduce your preferential procurement by a maximum of 25% of your total procurement.

The final codes are more lenient: They give a long list of excluded imports, and amongst others are capital goods that do not have local production in this country.

Another clause, 6.6.2.1 even allows for the exclusion of goods that carry a brand different to the locally produced gods or services

and clause 6.2.2.2 allows for products with different specifications to the locally produced goods or services.

This implies that the importer of branded foreign goods will not be penalised in his procurement calculation because 95% of his procurement is from his principal overseas. In that case the importer will have very low eligible procurement, and should be able to achieve quite high points.

As an example many importers of electronic equipment should now be able to achieve good scores.

We have updated the procurement spreadsheet which is available as a free download to all registered users on this site.

15Aug, 2006

Enterprise Development

Enterprise Development is worth 10 points on the generic scorecard and 20 points on the QSE scorecard. Enterprise develoment refers to your company assisting a black owned company with a high BEE score is some way.

What form can this assistance take?
Assistance can take the form of a monetary contribution, or non-monetary contribution – as long as it can be measured – and must offer some value to the beneficiary.

It can be money, in the form of:

Cash payment
Discounts or no charge on products of services
Better credit terms or better payment terms

Non-Monetary in the form of:

Assistance like coaching/mentoring
Loan of equipment or facilities – e.g. warehouse or machinery or vehicles

Who is a potential beneficiary?
The beneficiary organisation can be:

an EME
a QSE or generic company that is more than 50% black owned AND is a level 1-6 BEE contributor
a QSE or generic that is not black owned, butis a level 1-3 BEE contributor

This implies that before you decide on an enterprise development project you must clearly identify the beneficiary, even including obtaining a BEE scorecard from them.
(A possible enterprise development activity could even be to help the company produce its scorecard showing that it is a valid enterprise development entity.)

Targets:
The QSE scorecard has set a target of 2% of EBITDA (earnings before interest, tax, depreciation, amortisation). This number is usualy close to your net profit before tax. The target is to spend 2% of EBITDA on enterprise development activities.

Proof and Documentation:
Documentatry proof of all spend must be kept – items like thank you letters or email. Proof would also include documents showing how the company has benefitted via the assistance given.

In addition, financial statements should be kept showing how the business has improved since the assistance was given.

Tag Archives: Enterprise and Supplier Development

Sub-minimum element – Ownership:

Sub-minimum element – Skills Development:

Sub-minimum element – Enterprise and Supplier Development:

Value adding supplier

Category A ED beneficiaries

Category B ED beneficiaries