The basics of B-BBEE

B-BBEE (Broad-Based Black Economic Empowerment)

Produce a BEE scorecard for your Business

By Keith Levenstein & Gavin Levenstein

Published in the BBQ Scorecard Magazine – Dec/Jan/Feb edition

The basics of B-BBEE

Where does BEE come from?

A short background to BEE (Black Economic Empowerment) or more precisely B-BBEE (Broad-Based Black Economic Empowerment), is a government policy aimed at increasing black participation in SA businesses. BBBEE started its journey in 2003 with the Broad Based Black Economic Empowerment Act (the act was gazetted in January 2004).

Before 2004, the concept and the idea existed, but we did not have any methodology for companies to measure and implement it.

The Department of Trade and Industry started work on the Codes of Good Practice. Draft Codes of Good Practice were approved. These Codes gave companies a way of implementing BEE objectively. Companies needed to produce a scorecard. This scorecard was used to gauge the compliance level of a company. Companies earned points by doing various business activities- including Skills Development and CSI (now Social Development).

Fast forward to Feb 2007 – after three years of hard work and many hours of analysis, listening to comments, making changes etc., the Codes of Good Practice were gazetted on 9th February 2007 (gazette no. 29617).

The 7 elements and the Scorecard

The BEE Codes of Good Practice have multiple elements for companies to comply with thus making BEE Broad Based. As a company complies with more of the elements their score will slowly increase.

Within the BEE codes there are two types of companies that need a scorecard and a third that is exempt from filling in a scorecard.

Type of CompanyAnnual Turnover Threshold
EME (Exempt Micro Enterprise)Below R5 million
QSE (Qualifying Small Enterprise)Between R5 million & R35 million
GenericGreater than R35 million

EME (Exempt Micro Enterprise) – a company that has an annual turnover of less than R5 million. These companies are automatically compliant and are given a BEE score of 65 points (level 4) or if majority black owned, a score of 75 points (level 3).

QSE (Qualifying Small Enterprise) – an enterprise with an annual turnover of between R5 million and R35 million. QSE’s will need to fill in a scorecard, but must choose only 4 of the 7 elements.

Generic – all companies with an annual turnover above R35 million per annum. They need to comply with all 7 elements of broad based black economic empowerment

The seven elements:

Ownership – Who owns the business?
Management – The senior/executive management of a business.
Employment Equity – The employees of the business.
Skills Development – The amount of money spent on training/developing employees.
Preferential Procurement – Total spend on BBBEE compliant suppliers.
Enterprise Development – Assisting small black owned businesses to grow.
Socio-economic Development – Charity spend towards black people.

The seven elements together make BEE broad based. To get a good score you need to earn points in each of the elements. As you can see from the scorecards below if you do well in only one element you will not get a very good score.

The QSE Scorecard

ComponentElementPoints Available
Direct EmpowermentOwnership25
Management25
Human ResourcesEmployment Equity25
Skills Development25
Indirect EmpowermentPreferential Procurement25
Enterprise Development25
ResidualCorporate Social Investment25
Total175/100

 

 

 

 

 

 

 

 

 

Broad-Based Black Economic empowerment emphasises all aspects of business and society. Each element is worth 25 points on the scorecard. As a QSE (Qualifying Small Enterprise) you can select any four of the seven elements.

The Generic Scorecard

ComponentElementPoints Available
Direct EmpowermentOwnership20
Management10
Human ResourcesEmployment Equity15
Skills Development15
Indirect EmpowermentPreferential Procurement20
Enterprise Development15
ResidualCorporate Social Investment5
Total100

 

 

 

 

 

 

 

 

 

Broad-Based Black Economic empowerment emphasises all aspects of business and society. Each element is worth between 5 and 20 points on the scorecard. In order to maximise your points, you will need to try to comply with all seven elements.

Why Produce a Scorecard

In short there is one law which encourages companies to produce a Scorecard – the law of economics.

The BBBEE Codes of Good Practice has an element called Preferential Procurement. It is this element and not the BBBEE Act which causes companies to require a BEE scorecard from you. Why do companies follow Preferential Procurement? They want to earn BEE points!

Preferential Procurement says that if you ask your suppliers for a scorecard then you can claim a percentage as your BEE spend. This then allows you to earn points which in turn will give your own customers a good scorecard.

The Preferential Procurement element accounts for a minimum of 20% of the scorecard, coincidently the same percentage as Ownership. It is for this reason that it is so important to get a scorecard from all suppliers.

 

What happens if you don’t have a scorecard?

Legally – nothing. Economically – you could end up not getting business. The reason you need a scorecard is because your customers are asking for it. Why do they want a scorecard – because their customers are asking them for theirs.

If you do not give them a scorecard then they risk not getting the business they deserve and may decide to stop buying from you in favour of a BEE compliant supplier.

In order to continue doing business with some customers you will need to give them a scorecard. If you don’t want any business from them there is no need to give them a scorecard.

 

A Scorecard = business
Non Compliance = less business/no business

 

The Truth about Verification

There are currently no accredited verification agencies.

It is not mandatory to use a verification agency, though it does add credibility to your scorecard.

The verification agency is not allowed to consult to you. Their only job is to verify the accuracy of the information presented to them.

If you do not have accurate evidence you will earn no points!

The best way to become compliant is to regard BEE as a process and not a one-time event. That way you will always be up to date with your information and never have that “last minute rush” to obtain your scorecard.

When to start the verification process?

The job of a verification agency is to “audit” your current BEE scorecard data. We have found that the verification process works best when a company compiles their own scorecard, earns the points that they want and then collects documentation to prove every aspect.

In addition it speeds up the entire verification process by ensuring that any potential questions/concerns the verification agency has is answered instantly.

Importantly, a company should only go for a verification once they know how many points they will earn. If you do not know how well you have done, you will not know if a mistake has been made or take corrective action to earn more points.

How much does a Verification Cost?

We have seen many different quotes. A small business (QSE) should expect to pay no more than R10 000.

Step by step

The EconoBEE 10 Step Process to BEE compliancy

We developed our 10 step Process to BEE to ensure BEE success. We incorporated the best practices. You will notice that verification is the last step.

  1. Learn about BEE
  2. Look at where BEE is likely to affect you
  3. Look at the indicators to find ways of scoring points
  4. Collect documents around the indicators where points can be scored
  5. Do an initial calculation to find out how many points you have achieved
  6. Design your BEE report, Scorecard, Profiles, Policies and Strategies around BEE and display your scorecard level
  7. Spend time and effort and earn the points
  8. Do a final self rating – must be signed once you are completely happy with it
  9. Look for ways to find more points on the scorecard
  10. Not mandatory – get an independent organisation to sign off your scorecard (Auditors or Rating Agencies)

Getting started

How long does it take?

B-BBEE is a 10 year process. Any companies wanting to produce a scorecard must realise that the targets are not meant to be reached today – it is a process that will take 10 years. The idea is to get a score and over a period of time improve it.

Remember – BEE and becoming BEE compliant is a long term goal – you can’t become BEE compliant instantly. You need to prepare and work on the scorecard. When you are ready, becoming BEE compliant will become part of the daily running of your business.

My Turnover is below R5 million per annum

You qualify as an Exempt Micro Enterprise – EME. EME’s are exempt from BEE.

What does this mean to you – EME’s are automatically allocated a good BEE score. You will qualify as BEE compliant (minimum level 4) simply by having a turnover below R5 million.

The proof for an EME is very simple. EME’s should have accurate documentation available. If you are below R5 million an EME Pack will be ideal for your business.

My Turnover is above R5 million per annum

You qualify as a Qualifying Small Enterprise or a Generic Company.

QSE – QSE’s need to produce a Broad Based BEE scorecard. They have a simplified scorecard – they can choose any 4 of the 7 available elements. A QSE has a turnover between R5 million and R35 million.

Generic company – Generic companies (above R35 million) comply with all seven elements.

How to respond?

You must respond to the questionnaire. The response to a BEE questionnaire is vital – in some cases this is the only contact you will ever have with your client about BEE. You need to make the point that you are prepared to give them a scorecard (if you don’t have one) or give them a scorecard that is short and easy to understand.

Your scorecard should contain your current level, basic company details, details of how you earned your points (element breakdown) and any other relevant info about the scorecard (Ownership, Value Adding or ED Beneficiary).

 

FAQ’s

The BEE Expert Group – http://www.bee-expert-group.co.za/ is an online community designed and supported by EconoBEE as a resource guide for businesses to implement Broad Based BEE. The BEE Expert Group allows users (registration is free) to visit an online forum where they can ask and get answers from experts on BEE.

This is an excellent opportunity for small businesses to gather information about BEE from experts to ensure that they are able to succeed.

EconoBEE is a BEE consultancy specialising in helping companies comply with the BEE codes of good practice. EconoBEE has a wealth of knowledge available on their website www.econobee.co.za. In addition to a vast knowledge base they have the ideal BEE solution for all businesses of any size. Contact 0861 11 3094 to speak to a consultant.

 

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