Going into the new year, Keith Levenstein, CEO of EconoBEE, a BEE advisory firm, discusses the key issues of the Amended BEE Codes expected to be implemented from October 2014. This is Part II. See Part II
Under the Enterprise and Supplier Development element of the Amended BEE Codes, the DTI has made some changes. The most interesting is the addition of an Empowering Supplier section. This is defined as a company that meets certain criteria as a supplier.
An EME, currently defined as having a turnover of under R5-million per annum, and a start-up enterprise are automatically an Empowering Supplier. A QSE, defined as having a turnover of between R5-million and R35-million, needs to comply with at least one of the criteria to become an Empowering Supplier. A generic business needs to comply with at least three of the criteria to become an Empowering Supplier. The overall criteria of an Empowering Supplier are:
1) At least 25% of the cost of sales, excluding labour cost and depreciation, must be procured from local producers or local suppliers in South Africa. For the service industry, labour costs are included but capped to 15% of the cost of labour.
2) Job creation – 50% of jobs created must be for black people provided that the number of black employees, registered since the prior verified B-BBEE measurement, has been maintained.
3) At least 25% transformation of raw materials/beneficiation. This will include local manufacturing, production and assembly, and packaging.
4) Skills Transfer – The company must spend 12 days per annum of productivity deployed in assisting black EME’s and QSE’s beneficiaries to increase their operational or financial capacity.
It will be vitally important for companies, who would like to do well on the scorecard, to become an Empowering Supplier. It is an onerous clause in which companies will have to plan their activities well in advance.
Procurement is one of the elements where it was possible to earn easy points if a business chooses its suppliers well. The Amended Codes will make it far more difficult to earn the same number of points on Procurement because with the new codes many companies’ BEE levels will be lower.
New to the Enterprise Development element is the addition of bonus points. Supporting Enterprise Development beneficiaries is encouraged by purchasing from them.
Socio-Economic Development is the final element on the scorecard and hasn’t changed much with the Amended Codes. The target of 1% of net profit after tax still applies. Businesses are able to claim five points on this element and it is important to identify potential beneficiary organisations and ensure that their black beneficiaries consist of more than 75%.
Businesses are also able to give of their time, expertise and certain non-monetary contributions. Earning points for Socio-Economic Development is not necessarily about cheque writing but rather a valuable way for an organisation to get publicity and help people at the same time.
BEE is a complex business task which consumes a considerable amount of time and resources. It needs a strategy planned with commercial logic, which is then properly implemented and monitored in a way that makes complete business sense.
Choosing the appropriate competitive B-BBEE strategy is a sophisticated endeavour requiring knowledge and familiarity with the minute intricacies of the B-BBEE Act and Codes of Good practice. The lack of expertise in many companies countrywide hampers the successful implementation of the B-BBEE Codes in their operations. EconoBEE’s managed services offer a high quality streamlined step-by-step approach to becoming BEE compliant.