The revised Broad Based Black Economic BBBEE (BBBEE) Codes of Good Practice symbolise a new beginning in South Africa’s economic transformation policy into one that focuses more on productive BBBEE.
This was expressed by the Minister of Trade and Industry, Rob Davies, following the release of the revised BBBEE codes on Friday. The speculation that the codes will be more stringent and lead to massive downgrade of BBBEE credentials across the country seems to have been confirmed.
Key changes to the codes include a consolidated scorecard, which has been refined from seven elements to five. This came after employment equity and management elements were merged into one element commanding a weighting of 19 points. Preferential procurement and enterprise development have also been merged and command the lion’s share (40) of points in the revised BBBEE scorecard with a total of 109 points.
The new elements and their weighting of the revised BBBEE scorecard are as follows:
1. Ownership (25 Points)
2. Management Control (19 Points)
3. Skills Development (20 Points)
4. Enterprise and Supplier Development (40 Points)
5. Socio Economic Development (5 Points)
A 12 months transitional period from Friday the 11th of October 2013 has been granted. Analysts have warned that enterprises will have to work much harder to make grade in the new scorecard. For example, Ajay Lalu of Black Lite Consulting calculates that skills development budgets will have to double to meet new targets.
Lalu added that companies will have to review their BEE deals to ensure that they include broad based groups and new entrants and to also ensure that these deals meet new vesting requirements. A minimum of 40% vesting is required relative to the Net Asset Value target. He said many deals will need to be restructured and or refinanced to ensure compliance with the revised codes.
Davies also highlighted that:
- The points for Ownership have been broadened to include designated groups in the main points
- Thresholds for Exempted Micro Enterprises (EMEs) and Qualifying Small Enterprises (QSEs) have been adjusted;
- The threshold for EME’s moves up from R5m to R10m
- The band covering QSE’s moves up from R5 – R35 to R10m – R50m
- All companies, except Exempted Micro Enterprises, will be required to comply with the five elements of the B-BBEE scorecard
- There is introduction of priority elements: Ownership, Skills Development and Supplier Development
- Large enterprises are to comply with all three priority elements.
- EMEs and QSEs that are at least more than 51% owned by black people to qualify as a level 2 contributor and those that are 100% black-owned will qualify as Level 1
Davies added that in line with the promotion of local production and industrialisation, the revised codes, in the Enterprise and Supplier Development element, introduces an Empowering Supplier. This refers to a B-BBEE compliant entity which can demonstrate that its production and/or value adding activities take place in the country. Such activities must include job creation and skills transfer.
Davies said the following statements of the codes remain in effect until amended:
1. Statement 103: Equity Equivalent Investment Programme
2. Statement 003: Charters and Sector Codes
3. Statement 004: Scorecards for Specialized Enterprises
The revised piece of work on the above-mentioned will be released in the near future.
BBBEE Rating Levels have been tightened as follows:
|BBBEE Status||Current||Revised||BBBEE Recognition|
|Level 1||100 plus||100 plus||135%|
|Level 2||85 -100||95 – 100||125%|
|Level 3||75 – 85||90 – 95||110%|
|Level 4||65 – 75||80 – 90||100%|
|Level 5||55 – 65||75 – 80||80%|
|Level 6||45 – 55||70 – 75||60%|
|Level 7||35 – 45||55 – 70||50%|
|Level 8||30 – 40||40 – 55||10%|
|Non-Compliant||Less than 30||Less than 40||0%|