The Minister of Trade and Industry (the Minister) today released
draft revised broad-based black economic empowerment (BBBEE) Codes
Companies that have, until now, focussed on the other elements of the generic BBBEE scorecard to the exclusion of the black shareholding requirements, will be particularly adversely affected by the proposed changes.
The draft Codes will be open for public comment for a period of 60 days.
According to the Minister, the main rationale, for the proposed amendments is to deal with the formalistic tick-box approach to BBBEE generally adopted by corporates in South Africa and to ultimately achieve real empowerment.
The amendments are also intended to align with the economic trajectory of the country so that productive black businesses are created and supported. Passive black shareholding and ownership may no longer be enough.
The first key proposed amendment is that the number of elements of the generic scorecard will be reduced from seven to five. These will be:
- management control (including employment equity);
- skills development;
- enterprise and supplier development;
- socio-economic development.
The total score across all the elements will increase from 100
to 105 points. Ownership will count for 25 of those points and
enterprise and supplier development will be the highest
contributing element, counting 40 points.
The most controversial proposed amendment is likely to be the introduction of sub-minimum targets for "priority elements" including ownership, enterprise and supplier development and skills development.
If the amendments are processed in their current form, companies will be required to achieve a minimum compliance of 40% of the targets for the priority elements. If they do not achieve the minimum compliance for any of the priority elements, their overall contributor status will be reduced by two levels if they are large entities or by one level if they are qualifying small enterprises.
This means that companies (particularly large companies) that have until now overlooked any black shareholding requirements and have focused on all the other elements of BBBEE will be seriously and adversely impacted. For example, a large company that may have 7% black ownership, but is a level three contributor, will be automatically reduced to a level five contributor because it does not meet the 10% minimum black ownership target.
Under the draft revised Codes, the thresholds for exempted micro-enterprises and qualifying small enterprises have been increased. Entities with a turnover of less than ZAR10 million (currently ZAR 5 million) will now qualify as exempted micro-enterprises and enterprises with a turnover of between ZAR 10 million to ZAR 50 million (currently ZAR 5 million to ZAR 35 million) will qualify as qualifying small enterprises. Exempted micro-enterprises that are 100% black-owned will automatically qualify as level one BBBEE contributors. If they are more than 50% black-owned, they will automatically qualify as level two contributors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.