What you need to know about the B-BBEE Act
– Malyssa Hattingh (Head of Cornerstone Corporate Services)
What is B-BBEE, what are the requirements for B-BBEE and how do you get compliance & certificates for a business operating in South Africa.
IN THIS ARTICLE
The Broad-Based Black Economic Empowerment Act (“the Act”) can be somewhat confusing. We hope to simplify some of the complexities around this by explaining how it affects the average small South African business.
The Act was promulgated by the South African government to create equal opportunities in our economy and to accelerate the participation of black people in the economy by encouraging transformation in business.
It is important to note that not all companies need to adhere to the provisions of the Act. Only companies working with Government Departments, Regulatory Bodies, State-Owned Enterprises, and large corporations are required to comply. However, many of your clients may ask you to provide them with proof of your B-BBEE status, as your company’s rating can affect their scores in the Preferential Procurement element of their scorecard.
There are specific sectors outlined in the Act, each of which has its own charter with specific requirements and varying targets. Therefore, it is crucial for companies operating in these sectors to consult the relevant charter and ensure they meet the guidelines. By complying with the sector charters, companies demonstrate their commitment to B-BBEE and contribute to the broader goal of promoting economic change and inclusive development in South Africa.
The sectors charters are as follows:
Most companies fall under the Generic Codes of Good Practice charter, which means they’re measured on the Generic Scorecard. This Scorecard has five elements, each with a certain weight, and points are given for meeting the requirements in each element. All these points are then added up to give you an overall B-BBEE score out of 100.
The five elements are:
Your company can show its commitment to promoting economic change by understanding how the scorecard works and making an effort to improve your B-BBEE compliance. Through this, you can show your dedication to building a more inclusive and fair society in South Africa.
There are different compliance requirements for small and larger businesses. Unlike large entities, smaller businesses don’t have to go through the full audit process, although they can undergo the process of a self-assessment, within the following categories:
QSE (Qualifying Small Enterprise) refers to businesses with an annual turnover of between R10 and R50 million. QSEs are required to comply with the B-BBEE Codes of Good Practice, but they have a simplified scorecard that only includes four elements which are weighted at 25 points each: ownership, management control, skills development, and enterprise & supplier development.
EME (Exempt Micro Enterprise) refers to businesses with an annual turnover of less than R10 million. EMEs are exempt from compliance with the B-BBEE Codes of Good Practice, but they are still encouraged to participate in B-BBEE initiatives. EMEs are automatically recognised as Level 4 contributors to B-BBEE unless they have black ownership, in which case this will vary.
In both of the above instances, the entities falling into these categories can make use of affidavits specifying their scores and associated B-BBEE levels achieved therein.
There are different levels of compliance with B-BBEE, and each level has specific requirements that businesses must meet to achieve that level. Here’s a breakdown of the different levels and what they mean:
The higher your B-BBEE level, the more your business shows its dedication to promoting Black empowerment in South Africa. The benefits associated with placing in a high level can be valuable for a company, as it can create more business opportunities, enhance the reputation and credibility of the business and secure contracts with the government and other organisations that are looking for B-BBEE compliant businesses.
To earn B-BBEE points on Preferential Procurement, a company needs to ask its suppliers for their B-BBEE scorecard. What happens if you do not have a B-BBEE Certificate? The company will look elsewhere for a supplier who is compliant and can help them achieve a better score under Enterprise & Supplier Development, thus improving their overall score.
In the B-BBEE scorecard, Preferential Procurement focuses on the levels of suppliers that the company buys goods and services from. The recognition of money spent in this element is based on the B-BBEE status level of the suppliers.
Each B-BBEE status level has a specific recognition value for every Rand spent:
It is important to know that the Preferential Procurement element makes up 20 points towards a company’s overall B-BBEE score. To avoid being discounted by one level, the company must get at least 40% of the total points available in this element. To achieve a higher score in this element, the company should prioritise buying from suppliers with higher B-BBEE status levels.
The B-BBEE act is not only a moral initiative that will redress the wrongs of the past, but it should also be considered a sensible growth strategy aimed at the potential of the economy and bringing the Black majority into the economic mainstream. Businesses need to address their B-BBEE status and take steps towards a more inclusive future.
If you require any assistance with your company’s B-BBEE status and compliance, our consultants would gladly assist you and answer any questions you may have.
You can reach the Cornerstone Financial Services Group of companies by:
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