Broad-Based Black Economic Empowerment

Broad-Based Black Economic Empowerment (BBBEE or B-BBEE as written by the South African government) is a form of economic empowerment initiated by the South African government in response to criticism against narrow-based empowerment instituted in the country during 2003/2004. While narrow-based black economic empowerment led to the enrichment of a few previously disadvantaged individuals (Black African, Coloured or Indian), the goal of broad-based empowerment is to distribute wealth across as broad a spectrum of previously disadvantaged South African society as possible. In contrast, narrow-based empowerment measures only equity ownership and management representation.

The Act

The Broad-Based Black Economic Empowerment Act (Act 53 of 2003) essentially works on the understanding that years of systemic racism contribute to contemporary economic woes, and that government intervention can stem the results of past racist regimes. However, the Act is highly controversial in nature and some consider its racial preference statements as a direct contradiction to the UN's Universal Declaration of Human Rights.

A set of Codes of Good Practice was gazetted on 9 February 2007 in the government gazette 29617. An Interpretive Guide was added in June 2007.

The Codes of Good Practice contains sections about measuring ownership, management control, employment, skills development, preferential procurement, enterprise development, socio-economic development, and qualifying small enterprises.

Measurement

Broad-based black economic empowerment is measured using seven pillars, each with a relative weighting. Unlike in narrow-based empowerment, ownership and management account for only 30% of the total contribution.

• Direct empowerment:
  • Equity ownership – 20%
  • Management – 10%
• Indirect empowerment:
  • Employment equity – 15%
  • Skills development – 15%
  • Preferential procurement – 20%
  • Enterprise development – 15%
  • Socio-economic development – 5%

Verification and BBBEE certificates

It is not mandatory to get a verification agency to audit a BEE Scorecard. It is however a requirement to have suitable documentation/evidence to score any points. SANAS (South African National Accreditation System) and IRBA (Independent Regulatory Body for Auditor) has been mandated with accrediting verification agencies. This accreditation has been put in place to ensure the consistency of the independent verification of BBBEE contributions.

BEE certificates can be issued by any verification agency so long as they are approved to do so by SANAS or IRBA. Accounting officers registered in term of the Close corporation Act of 1984 can also issue the BBBEE certificates for EMEs

The certificate can only be issued once a full verification has been performed and the documentation presented by your company has been verified.

On the certificate, the following information should be listed:

• Company name and number:
• Type of certificate (Group/Entity/Division)
• BEE category (EME/QSE/Generic)
• BEE level (1–8)
• Procurement recognition %
• Black ownership %
• Black women ownership %
• Value adding supplier (Yes/No)
• Certificate issue date
• Certificate expiry date

No additional information is required to be provided to a business' customers. A BEE certificate is sufficient evidence of a business' BBBEE compliance.

Industry specific measurement

Companies may choose to be measured using the Generic Scorecard (as described above and created by the government) or their individual sector scorecards. Various sector scorecards have already been finalised, including construction, tourism, forestry, transport, finance, information technology, mining, petroleum and others. Industry scorecards are created to address industry specific issues and complications with regard to implementing BBBEE.

All industry specific scorecards must align themselves to the generic scorecard. Companies may not measure their suppliers according to their own sector scorecards. For example, a large banking institution may not measure their ICT service providers according to the financial sector scorecard. The ICT company will present a verification certificate to the financial institution based on the generic scorecard or the ICT sector scorecard.

Development of legislation

The Broad-Based Black Economic Empowerment Bill along with the BEE strategy document of South Africa serves as guideline and driver for developing Codes of Good Practice that describe measurement criteria, targets, audit requirements and definitions for each of the 7 pillars in detail. Additional codes of good practice have also been released with regards to complex structures, broad-based ownership schemes, fronting practices and verification agencies.

The Codes are developed by the BEE task team set up by the South African Department of Trade and Industry (DTI) and comprises individuals representing various areas: private and public sectors, various industries, research and BEE measurement etc. They are Cyril Ramaphosa, Saki Macozoma, Derek Cooper, Patrice Motsepe, Gloria Serobe, Danisa Baloyi, Buhle Mthethwa, Vuyo Jack, Ronnie Ntuli, Loyiso Mbabane, Imogen Mkhize, Alan Hirsch, Philisiwe Buthelezi and Lionel October.

Companies in South Africa that deal with the government or parastatals must be empowered as required by the Preferential Procurement Act. In return, these companies require their suppliers to be empowered to improve their rating at government. Thus broad-based empowerment is driven down the supply chain. Various other legislation supports the BEE effort, including the Skills Development Act and Employment Equity Act.

Enterprise size's effect on BBBEE

In terms of Act 53 (2003) Codes of Good Practice for Black Economic Empowerment all enterprises in South Africa are divided into one of three categories:

• Generic enterprises (turnover greater than R50 million)
• Qualifying small enterprises (turnover between R10 million and R50 million)
• Exempted micro enterprises (turnover less than R10 million)

In terms of Act 53 (2003) each of these categories have differing sets of measurement criteria.

Generic Enterprises

Generic enterprises are those enterprises that have a turnover of greater than R50 million. It is estimated that only 4% of South African enterprises fall into this category. Generic enterprises must apply all seven pillars of BBBEE to calculate their score as per the Generic Scorecard.

Generic Enterprises must apply Code 000-700 of the Act and apply stringent reporting techniques.

Qualifying Small Enterprises (QSE)

Qualifying small enterprises (QSEs) are enterprises that have a turnover between R10 million and R50 million, they apply Code 800 to calculate their scorecards. Code 800 is a simplified version of Code 000-700 which includes less stringent scorecards for each element. QSEs can choose the best four of their seven elements, with each element accounting for 25% of their scorecard out of 100.

While Code 800 is a simplified version of the other 7 pillars it has been ruled by the DTI that in any issues not specifically discussed in Code 800 should be applied as per Code 100–700.

Exempted Micro Enterprises (EME)

Exempted micro enterprises (EMEs) are enterprises with a turnover of less than R10 million.That will be in the new Codes. EMEs do not need to be rated, but they do need to be able to provide reasonable evidence that they are EMEs. EMEs automatically qualify as 100% contributors towards Preferential Procurement. If they are greater than 50% black owned they qualify as 110% contributors towards Preferential Procurement.

Impact

The impact of BBBEE is difficult to measure as the Codes of Good Practice were only promulgated in February 2007. According to the Institute for Justice and Reconciliation's Economic Transformation Audit, the number of Black Management and Professionals has increased from 216,772 in 1995 to 359,438 in 2005.

External links

• Broad-Based Black Economic Empowerment Act 53 of 2003
• South African National Accreditation System
• South African Department of Trade and Industry
• The Department of Trade & Industry Economic Empowerment