What is Black Economic empowerment (BEE)
Black Economic Empowerment (BEE) is a government initiative aimed at increasing equity and uplifting black business owners, stakeholders and employees. The government refers to BEE as ‘positive discrimination’. BEE is the process by which previously disadvantaged South Africans have been empowered through the transfer of ownership. Compliance with BEE principles are regulated by Codes, which provide details on how BEE should be implemented.
Advantages of BEE compliance
- Allows participation in the formal South African economy
- Companies will favour you as a client, particularly those aiming to acquire at least 50% of annual procurement from companies with BEE (B-BBEE) certificates.
- Able to bid for Government tenders, apply for licences, get permits and are favourably considered for procurements by the Public Sector and all BEE (B-BBEE) verified enterprises.
- Have access to tax incentives and financial grants, specifically aimed at the BEE (B-BBEE) programme.
- Avoid long questionnaires relating to BEE (B-BBEE) when tendering for a contract.
How Do I Become B-BBEE Compliant?
Size is relevant in determining the levels of B-BBEE compliance. All organs of state, public entities and any private enterprise that undertakes business with a public entity must implement the Codes. Any business providing goods or services to another business that is subject to BEE (B-BBEE) compliance may also need to provide evidence of its own BEE (B-BBEE) compliance.
The size of your business is significant in determining the required levels of BEE (B-BBEE) compliance. The Codes provide for three levels of compliance based on the size of your business:
- Exempted Micro Enterprises (EMEs), which are businesses with an annual turnover of less than R10 million. This is a new amendment, EMEs were previously businesses with an annual turnover of less than R300 000 and less than five staff members.
- Qualifying Small Enterprises (QSEs), which are businesses with an annual turnover of between R10 to R50 million.
- Medium to large enterprises (M&Ls), which are businesses with an annual turnover of more than R50 million.
There are four steps you’ll need to take to ensure you qualify for BEE (B-BBEE), including:
STEP 1 – Select Your Company’s Annual Turnover
The size of your business is significant in determining the required levels of BEE (B-BBEE) compliance. The Codes provide for three levels of compliance based on the size of your business:
Exempted Micro Enterprises (EMEs), which are businesses with an annual turnover of less than R10 million. This is a new amendment, EMEs were previously businesses with an annual turnover of less than R300 000 and less than five staff members.
Qualifying Small Enterprises (QSEs), which are businesses with an annual turnover between R10 to R50 million. Medium to large enterprises (M&Ls), are businesses with an annual turnover of more than R50 million.
STEP 2 – Match the Turnover to the Scorecard
EMEs are exempt. However, these businesses will automatically receive a level associated with its percentage of black ownership, such as:
Black ownership BEE (B-BBEE) Status Level Procurement Recognition
100% Black Owned EME Level 1 135%
>50% Black Owned EME Level 2 125%
>50% Black Owned EME Level 4 100%
The annual turnover must be verified by an accredited accountant, auditor or rating agency. QSE’s used to be able to choose four out of the seven BEE Scorecard elements to score their points. However, from 2014, QSEs must comply with all 5 elements of the revised BEE (B-BBEE) Scorecard to score their points. M&L must comply with all 5 elements of the revised BEE (B-BBEE) Scorecard to score their points.
STEP 3 – Determine the Number of Pillars Required For Your Scorecard
The five pillars of B-BBEE are:
- Ownership (Direct empowerment)
- Management Control (Indirect empowerment)
- Skills Development
- Enterprise Development
- Socio-Economic Development.
STEP 4 – Select the Pillars For Your Scorecard
Each of the pillars is worth a certain ‘weight’ in its contribution to B-BBEE compliance. The pillars contribute to overall compliance as follows:
- Ownership 25%
- Management 19%
- Skills Development 20%
- Enterprise Development 40%
- Socio-Economic Development 5%.
Ownership, skills development and enterprise development are now considered priority pillars and a minimum of 40% compliance is mandatory, in order to achieve level 1 B-BBEE.