Broad-Based BEE. Jonathan Goldberg
ever constitute the sustainable driver for embracing the Amended Codes.
BEE continues to have a huge impact on the way business is done in South Africa – for large corporates, family businesses, small and medium-sized businesses, professional practitioners. Quite simply, BEE impacts, in one form or another, on almost every participant in the South African economy. The impact, unlike other legislative interventions, is more indirect and not mandatory on businesses from a legislative-legal point of view but the public sector imperative that every organ of state and public entity must apply the Amended Code of good practice will drive compliance. This is notwithstanding the fact that the compliance standard and requirement is voluntary and self-regulatory for all entities other than state-owned entities. Entities are examining whether BEE compliance is still worth the cost.
The complexities of the how, who, when and what of broad-based BEE is the main cause of concern and perceived threat for many business owners and managers, particularly because BEE touches a raw nerve – ownership and control. The issuing of extremely onerous and complex Amended Codes of Good Practice is adding to the concerns.
THE GOVERNMENT’S AGENDA
“If we change the ownership in the economy, but the economy is still the same size, we have achieved only one level of success, but have not succeeded in what we want to do with the economy.” – Gill Marcus, Reserve Bank governor
In pursuing broad-based BEE in South Africa, the government’s stated objectives are to facilitate the empowerment of blacks by:
•promoting economic transformation in order to enable meaningful participation of black people in the economy;
•achieving a substantial change in the racial composition of ownership and management structures and in the skilled occupations of existing and new businesses;
•increasing the extent to which communities, workers, co-operatives and other collective businesses own and manage existing and new businesses and increasing their access to economic activities, infrastructure and skills training;
•increasing the extent to which black women own and manage existing and new businesses, and increasing their access to economic activities, infrastructure and skills training; promoting investment programmes that lead to broad-based and meaningful participation in the economy by black people in order to achieve sustainable development and general prosperity;
•empowering rural and local communities by enabling them to gain access to economic activities, land, infrastructure, ownership and skills, and promoting access to finance for black economic empowerment.
The reason for the broad-based approach has been the perceived failure of economic transformation due to the problem that many role-players, including the government, have viewed broad-based BEE from the narrow ownership perspective. That is why the Broad-based Codes of Good Practice of 2007 were introduced. These 2007 Codes ensured that it would not be sufficient just to have black ownership as a BEE strategy. Seven years later there has been a significant change in direction. The Amended Codes are skewed - weighted towards black ownership once again.
BEE-driven transformation should be broad-based and entailing the genuine involvement of all stakeholders; led in particular by the incumbent business owners and managers.
THE BROAD-BASED BEE CARROT
Government, in the process of correcting historical imbalances in South Africa, is redirecting capital to black people through the manifestation of government’s significant (monopolistic) procurement budget and regulations.
The fact is that BEE has rapidly become a strategic imperative for most businesses. BEE has a variety of ingredients, dimensions and facets – better known in broad-based BEE parlance as Elements; it is not only limited to ownership and management considerations.
Clearly if businesses wish to supply goods or services to the public sector, organs of state (national, provincial and local government) and public entities, acquire licences and concessions or bid for public procurement, then they will be required to demonstrate their broad-based BEE credentials particularly in relation to:
•ownership;
•management control;
•skills development (employment equity and skills development);
•supplier and enterprise development, and
•socio-economic development
In accordance with Amended Code Scorecard and related legislation. The private sector, non-profit companies (NPCs) and other stakeholders are also encouraged to apply the Codes of Good Practice when transacting with businesses, thereby aligning business imperatives with the government’s broad-based BEE objectives. In fact the Codes require that all entities that undertake any business with any organs of state or public entities need to be measured using the Codes to establish their own broad-based BEE compliance.
Black consumers comprise the largest market and growth sector in South Africa. There is a huge opportunity for businesses to grow as the disposable income of previously marginalised blacks increases. Black people will control and demand preferential procurement (not in the least voting with their wallets), and will be in senior positions controlling both public and private sector procurement in most supply chains. Consumers place greater emphasis on companies fulfilling socio-economic development and those that communicate formal messages about their operational-level and socially orientated citizenship responsibilities.
BEE IN A NUTSHELL
Essentially, the practical working of broad-based BEE requires a business to ensure that it measures its broad-based BEE empowerment status based on the Amended Codes of Good Practice.
The broad-based BEE status of an entity will be based on the broad-based BEE points scored using the Generic Scorecard. The Status, based on the overall score achieved, will be evaluated using the following table which comprises of eight Contribution levels and related Recognition levels:
| Contribution Level | Qualification points using the Generic Scorecard | Broad-based BEE Recognition Level |
| Level 1 contributor | ≥100 | 135% |
| Level 2 contributor | ≥95 but <100 | 125% |
| Level 3 contributor | ≥90 but <95 | 110% |
| Level 4 contributor | ≥80 but <90 | 100% |
| Level 5 contributor | ≥75 but <80 | 80% |
| Level 6 contributor | ≥70 but <75 | 60% |
| Level 7 contributor | ≥55 but <70 | 50% |
| Level 8 contributor | ≥40 but <55 | 10% |
| Non-compliant contributor | <40 | 0% |
An entity that scores less than 40 points is deemed not to have a BEE Status.
The broad-based BEE Status of an entity is measured across the five Elements of ownership, management control, skills development, supplier and enterprise development, and socio-economic development.
The BEE Status is used by an entity’s customers (including government) to whom the businesses supply goods and services to seek good BEE points. Government and quasi-government agencies are compelled to apply the Generic Broad-Based BEE Scorecard and to obtain the broad-based BEE Status of businesses with whom they transact in procuring goods and services or, for example, issuing concessions and licences. These certificates will be valid for a period of one year.
The purpose of broad-based BEE is to play a meaningful role in South Africa’s economic transformation and ensure sustainable future growth and profitability. With this in mind, broad-based BEE is aimed across the board, at shareholders, customers, employees, suppliers and the community at large.
It is likely that the competitive advantage of empowerment will have only a limited lifespan.
The