Broad-Based BEE. Jonathan Goldberg
whether a business, for a range of reasons, will be affected negatively as a result of not complying with BEE legislation.
This question is ever more relevant under the new Codes. Is it still worth the time, effort and cost to produce an acceptable scorecard for an entity. We believe the first rationale for the implementation of broad-based BEE, the altruistic driver, by entities is largely gone.
It is important to remember that the Act applies to the public sector and public entities directly and therefore has only an indirect effect on businesses insofar as they have dealings with government bodies. There will be a cascade effect on private sector entities.
There are three qualifying thresholds for businesses to determine the basis of measurement to be used in determining their broad-based BEE Scorecard status and recognition level.
It is important to establish upfront which of the following categories will be used for measuring an entity’s broad-based BEE compliance:
Exempted Micro-Enterprise (EME)
Entities with an annual revenue of R10 million or less automatically qualify as Exempted Micro-Enterprise (EME). These entities are deemed to have a broad-based BEE Status of “Level Four Contributor”, with a Procurement Recognition level of 100 per cent. If the entity is more than 51 per cent owned by black people then the EME qualifies for promotion to a status of “Level Two Contributor” having a Procurement Recognition level of 125 per cent.
An EME is only required to obtain a sworn affidavit on an annual basis confirming the following:
•Annual total revenue of R10 million or less; and
•Level of Black ownership.
Any misrepresentation in terms of the above paragraph constitutes a criminal offense as set out in the Broad Based Black Economic Empowerment Act as amended.
Exempted Micro-Enterprises are allowed to be measured using the QSE Scorecard should they wish to maximise their points and move to a higher procurement recognition level. In a competitive broad-based BEE sensitive environment Exempted Micro-Enterprise operating companies will probably be better off electing to be measured using the QSE Scorecard.
Start-up Enterprises
Start-up Enterprises may be measured as Exempted Micro-Enterprises for the first year following their formation or incorporation. This provision applies regardless of the expected total revenue of the start-up enterprise.
A start-up enterprise is defined as a recently formed or incorporated entity that has been in operation for less than one year, and excludes entities that are merely a continuation of a pre-existing entity.
This means that Start-up Enterprises are deemed to have a broad-based BEE Status of “Level Four Contributor” having a broad-based BEE procurement recognition of 100 per cent under this paragraph.
Start-up Enterprises must submit a QSE Scorecard when tendering for any contract with a value higher than R10 million but less than R50 million. For contracts above R50 million they should submit the Generic Scorecard.
Qualifying Small Enterprise (QSE)
Entities with an annual Total Revenue of between R10 million and R50 million qualify as a Qualifying Small Enterprise (QSE).
Enhanced broad-based BEE recognition level for QSE.
•Qualifying Small Enterprise which is 100% black owned qualifies for a level one broad-based BEE recognition level.
•QSE which is at least 51% black owned qualifies for level two broad-based BEE recognition level.
•Such QSEs are only required to obtain a sworn affidavit on an annual basis, confirming the following:
–Annual total revenue of R50 million or less; and
–Level of black ownership
Generic Scorecard
The so-called Generic Scorecard is applicable to all entities to be measured under the Amended Codes having an annual turnover exceeding R50 million.
All entities with a turnover exceeding the R50 million must apply the Generic Scorecard as set out in the Code series 100 to 500. Each of these Generic Scorecard Elements are addressed in detail in this book.
It is however inconceivable that an entity whose turnover exceeds R10 million should have the same onerous measuring criteria as a large multi-billion listed company.
BROAD-BASED BEE ELEMENTS AND SCORECARD POINTS
The Amended Codes and Scorecard centre around five Elements that are used to measure quantitatively and qualitatively broad-based BEE compliance. The five elements set out in the Generic (Code series 100-500) Scorecard are:
Ownership Element (Code 100)
The Ownership Element measures the effective ownership of entities by black people.
Management Control Element (Code 200)
The Management Control Element, as set out in Code series 200, measures the effective governance and management control of entities by black people.
Skills Development Element (Code 300)
The Skills Development Element, as set out in Code series 300, measures the extent to which employers carry out initiatives designed to develop the competencies of black employees.
Enterprise and Supplier Development Element (Code 400)
The Enterprise and Supplier Development Element, as set out in Code series 400, measures the content to which entities buy goods and services from Empowering Suppliers with strong broad-based BEE recognition levels. This element also measures extent to which entities carry out supplier development and enterprise development initiatives intended to assist and accelerate the growth and sustainability of black entities.
Socio-Economic Development Element (Code 500)
The Socio-Economic Development and Sector Specific Contributions Element as set out in Code series 500, measures the extent to which entities carry out initiatives that contribute towards Socio-Economic Development or Sector Specific initiatives that promote access to the economy for black people.
Generic Scorecard Points
Some people would argue that broad-based BEE is seeking to extract uncompensated value from others through economic discrimination and evolving crony capitalism in an environment of economic discrimination. This argument will be even stronger, by some, under the new Codes of Good Practice with the emphasis back on ownership.
Value destruction occurs where redistribution takes place other than through economic growth. This issue remains the subject of on-going debate within the ruling political party, and will continue to be analysed throughout the implementation of broad-based BEE. In future, a good measure of economic growth will be attributable to the advancement in black individuals’ net asset value (including equity), notwithstanding that such capital may be encumbered to borrow funds to grow further.
The new Codes of Good Practice attempt to encourage this approach through phased implementation of certain Scorecard targets over a period. The ten year period, envisaged in the 2007 Codes, was not reached. In October 2013 a complete new set of Codes of Good Practice were released with a 12 month transitional period which has been further extended to 30 April 2015. Many say Government should have waited for the ten year period to lapse (2017) before