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Clear BEE guidelines at last
The Broad Based Black Economic Empowerment (BBBEE) codes of good practice will not directly affect the vast majority of Gauteng’s small and medium enterprises (SMEs). These businesses will be exempted from the proposed empowerment legislation due to increased turnover caps.
Source: Hendri Pelser of Gauteng Business
Gauteng’s small businesses can heave a sigh of relief as they will not be forced to empower.
The Broad Based Black Economic Empowerment (BBBEE) codes of good practice will not directly affect the vast majority of Gauteng’s small and medium enterprises (SMEs). These businesses will be exempted from the proposed empowerment legislation due to increased turnover caps.
This comes after the release of the final codes by the department of trade and industry (dti), which includes some significant changes and concessions from the draft codes released in December 2005. With a new exemption turnover cap of R5 million, most small businesses will not have to implement BBBEE in their operations at all and will automatically be viewed as 75% empowered.
The criteria of a Qualifying Small Enterprise (QSE) has also changed as turnover caps were adjusted significantly.
The new codes propose that businesses with turnovers of between R5 million and R35 million will be classified as QSEs.
These businesses only have to adhere to four of the seven scorecard elements contained in the codes and can choose which three to ignore.
Business owners may therefore choose not to sell equity as part of empowerment strategies.
T-Sec economist, Mike Schüssler, says of the approximate one million active businesses in SA, only one in 20 businesses will have a turnover greater than R35 million.
He adds that the vast majority of small businesses also have a turnover of less than R5 million.
According to dti director-general, Tshediso Matona, this means that more than 80% of SA’s businesses will be exempted from having to adhere to the BBBEE codes.
The codes will be gazetted in January 2007, after which it will govern all business dealing with government departments and entities, as well as state owned enterprises.
RELIEF
After several years of planning, the finalised BBBEE codes seek to transform the economy.
Matona believes the codes are “one of the most important policy initiatives of the democratic SA” and will lead to a renewed upswing in the economy.
“The whole point has been to bring certainty to the economy. Entrepreneurs, business people and investors need certainty to make business decisions,” he said at the launch of the codes.
He added that the cost burden of implementing BBBEE will mostly fall on the shoulders of big businesses “who can afford it”.
Minister of the dti, Mandisi Mpahlwa, said the SME relief included in the codes will allow transformation to continue while not stifling SME growth.
While mostly happy with the new codes, many BEE analysts reacted with caution.
Caird Consulting’s Paul Janisch says the revised codes have their strengths and weaknesses and it will take a while to see how it is implemented in the economy.
“I like the five and 10 year targets which is a useful feature and will allow gradual transformation. But, there is concern about the R5 million exemption cap as it means that most companies will not have to do anything. The QSE threshold on the other hand is brilliant.”
He adds that some of the targets included in the codes are “a bit ambitious” however.
Empowermentsa’s Mphuthi Mphuthi says SMEs have to ensure that they, and not big business, reap the benefits presented by the new codes.
This especially, he says, applies to black-owned and empowered SMEs.
Janine Appelgryn of BEExchange says the QSE threshold increase is good news for SMEs and that it will be easier for them to empower.
“It seems as if the dti really gave the codes proper consideration. We will now have to wait and see how easy implementation on specific aspects will be.”
EXEMPTION
Apart from small businesses with an annual turnover of less than R5 million, all startup businesses will be viewed as 75% empowered.
Businesses that have implemented narrow based empowerment mainly focusing on equity will have a one-year grace period to get their house in order.
Many medium sized businesses will heave a sigh of relief due to the new QSE thresholds.
This is a significant change from the draft codes, which had QSEs turnover thresholds ranging from R3 million to R64 million and included employee headcounts.
Some sectoral charters however, will be able to adjust the maximum turnover cap based on the specific industry.
These turnover caps will be decided on in consultation with stakeholders, the relevant government minister and the dti.
Mpahlwa said this is an attempt to accommodate the different characteristics of the various sectors.
QSEs only have to adhere to four of the seven scorecard elements, each receiving a weighting of 25 points.
The criteria used in each element have also been simplified significantly, making it easier for SMEs to score points.
Matona says the targets and turnover caps contained in the codes will be reviewed from time to time. The specifics and timeframe thereof however, is still to be decided.
PROCUREMENT
Preferential procurement is expected to be the major driver of BBBEE in the economy as government departments and institutions, as well as big business increasingly implement the practise.
It also creates significant business opportunities for many SMEs as these entities and institutions will be forced to procure from SMEs and specific targets have been set for procurement from exempted small businesses and QSEs.
In an effort to introduce BBBEE gradually into the economy, most of the elements contained in the generic scorecard have five year and 10 year targets.
While most small businesses will be exempted from completing the scorecard, they can still participate in the empowerment process.
This becomes especially important for preferential procurement where the 90/10 and 80/20 rule comes into play. This rule forms part of the Preferential Procurement Act and means that a more empowered business can be awarded a tender or contract over a less empowered business.
