Black Empowerment (BEE)
Local Empowerment Laws
B-BBEE in South Africa
The Broad-based Black Economic Empowerment Program (short: BEE or B-BBEE) is a legal framework implemented by the South African government to address the inequalities of Apartheid by giving previously disadvantaged groups (black South Africans, Coloureds, Indians and partly Chinese) economic opportunities previously not available to them. This policy is a pragmatic growth strategy that aims to unlock the country’s full macro- and socio-economic potential by rewarding and preferring comapnies, which apply large scale measures to address this former inequality.
Legal Framework of BEE
BEE Act (2003)
B-BBEE (BEE) is legally based on the law Broad-Based Black Economic Empowerment Act No. 53 of 2003, which became effective in January 2004.
Codes of Good Practice (2019)The subsequently issued Codes of Good Practice address the practical implementation of the general B-BBEE Act, which does not contain any compulsory regulations for any private enterprise or private investor. International investors do not have to “give” shares in their local entity away. However, a decent B- rating has become quite important for anybody who is doing business in South Africa and is mostly achievable without loosing control or ownership to empowered parties. The Codes of Good Practice, which fill out the general provisions of the Act, have been revised and amended and the latest codes are the amended codes published in 2019.
Sector Charters (2015 – 2019)For certain industry sectors, sector charters had been published, which override and amend certain terms and conditions of the Codes of Good Practice. All previous Sector Charters have been abolishes and are currently – step by step – being replaced by new Sector Codes in the following sectors only:
- Petroleum & Liquid Fuels
- Integrated Transport (8 Sub-Codes)
- Chartered Accounting
Elements & Scorecards
Depending on the past financial year’s revenue, a company is categorised either as Exempt Micro Enterprise (EME) under ZAR 10m revenue, Qualifying Small Enterprise (QSE) between ZAR 10m and ZAR 50m revenue or Large Enterprise (Generic) over ZAR 50m revenue.
Non Profit Companies have their own scorecard as State-Owned Companies too. External Companies cannot obtain a BEE Score.
The basic scorecard to calculate a BEE rating based on the points achieved in the past financial year comprises of five elements, three primary and two secondary:
- Ownership (primary)
- Management Control (secondary)
- Skills Development (primary)
- Supplier & Enterprise Development (primary)
- Socio-Economic Development (secondary)
While EME are graded based only on “Ownership”, QSE require to achieve reduced targets within the scorecard elements and Generics need to reach all targets and score points in all five elements. The outcome for QSE and Generic Scorecard calculations is a score between 0 and 100 and in turn recognises BEE Levels between 8 (worst) and 1 (best).
QSE and GENERIC scorecards now differentiate between primary and secondary elements. While secondary elements are treated as before, primary elements now contain sub-minimum targets, which equates to 40% of the general target of the element. If a company fails to reach the sub-minimum target, it will be downgraded a whole BEE Recognition Level in the end.
End the Myths
As most writers and journalists do not understand the intricacies and mechanisms of calculating points in the various Scorecards please take note of the following:
- FALSE: Obtaining a BEE Certificate necessitates giving shares to a black partner.
- FALSE: Foreign or white owned companies cannot get a BEE Certificate.
- FALSE: The more black people I employ the more points are generated in the scorecard.
- FALSE: BEE Certificates only play a role if a company tenders for public contracts.
- TRUE: A BEE Certificate is possible without having a single black person employed.
- TRUE: “Black” is not limited to black citizens, but includes other non-white ethnic groups.
- TRUE: Female or disabled black employees often score more points than their male counterparts.
- TRUE: A Chartered Accountant is no longer a qualified Verificator.
- TRUE: BEE Certificates for enhanced recognised EME and QSE have the format of an Affidavit.
Consultant vs. Verificator
INTO SA is a BEE Consultant as well as a BEE Skills Development Facilitator, verified as an empowered Level 1 B-BBEE Contributor.
Into SA is therefore allowed to advise on the prerequisites of specific BEE Ratings for any business, whether it is for an Exempt Micro Enterprise (EME) or based on the generic scorecard for Large Enterprises or on the scorecard for Qualifying Small Enterprises (QSE). As a Consultant, creative input may be given by Into SA on re-structuring of a company to achieve a better BEE rating. But INTO SA is not allowed to verify any BEE Scorecards.
The verification of the submitted scorecard and the B-BBEE Rating itself are carried out through the Verificator, who can be any of the independent Rating Agencies accredited with SANAS. IRBA accredited chartered accountants are no longer allowed to verify BEE scores. The Verificators are not allowed to advise the business on opportunities to reach a better score, they are only allowed to assess what is presented and to verify its content accordingly.
Enhanced recognition certificates for EME and QSE are no longer issued as certificates, but as Certificate Replacement Affidavits and – as an exception to the rule – may be drafted by the Consultant, being INTO SA.