The Broad-Based Black Economic Empowerment (B-BBEE) strategy was published in 2003 as a precursor to the B-BBEE Act 53 of 2003 with the aim of advancing economic transformation in South Africa.
B-BBEE aims to ensure that South African citizens who were previously excluded can now have meaningful participation in the country’s economy. In line with this, a major objective of the programme is the creation of capacity at all levels through employment equity, socio-economic development, preferential procurement and skills and enterprise development.
- YOUTH EMPLOYMENT SERVICE
Youth Employment Service (YES) companies are entitled to increase by one or two B-BBEE recognition levels, says Erika Holmes, partner and head of B-BBEE at Shepstone.
“To move up one B-BBEE level, the YES company must meet the target and achieve 2.5% absorption rate. To move up two B-BBEE levels, the YES company must meet double the target and achieve a 5% absorption rate,” Shepstone concludes.
TO QUALIFY, THESE ENTITIES MUST:
Meet the 40% sub-minimums for each priority element or, if a generic company, meet an average of 50% across the three priority elements or, in the case of QSEs, an average of 40% in two of the priority elements, including ownership
Improve i ts B -BBEE score each year
Score full points on the skills development scorecard (i f a generic company)
Give 12-month full – time employment contracts to black youth (18–35 years) as determined by the higher of:
• 1.5% of the last year ’s headcount
• 1.5% of average net profit after tax in past three years converted to headcount by dividing by R55 000
• A target set in a table based on annual revenue or headcount
“Changing the structure of the South African economy will result in it being more inclusive and more sustainable, with opportunities for all”
The table below outlines the numerous levels of B-BBEE recognition achievable through the YES initiative, provided the preconditions are met.
Achieve YES Target
and 2.5% absorption
Move 1 B -BBEE recognition
level up on the scorecard
Archive 1.5 x YES target
and 5% absorption
Move 1 B -BBEE recognition level up on the scorecard + 3 bonus points to the overall scorecard
Double YES target
and 5 % absorption
Move 2 B -BBEE recognition
levels up on the scorecard
2. AUTOMATIC RECOGNITION FOR LARGE BLACK-OWNED COMPANIES
Automatic recognition levels will be given to 51% and 100% black-owned large entities with annual turnovers of more than R50-million, the same as has been given to Exempted Micro Enterprises (EMEs) and Qualifying Smaller Enterprises (QSEs).
This means that if a company is 51% black-owned, it will qualify for a Level 2 BEE status. If the company is 100% black-owned, it will qualify for Level 1 BEE status.
“A Level 1 B-BBEE accreditation has a positive impact as it supports governmental initiatives for transformation. Economically, it allows companies to improve their business development, client relationships as well as brand awareness, which ultimately leads to companies being positive contributors to the economy.” – Joe Ndala, MD of AECOM South Africa
“B-BBEE is more than just getting the best possible level by ticking off compliance checkboxes to avoid penalties and secure contracts. It’s really about meaningful transformation and providing an opportunity for companies to play a greater role in the overall development of South Africa.” – Renai Moothilal, Executive Director at NAACAM
“Building a globally competitive South Africa requires business leaders and managers to move beyond the current guilt-tax approach to B-BBEE and reconnect with the spirit and intention of the codes of good practice.” – Luvuyo Madasa, Executive Director of ReimagineSA.
“Real economic transformation will result in the visible and tangible inclusion of black people in the mainstream economy across all sectors. That, in turn, will mean greater economic growth that will benefit all South Africans.” – Zodwa Ntuli, Commissioner
3. SKILLS DEVELOPMENT IS ABOUT LEVERAGED TRAINING AND BUILDING A SCORECARD
Spending approximately 15% of your total skills budget on short courses would give only about one point for the skills development element. On the other hand, a well-planned strategy working with leveraged programmes and Sector Education and Training Authority (SETA) funding that requires a 15% net contribution could result in more than 90% of the points, if not all of them.
A proper strategy would include a focus on people with disabilities and programmes that allow for salary inclusion as well as maximise tax breaks, subsidies and SETA funding. Yet many companies get this wrong and do not optimise their training. Even if companies can afford the full 6% of skills development of black staff, with optimisation, there would be enough budget left to train all staff.
4. B-BBEE SCORECARD AND BUSINESS BENEFITS ARE NOT MUTUALLY EXCLUSIVE
Too many companies still regard BBBEE as some form of poorly conceptualised tax. There is a moral wake-up call here in that if we do not all do our part to make the country work, we may not have an economy left. The B-BBEE Codes provide structure regarding how businesses can contribute.
Most companies in the business-to-business sector have some level of pressure from their clients to present a good scorecard. We have found that if you really look at it, the business benefit of a good scorecard vastly exceeds the risk and downside related to ignoring B-BBEE. This pressure will continue to increase, but with some honest assessment, the return on investment could actually be quite high – especially if you align your BBBEE strategy with your business strategy.
5. KNOW WHAT YOU NEED FROM YOUR B-BBEE PARTNER
What does a business really need from a B-BBEE partner? Is it just a competitive scorecard or meeting the minimum requirements of a tender? In many instances the answers are more subtle.
Most businesses would benefit from a more diverse strategic perspective. Many companies that have grown and evolved from small beginnings had to make place for more shareholders and investors.
In South Africa, we have the reality of a changing landscape. If you are clear on what you need from the partner, the next step is to check that it is realistic. If not, change your expectations. If it is, make sure that it is properly set out in a contract. Too many B-BBEE partnerships fail because there is a lack of agreement and common understanding of the value of the B-BBEE partner.
6. DO AT LEAST THE MINIMUM IN TERMS OF OWNERSHIP
If you really don’t want to do a B-BBEE ownership transaction, at least do the minimum. Typically, this is 10.1%. This can add between 14 and 16 points, and save you from dropping a level. For example, if you are stuck at 56 points and are categorised at Level 7 that will drop to Level 8 without B-BBEE ownership, it means you could have been a Level 4 with a properly structured 10% BEE ownership transaction. Properly structured full ownership at 25% would immediately raise the score to a Level 3.
7. HAVE A LEVEL 1 PLAN
Even if the business leadership has settled on a strategy to achieve a B-BBEE Level 5 or even a Level 8, it is imperative to have a plan to reach Level 1.
Many companies see this as an impossible task and deem it to be financially ruining. It’s only when each possible point in the scorecard is mapped to the advantage of the business and cost effectively that the real cost benefit of BBBEE can be derived. Level 1 may still be too expensive to pursue, but the most expensive points can be dropped for a sound Level 3 strategy, for example.