Broad Based Black Economic Empowerment Presentation

BROAD-BASED BLACK ECONOMIC
EMPOWERMENT (B-BBEE)
REVISED CODES OF GOOD PRACTICE
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DEFINITION OF B-BBEE
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integrated and coherent socio-economic process,
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that directly contributes to the economic transformation of South Africa,
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bringing about significant increases in the numbers of black people that manage, own and control
the country’s economy,
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as well as significant decreases in income inequalities.
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intended to have a limited “shelf life”????
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DEFINITION OF A BLACK PERSON AND BLACK NEW ENTRANTS
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Africans, Coloureds, Indians and Chinese (Natural Persons)
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Black SA Citizens by birth or descent
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Black SA Citizens by naturalisation before effective date of the interim constitution
- (E.g. Black Zimbabwean becoming a SA citizen before 1994)
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Black SA Citizens by naturalisation after the effective date of the constitution, but who would have qualified
before then, were it not for apartheid

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(E.g. Black SA citizens born outside SA )
An entity where > 50% of its shareholding is held by black persons
- Includes the “modified flow through principle”
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Black new entrant is black person participating in the ownership of a BEE transaction who, before then did not
hold equity instruments in other entities with value > R20m (recently increased to R50m).
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DEFINITION OF FRONTING
Misrepresenting yourself:
• Window-dressing:
This includes cases in which black people are appointed or introduced to an
enterprise on the basis of tokenism and may be:
•Discouraged or inhibited from substantially participating in the core activities of
an enterprise;
•Discouraged or inhibited from substantially participating in the stated areas
and/or levels of their participation.
• Benefit Diversion:
This includes initiatives where the economic benefits received by an organization
for having B-BBEE Status do not flow to black people in the ratio specified by
law.
• B-BBEE Amendment Bill of 2013:
Fronting as defined in the Act is now a statutory offence and those who are
involved in fronting and convicted may be imprisoned for 10 years.
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TIMELINE - BEE VS B-BBEE
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BEE (or “narrow-based BEE”) was purely focused on ownership and management control
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In 2003 B-BBEE introduced through the Codes of Good Practise (CoGP)

move towards a balanced scorecard as opposed to merely ownership & management in the past
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Codes of Good Practice gazetted in February 2007
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The Preferential Procurement Policy Framework amended in 2011
 Requires organ of state to demand B-BBEE scorecard when procuring for goods or services.
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Amended Codes of Good Practice gazetted in October 2013 (transitional period to 11 October
2014, extended to 30 April 2015)

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Far reaching changes that could prove very onerous for majority of medium to large enterprises
No legal requirement for a business to comply with B-BBEE legislation
 Could however result in loss of business for non-compliance depending on industry
 Has resulted in the creation of an “unofficial” ethical requirement to produce a B-BBEE certificate
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SUMMARY OF CHANGES - 2013 B-BBEE CODES
• 7 Elements collapsed into 5 elements
• Introduction of 3 Priority Elements
• Introduction of Empowering Suppliers
• QSE & EME thresholds increased
 Affidavits by entities
 Revised B-BBEE status for > 51% owned QSE’s and EME’s
• Revised points table
 Average of 2 level drop
• Increased targets for certain elements
• QSE now has to comply with all 5 elements
 Previously could elect any 4 of 7 elements
• EE aligned to National Employment Equity Report targets
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B-BBEE ELEMENTS – 2007 CODES VS 2013 CODES
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19
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40 + 4
*
* Priority elements
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B-BBEE STATUS TABLE – 2007 CODES VS 2013 CODES
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PRIORITY ELEMENTS WITH SUB-MINIMUM TARGETS
1) Ownership
 At least 40% of the Net Value points (3.2 out of 8)
2) Skills Development
 At least 40% of the total points (8 out of 20)
3) Enterprise and Supplier Development
 At least 40% of the points in each of Preferential Procurement,
Supplier Development and Enterprise Development
• Large Enterprises:
 All three priority elements are compulsory
• QSEs (2 of 3):
 Ownership compulsory
 Choose between Skills Development and Enterprise and
Supplier Development
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PRIORITY ELEMENTS WITH SUB-MINIMUM TARGETS
• Non-compliance with a sub-minimum target in one or more of
the priority elements results in discounting your BEE level
by one level.
• E.g. Level 5 would become level 6.
 Effectively means that entry point is now 55 points if priority elements not met
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DIFFERENT TYPES OF SCORECARDS – 2007 VS 2013 CODES
Exempted Micro-Enterprise (“EME”)
2007 codes (relevant to 30 April 2015):
 Any enterprise with an annual turnover of less than R5 million qualifies (subject to sector code)
 Tourism code: R2,5 million
 Construction code: R1,5 million (BEP’s only)
 Is exempt from preparing a B-BBEE scorecard – require certificate from auditor or accounting officer
confirming turnover < R5m p.a.
 Automatically receives a Level 4 contribution status (100% score)
- Increases to level 3 contribution status (110% score) if majority black owned
2013 codes (effective 30 April 2015):
 Any enterprise with an annual turnover of less than or equal to R10 million qualifies
 Is exempt from preparing a B-BBEE scorecard – requires enterprise to declare on an affidavit that
turnover is below R10 million.
 Automatically receives a Level 4 contribution status (100% score)
- Increases to level 2 contribution status (125% score) if at least 51% black owned
- Increases to level 1 contribution status (135% score) if 100% black owned
 Automatically meets the definition of an empowering supplier
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DIFFERENT TYPES OF SCORECARDS – 2007 VS 2013 CODES
Qualifying Small Enterprise (“QSE”)
2007 codes (relevant to 30 April 2015):
 Any enterprise with an annual revenue greater than R5 million but less than R35 million qualifies
 Can select any 4 of the 7 B-BBEE elements under the QSE scorecard, with each carrying an equal 25
points weighting
 QSE B-BBEE scorecard must be verified by an accredited BEE Verification Agency
2013 codes (effective 30 April 2015):
 Any enterprise with an annual revenue greater than R10 million but less than R50 million qualifies
 No specific QSE scorecard. All 5 elements must be complied with (awaiting feedback from dti)
 Automatically receives a Level 2 contribution status (125% score) if at least 51% black owned
- Increases to level 1 contribution status (135% score) if 100% black owned
- Affidavit by enterprise all that is required
 All QSE’s below 51% black ownership must be verified by an accredited BEE Verification Agency
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DIFFERENT TYPES OF SCORECARDS – 2007 VS 2013 CODES
Generic Scorecard
2007 codes (relevant to 30 April 2015):
 any enterprise with annual revenue greater than R35 million will need to use the generic scorecard
(i.e. all 7 elements)
 Generic B-BBEE scorecard must be verified by an accredited BEE Verification Agency
2013 codes (effective 30 April 2015):
 any enterprise with annual revenue greater than R50 million will need to use the generic scorecard
(i.e. all 5 elements)
 Generic B-BBEE scorecard must be verified by an accredited BEE Verification Agency
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OWNERSHIP (PRIORITY ELEMENT)
BDO’s, ESOS’s,
B-BOS, Co-operatives
ESOS’s, B-BOS,
Co-operatives
(incl. bonus)
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OWNERSHIP – MODIFIED FLOW-THROUGH PRINCIPLE
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OWNERSHIP – MODIFIED FLOW-THROUGH PRINCIPLE
Modified flow-through principle elected
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MANAGEMENT CONTROL & EMPLOYMENT EQUITY
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* Adjusted recognition for gender
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MANAGEMENT CONTROL & EMPLOYMENT EQUITY
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* Adjusted recognition for gender
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SKILLS DEVELOPMENT (PRIORITY ELEMENT)
(incl. bonus)
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SKILLS DEVELOPMENT (PRIORITY ELEMENT)
OLD CODES
NEW CODES
• No restriction on training related • Training related costs limited to
costs (e.g. travel,
15% of total
accommodation, etc)
• Any mandatory sectoral training • mandatory sectoral training
counts (e.g. first aid training for
counts does not count
safety officer)
• No sub-minimum threshold
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• 40 % of total points available
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ENTERPRISE & SUPPLIER DEVELOPMENT
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* TMPS = Total measured procurement spend
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ENTERPRISE & SUPPLIER DEVELOPMENT
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ENTERPRISE & SUPPLIER DEVELOPMENT
Definition of Empowering Supplier:
1. At least 25% of cost of sales excluding labour cost and depreciation must be
procured from local producers or local suppliers in SA. For the service industry labour
cost is included capped at 15%.
2. 50% of jobs created are for Black people provided that the number of Black
employees since the immediate prior verified B-BBEE measurement is maintained
3. At least 25% transformation of raw material / beneficiation which includes local
manufacturing, production and/or assembly, and /or packaging.
4. Spend at least 12 days per annum of productivity deployed in assisting Black EME
and QSE beneficiaries to increase their operational or financial capacity.
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Large Enterprises have to comply with 3 out of 4 criteria to qualify as an
Empowering Supplier.
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QSEs have to comply with 1 out of 4 criteria to qualify as an Empowering
Supplier.
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EMEs and Start-ups automatically qualify as Empowering Suppliers.
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ENTERPRISE & SUPPLIER DEVELOPMENT
• Only QSE’s and EME’s that are 51% Black Owned / Black
Women Owned qualify as Enterprise Development and
Supplier Development beneficiaries.
 In 2007 codes, included 25% black owned enterprises with a level 6 or better
scorecard.
• Early payments can only make up 15% of Supplier
Development score.
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SOCIO-ECONOMIC DEVELOPMENT
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PREFERENTIAL PROCUREMENT POLICY FRAMEWORK
Preferential Procurement Policy Framework (PPPF) amended with effect from 7 Dec 2011

requires government bodies and state-owned entities to abide by the Codes of Good Practise for
procurement
For tenders with a value < R1m
 20% of the overall score based on B-BBEE
 80% of the overall score based on General factors (e.g. price, ability, experience, etc.)
For tenders with a value > R1m
 10% of the overall score based on B-BBEE
 90% of the overall score based on General factors (e.g. price, ability, experience, etc.)
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PREFERENTIAL PROCUREMENT POLICY FRAMEWORK B-BBEE SCORING
B-BBEE Status
Tender value < R1M
Tender value > R1m
Level 1 Contributor
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10
Level 2 Contributor
18
9
Level 3 Contributor
16
8
Level 4 Contributor
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5
Level 5 Contributor
8
4
Level 6 Contributor
6
3
Level 7 Contributor
4
2
Level 8 Contributor
2
1
Non-compliant Contributor
0
0
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INDUSTRY SECTOR CODES
1.
Integrated transport sector codes
2.
Forest sector codes
3.
Construction sector codes
4.
Tourism sector codes
5.
Charted Accountancy sector codes
6.
ICT charter (6 June 2012)
7.
Property sector charter (1 June 2012)
8.
Financial sector charter
9.
Agri-BEE Charter

Businesses operating in above industries must comply with sector scorecards and cannot use the
generic scorecard

There are however QSE and EME scorecards within the industry charters

Sectors must amend sector codes to bring in line with amended codes of good practice
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VERIFICATION
• Generic and relevant QSE scorecards need to verified
annually by an accredited BEE verification agency
 QSE’s > 51% black ownership only require an affidavit
(PPPFA????)
• EME scorecard does not need to be verified by an
accredited BEE verification agency – Only an affidavit is
required
• Scorecards are valid for a period of 1 year from date of
issue
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EQUITY EQUIVALENT PROGRAMMES
• Available to Multinationals, subject to a global practise.
• Contribution is based on:
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25% of the value of the South African operations (using Standard valuation
method), or
4% of turnover annually over the period of continued measurement
• EE programme needs to be approved by the dti
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Must demonstrate commercial viability and long-term sustainability (economically
and operationally).
• Programme must promote and advance following critical areas:
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•
•
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Enterprise & supplier development
Research & development
Critical & core skills
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EQUITY EQUIVALENT PROGRAMMES (CONTINUED)
Where beneficiaries of an equity equivalent programme are:
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•
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Exempted Micro Enterprises (EMEs), they must have be level one BEE compliant;
QSEs, they must have be level one BEE compliant;
Natural persons must constitute 75% of the total beneficiaries.
Where continued measurement period:
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•
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> R100m, the investment period as agreed with the Minister may be up to 10 years;
and
> R75m < R100m the investment period as agreed with the Minister may be up to 7
years
> R50m, the investment period as agreed with the Minister may be up to 3 years.
At the end of an investment period, a multinational will have to option to top up its
contribution towards the programme for continued recognition.
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EQUITY EQUIVALENT PROGRAMME CALCULATION
BPO COMPANY (PTY) LTD
Turnover:
NPBT:
Normal tax:
NPAT:
R 10,000,000 (Assuming 10% NPBT)
R -2,800,000
R 7,200,000
Valuation:
R 36,000,000 (Assuming 5 x P/E)
25% of business:
4% of turnover:
x 3 years:
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R 100,000,000
R 9,000,000.00
R 4,000,000.00
R 12,000,000.00
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QUESTIONS
Questions?
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SUMMARY
In conclusion – Revised 2013 codes
• 5 elements
• Priority elements
• EAP targets for EE
• Empowering supplier
• Enterprise development beneficiary = >51% black owned QSE & EME’s
• Revised points table
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CONTACT DETAILS
Mansoor Salee
Sirferaaz Ebrahim
Partner
B-BBEE verification analyst
Cape Town
Cape Town
Direct: +27 21 818 5080
Direct: +27 21 818 5334
Mobile: +27 82 454 4786
Mobile: +27 76 911 0225
[email protected]
[email protected]
www.mazars.co.za
www.mazars.co.za
* This document should only be used for internal purposes and may not be distributed outside of Mazars.
Distributing the document outside of Mazars could result in legal exposure to the company if the information in
the document turns out to be inaccurate.
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