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broad-based black economic empowerment (B-BBEE) | 11 Jun 2019
BY Sanjay Kassen
ENSight

broad-based black economic empowerment (B-BBEE)


Recent amendments to the B-BBEE Codes

On 31 May 2019, South Africa’s Department of Trade and Industry gazetted certain amendments to the Broad-Based Black Economic Empowerment (“B-BBEE”) Codes of Good Practice. These amendments will become effective on 31 November 2019.

The following are the key amendments to take note of.

 EMEs and QSEs

The Amended B-BBEE Codes now clarify that Exempted Small Enterprises (“EMEs”) and Qualifying Small Enterprises (“QSEs”) are only entitled to enhanced B-BBEE recognition if they are 51% or 100% Black-owned on a direct flow-through basis. In other words, EMEs and QSEs cannot benefit from enhanced B-BBEE recognition if they measure their Black ownership using the modified flow-through principle.

EMEs and QSEs that are 51% Black-owned are deemed to be a Level 2 B-BBEE contributor and those that are 100% Black owned are deemed to be a Level 1 B-BBEE contributor.

Enterprise and supplier development

Currently, the target for procurement of goods and services from 51% Black-owned suppliers is 40%. The Amended B-BBEE Codes have increased this target to 50% of the total measured procurement spend, with a commensurate increase in points awarded from such procurement to 11 points from the current 9 points.

Importantly, large enterprises that are 51% Black-owned (on a direct flow-through basis) would now also qualify as enterprise and supplier development beneficiaries, whereas currently, such beneficiaries are limited to EMEs and QSEs that are 51% Black-owned. However, this would only apply if the large enterprise was an EME or QSE at the time when it first received assistance from the measured entity. Furthermore, such enterprise and supplier development recognition will be limited to five years from the time when the beneficiary first received assistance from the measured entity.

Furthermore, procurement of goods and services from large enterprises that are 51% Black-owned (on a direct flow-through basis) also qualifies as procurement from EMEs or QSEs for a period of five years from the date on which procurement from the entity first occurred, provided that when that procurement first occurred the entity was an EME or QSE.

Companies may now apply a multiplying factor of 1.2 if they procure goods and services from a supplier development beneficiary that is a large enterprise and is 51% Black-owned on a direct flow-through basis. Currently, this only applies to procurement from QSEs or EMEs.

Currently, 3% of any guarantee provided on behalf of an enterprise or supplier development beneficiary is able to be recognised as the enterprise or supplier development beneficiary. The Amended Codes have increased this amount to 50%.

The calculation of the 40% minimum threshold to avoid discounting by one B-BBEE recognition level can no longer include bonus points.

Skills development

Importantly, the Amended B-BBEE Codes have introduced a new sub-element for skills development expenditure on bursaries for Black students, with a target 2.5% scoring 4 points.

Currently, the recognition for skills development expenditure in respect of informal and workplace learning programmes is limited to 15% of the total value of skills development expenditure. The Amended B-BBEE Codes have increased this limit to 25%.

Currently, the target for skills development expenditure on learning programmes for Black people is 6%. The Amended B-BBEE Codes have reduced this target to 3.5% for skills development expenditure on learning programmes for Black people, with a commensurate decrease in points from 8 to 6 points.

Currently, the target for the number of Black people participating in learnerships, apprenticeships and internships as a percentage of total employees is 2.5%. The Amended B-BBEE Codes have increased this target to 5%, with a commensurate increase from 4 to 6 points.

There is no longer a target of Black unemployed people to be included in learnerships, apprenticeships and internships.

The bonus points able to be achieved for absorption at the end of a learnership now extends to internships and apprenticeships.

The calculation of the 40% minimum threshold to avoid discounting by one B-BBEE recognition level can no longer include bonus points.

Empowering supplier

Currently the term “empowering supplier” contains five requirements. The Amended B-BBEE Codes have reduced the criteria to four, removing the requirement that 85% of a service industry supplier’s labour costs are to be paid to South African employees.

Designated group supplier

The Amended B-BBEE Codes now define "designated group supplier", which was not previously defined. This refers to a supplier that is not only 51% Black-owned, but also owned by unemployed Black people, Black youth, Black people with disabilities; black people living in rural and underdeveloped areas and/or Black military veterans. This terms relates to the preferential procurement scorecard.

Please contact ENSafrica’s B-BBEE practice group if you require any assistance with your B-BBEE compliance requirements.