B-BBEE: New Codes Gazetted

The highly anticipated revised Broad-Based Black Economic Empowerment Codes of Good Practice have now been gazetted and will come into effect in October 2014. The revised codes have significantly toughened up the B-BBEE programme. The legislation is, as with most BEE legislation, very poorly drafted. In almost all instances these Codes make it much more difficult for participants to maintain their current B-BBEE credentials. We are, along with Dorrington Matthee Consulting, presenting training seminars in November to update clients on the full implications of the new Codes. Interested parties can click here to find out more. In this newsletter we merely provide the following brief outline of some of the major changes under the new codes:

• The current sector codes will continue to apply, so companies currently falling under a specific sector code are not immediately affected. These sector codes will be revised in due course and we understand are to come in line with the revised Codes

• The scorecard has been reduced from seven to five elements by combining Employment Equity and Management Control into a single element still called “Management Control” and Enterprise Development and Procurement into an element called “Enterprise and Supplier Development”.

• Although the threshold for an entity to be recognised as a Qualifying Small Enterprise (“QSE”) has been increased to an annual turnover of between R10 million and R50 million, no revised QSE scorecard is contained in the new codes and presumably a revised QSE scorecard will be gazetted before October 2014.

• The threshold for a company to qualify as an Exempt Micro Entity has been increased to an annual turnover of R10 million, which means that some companies that were previously QSE’s might now be regarded as compliant without having to continue with their B-BBEE programmes.

• Priority elements with sub-minimum targets have been introduced. Companies will now have to score at least 40% of the weighting points in respect of the Net Value aspect on their ownership scorecard; 40% of the total weighting points in respect of Skills Development; and 40% of the target in respect of the preferential procurement, supplier development and enterprise development aspects of the Enterprise and Supplier Development scorecard. Failure to meet the 40% sub-minimum in any one of the priority elements will cause a company to automatically lose one recognition level (e.g. drop from a Level 4 to a Level 5). QSE’s will be obliged to comply with the sub-minimum for ownership as well as for either Skills Development or Enterprise and Supplier Development (in other words, they only have to comply with two of the priority elements, one of which must be ownership).

• QSE’s and EME’s that are 100% black-owned will automatically qualify for Level 1 recognition.

Despite many submissions that were made to the DTI, many of the problematic aspects of the draft revised codes have survived in this final gazetted version. We are concerned that these new codes will actually harm the progress of the B-BBEE programme to date as it will negatively impact some companies who have been very committed but will now be punished instead of being rewarded for their efforts. That said, it is still very early days and it is difficult to gauge at this stage how the new codes will effect different types of companies in different sectors. We strongly recommend that clients seek expert advice on the new codes from qualified B-BBEE consultants such as Dorrington Matthee Consulting.