Article by listed attorney: NICOLENE SCHOEMAN
(please read about the latest BBBEE developements here)
According to Woolley, and as defined by the Broad-based Black Economic Empowerment Act 53 of 2003, broad-based black economic empowerment (BEE) exists for two purposes or functions:
the moral imperative, which is to eradicate the effects of oppression and unlawful expropriation during the reign of apartheid; and
an economic imperative, which must address the results of the policies and effects of apartheid that caused a marked difference in the standards of living between the rich and poor.1
The high level of unemployment in South Africa is one of the main reasons for the imperative towards successful transformation.
“if implemented properly and viewed as an opportunity, BEE could prove to be the best weapon not only to insure [sic] continued growth for South African businesses, but also as a skills transfer tool for millions of black people who were historically excluded.”2
BEE is a wide movement that functions on ownership, employment, procurement and advancement levels to accommodate members of the private sector, or holding companies, who may not want to sell the equity of the enterprise. This will ensure the creation of economic cooperation between the public and private sector, which is the key to economic development and growth.
The Act applies to “black people” as defined and is a generic term which means Africans, Coloureds and Indians. “Broad-based black economic empowerment” means the economic empowerment of all black people including women, workers, youth, people with disabilities and people living in rural areas through diverse but integrated socio-economic strategies.
Any enterprise with annual total revenue of R5 million or less qualifies as an Exempted Micro-Enterprise (EME). EMEs are deemed to have Level Four Contributor BEE status, which facilitates 100% BEE procurement recognition. If the EME is more than 50% owned by black people, the enterprise qualifies for a promotion to a Level Three Contributor BEE status, which allocates a 110% BEE procurement recognition.
Qualifying Small Enterprises (QSEs) are determined only by turnover. If their turnover is between R5 million and R35 million then they qualify as small enterprises. A QSE may choose any four out of the seven elements on the BEE Scorecard.
Any other business must comply with all seven score card elements.
When the scorecard has been completed, it should be submitted to a verification agency for validation. The agency will issue a verification certificate which is valid for one year.
Various aspects must be considered to calculate the BEE scorecard according to the Codes of Good Practice:
4.1 Direct empowerment
Ownership can exist on three levels: economic interest, non-encumbrance and equity control. Economic control is not defined, but refers to the equity interest of a member, as well as the assumption of all risk for liability and profit. On the other hand, equity control refers to the ability to appoint and remove directors with majority voting rights; the ability to control or direct majority votes; and the control and management of the business. Non-encumbrance means that owners with equity control can apply and enjoy their share as they deem fit, without any restrictions.
4.1.2 Management control:
Practically speaking, management control predominates. The first layer of this control is representation of black people at executive board level. The second is representation of black owners. Third is the involvement of black people in the daily operations and strategic decision-making at the most senior management levels. The final layer is the representation of black people in overall financial and management positions.
4.2 Human resource development
4.2.1 Employment equity:
Businesses must comply with the provisions of the Employment Equity Act to achieve equitable representation in the workplace. This refers to the empowerment and representation of designated groups by designated employers.
4.2.2 Skills development:
This section focuses on the development of existing employees and on improving their skills. This will ensure the growth of the economy and the availability of trained and skilled individuals to participate in that growth.
4.3 Indirect empowerment
4.3.1 Preferential procurement:
This part of the scorecard measures the extent to which companies procure goods and services from BEE compliant companies.
4.3.2 Enterprise development:
The capacity of black suppliers who are BEE compliant must be developed. Furthermore, this statement facilitates the assistance or accelerated development, sustainability and ultimate financial and operational independence of a beneficiary.
4.4.1 Corporate social investment:
This element was added in to ensure industry-specific flexibility. It aims to ensure that natural persons are able to generate income for themselves. This includes investment in rural development and infrastructural support in the same area or community, and also includes labour-intensive production. Generally, this refers to the after-tax expenditure of businesses that provide items as housing, bursaries and transport to the social wages of employees.
Nicolene Schoeman, Schoeman Attorneys (Cape Town)
1 WOOLLEY R
2005. Everyone’s Guide to Black economic empowerment and how to implement it. Paarl: Zebra Press.
2 KRUGER T
2005. ABC of BEE. HR magazine. September 2005: 36 – 37.