13 December 2012 | Paul Snell
The South African government has published a revised broad-based black economic empowerment (BBBEE) code, with significant changes to be noted by purchasers.
The government is taking the action as it believes small businesses are having to pay too much to consultants to prove they are compliant with the legislation and to stop fraudulent practices such as fronting, where a black figurehead performs a token role in the firm (Back to black, SM September 2011).
As a result, according to law firm DLA Cliffe Dekker Hofmeyr, firms are “likely to find it more difficult to achieve and, possibly, retain current BBBEE contributor status ratings”.
The most significant revision is to the generic scorecard. The seven elements that make up the scorecard have been reduced to five: ownership; management control; skills development; socio-economic development; and enterprise and supplier development – a merger of ‘preferential procurement’ and ‘enterprise development’.
Trade and industry minister Rob Davies said this is to align categories more closely to economic growth and development. The weighting for these has also changed, with five additional points allocated to the ‘enterprise and supplier development’ section.
Companies will also have to meet a minimum compliance level of 40 per cent in each category, or face having their BBBEE status downgraded. Large firms face a downgrade of two levels and smaller firms one level, if they fail to meet the requirements.
The minimum target for BBBEE procurement spend has risen from 70 per cent to 80 per cent. There are also goals that supplier development contributions should be 2 per cent of net profit after tax (NPAT), and enterprise development contributions of 1 per cent of NPAT.
The proposals closed for consultation on 4 December and the government will now assess whether any amendments to the draft will be necessary and finalise the legislation.