New BBBEE Codes come into effect on 11 October 2014 with a transitional period extending until 11 April 2015.   What are the new provisions though and how do they affect organisations?

The DTI has noted some progress on direct equity in the past 6 years but realized that existing legislation was misaligned with the Codes of the BBBEE Act.  There was no substantive application of the codes and the broad-based component was lacking.  Thus, the refinements were identified and the new codes issued after consultation and public commentary.

The scorecard now focuses on 5 rather than 7 pillars and there is enhanced recognition status for black owned and controlled EMEs and QSEs.  Employment Equity and Management Control merged into a single pillar (Management Control) and Preferential Procurement and Enterprise Development merged into one pillar (Enterprise and Supplier Development).

Priority elements are Ownership, Skills Development and Enterprise & Supplier Development – entities have to meet the thresholds of the priority elements or will have their overall score reduced.

Another change that is important is that EME’s that are 100% black owned qualify automatically as a level 1 contributor and EME that is 50% black owned is automatically a level 2 contributor.  The threshold income for an EME has also been raised to R10 million.

The points allocation to determine Level allocation has also changed slightly eg. Need to achieve 90 points on scorecard at least to be a Level 2 contributor whereas previously could achieve 85 points.

Herewith the comparison of the weightings and changes on the scorecard:

Old Scorecard New Scorecard
Ownership 20 points 25 points
Management Control 10 points 15 points (MC)
Employment Equity 15 points
Skills Development 15 points 20 points
Preferential Procurement 20 points 40 points (ESD)
Enterprise Development 15 points
Socio-Economic Development 5 points 5 points

To avoid being penalised one/two levels the minimum thresholds per priority element are:

  • Ownership minimum requirement – 40% holding of net value by black sharehlders;
  • Skills Development – 8 out of 20 points;
  • Enterprise and Supplier Development – 16 out of 40 points

So, what are the implications of the changes?

  • Black ownership needs to be undertaken to achieve a good scorecard.  It is a priority element.  Large entities who do not comply will drop 2 levels on the scorecard.
  • Supplier development is a new category under ESD and requires organisations to develop EMEs and QSEs Black owned suppliers
  • Only value-adding suppliers qualify under preferential procurement
  • The new recognition levels are somewhat more difficult to achieve than those under the old generic scorecard. If you are currently a level 2 contributor with 85 points, under the new BEE codes you will only be a level 4 contributor
  • Skills development is expanded to the unemployed and organisations can earn bonus points for absorbing learners

Some facts about BBBEE implementation so far..

  •  Overall economy is at Level 4
  • Representation of black people and women in senior management positions in the private sector has increased from less than 10% in the 1990s to over 40% today
  • The Black Business Supplier development programme has approved applications worth R797 million since 2010
  • Black owned SMME’s have been supported to the tune of R451 million in one financial year (2012/13)
  • 33% of large enterprises had zero black ownership
  • Only 9% of enterprises had more than 90% black ownership.