Broad-based black economic empowerment is a critical policy instrument aimed at redressing past economic injustices and inequalities we inherited. It is a governmental policy initiated to enable the black people to participate in the economy meaningfully. It is a South African government initiative which aims to redress the inequalities of the past in various ways, leading to a more equitable and economically inclusive society.
Broad-based black economic empowerment is a win-win for all of South Africa – it will mean greater economic growth because more people will be participating in the economy. This is an important policy to help South African organisations meet the challenges of a transformed economy. It is an initiative launched by the South African government to address the inequalities perpetuated by the apartheid regime in the country. Between 1948 and 1993, South Africa suffered institutionalised segregation. Through legislation, people who were not white were marginalised on the basis of the colour of their skin.
Broad-Based Black Economic Empowerment is an integral part of South Africa’s growth and advancement. It is measured using seven pillars, each with a relative weighting. It is no longer an annual compliance issue. It is not a buzzword, but a meat-and-potatoes response to the economic challenges in South Africa.
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Pillars
These distinguish the turnover compliance level your business falls into and to which you then need to refer to the B-BBEE scorecard to score necessary points from the B-BBEE pillars implemented in your business to be compliant. Your business will then build from a level eight B-BBEE contributor status towards level one.
Ownership
Multi-national entities may use the Equity Equivalent (“EE”) statement in order to obtain points in this element in cases where they do not wish to have local black partners/shareholders. However, this exemption will only apply where a multinational can clearly demonstrate that it does not generally enter into a joint venture or partnership arrangement in other countries. EE contributions are measurable against the value of the entity’s operations in South Africa. The value of these EE contributions may be measured against 25% of the value of the multinational’s South African operations or may be measured against 4% of the total revenue from its South African operations annually over the period of continued measurement.EE would entail a public or private programme designed to fulfil the requirements of B-BBEE ownership. EE may also entail a programme targeting investment or any other programme that promotes Socio-Economic advancement/ development within the South African economy. Such a programme needs to be approved by the Minister of Trade and Industry in order to qualify for ownership points on the scorecard. It should be noted that this process is cumbersome and time-consuming.
Employment Equity
Firms operating in certain sectors are regulated under a specific Transformation Charter and Codes of Good Practice for that sector. The mining industry has its own Mining Charter issued under the Mineral and Petroleum Resources Development Act. State and parastatal tenders take B-BBEE into account and are regulated under the Preferential Procurement Policy Framework Act. Affirmative action and skills development policies are regulated by the Employment Equity Act and the Skills Development Act.
Skills Development
B-BBEE is an empowering initiative to increase the number of black (and other previously disadvantaged) people who own and manage businesses within the South African economy through the implementation of Codes of Good Practice. It has almost become compulsory for businesses to obtain their B-BBEE compliance certification through B-BBEE pillars such as ownership and B-BBEE skills development services, but more on that later.
Procurement
The B-BBEE rating (also referred to as contribution level) of the entity will be based on the points scored using the relevant scorecard. The level obtained by the entity will also determine the procurement recognition level which will be used by the entity’s customers in calculating the customer’s B-BBEE contribution level.
Enterprise development
Enterprise Development: With a 40 percent weighting and possible 4 percent bonus for certain criteria, enterprise development deals with supporting and developing fellow black-owned small businesses. Enterprise development is one of B-BBEEs sustainability pillars to encourage more black businesses by providing these support systems from already-established QSEs and M&Ls.
Scorecard
There are also scorecard and business incentives for enterprises that are 100 percent compliantWhen you understand all the elements of B-BBEE, you will be able to take the necessary steps to implement those practices and requirements into your business. And the reasons why you want to be a B-BBEE compliant business in South Africa is so that other businesses and governmental institutions will do business with you.
Act
The Broad-Based Black Economic Empowerment Act 53 of 2003 is one of the statutes enacted to promote the right to equality, which is enshrined in the Bill of Rights of the Constitution of the Republic of South Africa. It is therefore aimed at balancing the economic playing field of black and white people in South Africa. Broad-based black economic empowerment is a governmental policy initiated to enable the black people to participate in the economy meaningfully. The Act was promulgated inter alia to facilitate broad-based black economic empowerment by achieving a substantial change in the racial composition of ownership and management structures and in the skilled occupations of existing and new enterprises. The issue that arises is whether this objective is being achieved and how the Commission of fronting practices affects the achievement of this objective. Statistics show that this objective is not being achieved and that the Commission of fronting practices plays a negative role in its achievement.
It is vital for business and investors to have a full and proper understanding of South Africa’s legal framework and policies on Broad-Based Black Economic Empowerment. The Broad-Based Black Economic Empowerment Commission actively investigates complaints and “fronting practices” and misrepresenting B-BBEE status is a criminal offence which may result in fines of up to 10% of turnover, imprisonment for up to 10 years and being prohibited from tendering for government/pubic entity contracts for 10 years.
Compliance
Broad-based black economic empowerment is no longer an annual compliance issue. To benefit fully from transformation it’s now all about being strategic, having good administration systems in place, and ultimately understanding the impact that transformation will have on a business. Anton de Wet explains The amended codes of good practice on broad-based black economic…
Policy
BEE, or more accurately B-BBEE refers to Broad Based Black Economic Empowerment is a policy of the SA government which encourages companies to help transform the country. BEE is about broad-based activities that benefit black people.
History of Broad-Based Black Economic Empowerment
- In 1998 a commission was established with the mandate of defining and setting the parameters of BEE and the commission released a strategy for Broad-based Black Economic Empowerment (B-BBEE) in 2003.
- In 2003, the Broad-Based Black Economic Empowerment (B-BBEE) Act was introduced as a sequel to the BEE programme.
- In 2003, the Broad-Based Black Economic Empowerment (B-BBEE) Strategy was published as a precursor to the B-BBEE Act, No.
- In 2003, the Broad-based Black Economic Empowerment Act was promulgated, legislating a new way of measuring economic transformation for South Africa.
- In 2010 a request was made by the IRBA to be given authority to accredit their members.
- In 2013, the current B-BBEE Codes of Good Practice were substantially amended by the Department of Trade and Industry (DTI).
- In 2017, the South African government promulgated an amended preferential procurement regulations, which included specifically legislative requirements for the development of specific designated groups, within the black economic empowerment/historically disadvantaged groups.
- In 2018 a surfacing argument is that BBBEE should be changed from a race-based policy to a policy that favours poverty regardless of skin colour.
- In 2019 the three least performing sectors are AgriBEE (12%), financial (25%) and forestry (26%) with construction (44%), property (42%) and ICT (36%) showing a relatively good performance.