Tuesday, November 20, 2012

Certain sectors, including the information, communication and technology (ICT), construction, tourism, forestry, transport, chartered accountancy and property sectors, are governed by sector-specific codes.  These sector-specific codes adapt the BEE measurement process for a particular sector and effectively replace the general codes for businesses in those sectors. The proposed changes to the general codes will not, at this stage, affect the sector-specific codes although it seems likely that some alignment will take place in future.
Under the current codes BEE is measured on the basis of seven individual elements: ownership, management control, employment equity, skills development, preferential procurement, enterprise development, and socio-economic development.  Each element and sub-element has a target and a weighting, being the total number of points that are achievable.  The draft codes propose to reduce number the elements to five with preferential procurement being measured under a new enterprise and supplier development element rather than on its own.  Preferential procurement is the extent to which a business buys goods and services from empowered suppliers.  The draft codes also contemplate that only procurement from suppliers classed as value-adding suppliers will qualify for inclusion towards BEE-supplier expenditure targets.  This enterprise and supplier development element is proposed to be the most heavily weighted of all the elements and will be responsible for 40 points out of a possible105 points.  Employment equity as a stand-alone element is proposed to fall away.
One of the major changes in the draft codes is the proposed introduction of threshold requirements.  At present, there are no sub-minimum requirements and no consequences if a business scores a low score for certain elements but compensates on other elements. For example, a business could score zero for ownership but nevertheless achieve a relatively high total score if it scores well on the other six elements. The draft codes propose to introduce requirements that businesses will have to achieve a certain minimum score for certain sub-elements of ownership, skills development, and enterprise and supplier development. In particular, the draft codes propose that businesses must achieve at least 40% of the targets for net value.  This is the percentage of ownership interests held by black people that are free of debt.  The new net value threshold also translates into a requirement that businesses must have a certain level of ownership by black people in order to avoid adverse consequences.  Businesses that do not meet these threshold requirements will have their total BEE scores reduced.
Businesses that are classed as qualifying small enterprises (QSEs) and exempted micro-enterprises (EMEs) are presently measured on a different basis from larger businesses. The draft codes propose to increase the annual turnover threshold for measurement as an EME from R5 million to R10 million and for QSEs from R35 million to R50 million.  Businesses have been asked to comment on the way in which QSEs should be measured going forward.
Comments on the draft codes must be submitted to the Department of Trade & Industry by 4 December 2012.