Broad-Based Black Economic Empowerment (BBBEE) is a legislative framework that has been put in place to ensure economic equality in South Africa. This legislation is specifically focused on empowering previously disadvantaged South Africans in the workplace, enhancing skills development and economic participation. BBBEE compliance has become a prerequisite for many tenders, grants, finance and corporate development initiatives. In this way, being BBBEE compliant gives a business competitive advantage. We take a deep dive into the ins and outs of BBBEE below.
What is BBBEE?
BBBEE is a piece of legislation that was drafted in 2003 to promote the constitutional right to equality and to increase broad-based and effective participation of previously disadvantaged people in the South African economy. The framework aims to promote more equitable income distribution, among other things.
In the context of the BBBEE Act of 2003, the term “black people” refers to Africans, Coloureds and Indians who are citizens of the Republic of South Africa by birth or descent or who became citizens of the Republic of South Africa by naturalisation before the 27th of April 1994, or on or after the 27th of April 1994 who would have been entitled to acquire citizenship by naturalisation prior to that date.
Legislation that governs BBBEE
Transformation is governed by several pieces of legislation that include the Employment Equity Act of 1998, which stipulates that there is a requirements for affirmative action measures to ensure that qualified people from designated groups are represented in all occupational categories and business levels. This legislation is important for any business that employs 50 or more people or has an annual turnover of more than R2 million (depending on the industry in which it operates).
The Skills Development Act of 1998 and the Skills Development Levy Act of 1999 provide a framework for improving skills and employment prospects for persons from designated groups, including people with disabilities. These Acts also make it compulsory for certain employers to contribute a percentage of their payroll, known as the Skills Development Levy, to a fund that can be used to train staff members.
What is the purpose of BBBEE?
The combined transformation legislation aims to right the wrongs of the legacy of apartheid, which still affects many South Africans, and covers several different socio-economic strategies that are aimed at enhancing the economic participation of designated groups of people. The main objectives of these strategies are to:
- Encourage the participation of Black people and the majority of the economically active population to be able to manage, own and control enterprises and productive assets;
- Facilitate ownership and management of enterprises and productive assets by communities, workers, co-operatives and other collective enterprises;
- Grow human resource capacity and promote skills development, thus improving productivity and competitiveness;
- Achieve equitable representation in all occupational categories and levels in the workforce;
- Ensure preferential procurement from enterprises that are owned or managed by black people; and
- Promote investment in enterprises that are owned or managed by black people.
By leveraging the participation of a larger proportion of the South African economically active population, BBBEE promotes economic equality and promotes equal access to economic opportunities.
The 5 BBBEE Pillars
BBBEE aims to accelerate change in key areas of business; these are often referred to as the BBBEE pillars. A business will score points against the pillars listed below, which are governed by the amended Codes of Good Practice. The points are scored against what is called a BBBEE scorecard. The scorecard acts as a measure of the level of transformation within the organisation. These pillars include:
- Ownership, which refers to the percentage of the business that is owned by black participants. The maximum points for this category is 25. The points are calculated based on elements related to the percentage of ownership, voting rights, the Net Value of shares, percentage of shareholding, etc. The sub-minimum requirement for ownership is 40% of the Net Value.
- Management control, which refers to the percentage of designated group persons in top, senior and junior level management positions. The scorecard emphasises the role of black women, which is referred to as the “Adjusted Recognition for Gender” (ARG). The total points available for this qualification criteria is 15. These points are calculated based on elements related to the percentage of voting rights, the percentage of executive members that are black, etc.
- Skills development, which refers to the percentage of contributions the business makes towards skills development of persons from designated groups, including persons with disabilities. The maximum number of points available for this pillar is 20. These points are based on criteria relating to the percentage of payroll spent on skills development for employees and unemployed people from designated groups. It is important to note that there is benefit for the value spent as well as the number of beneficiaries this is spent on. There is further allocation of 5 points if the programme results in the absorption of these beneficiaries into jobs within the organisation or industry. The sub-minimum requirement for skills development is 40% of the total weighting points for skills development.
- Enterprise and supplier development, which refers to the percentage of goods and services procured from BBBEE certified and compliant suppliers, as an indication of the transformation within the value chain. The maximum number of points available for this pillar is 40. This also has an added benefit that will allow you to claim what you spend. This is dependent on the BBBEE rating that your supplier has. The sub-minimum requirement for Enterprise and Supplier Development is 40%.
Socio-economic development, which refers to the percentage of contributions to employees, their families and the surrounding communities. The emphasis is on benefiting the communities and maximum participants from previously disadvantaged backgrounds or Black people. The maximum number of points available for this pillar is 5.
BBBEE compliance for business
Following from the above, it is essential to note that different sectors have different scorecards related to the above-mentioned pillars. Businesses of different sizes will also have different scorecards and ratings. This allows a smaller business to compete with larger companies, which drives further competition and growth.
Smaller businesses with a revenue of less than R10 million per annum are referred to as Exempted Micro Enterprises (EMEs) and do not need to complete a scorecard. They are automatically assigned as a Level 4 BBBEE contributor. If the EME is 100% black owned, it is automatically regarded as a Level 1 BBBEE contributor. If the EME is at least 51%, black owned, it qualifies as a Level 2 BBBEE contributor. An EME is allowed to apply to be measured in terms of the QSE scorecard to maximise its points and move to a higher BBBEE recognition level.
Businesses that have an annual revenue of less than R50 million but more than R10 million are called Qualifying Small Enterprises (QSEs). A QSE must comply with all of the elements of BBBEE for the purposes of measurement. A Qualifying Small Enterprise which is 100% Black owned qualifies for a Level 1 BBBEE recognition. A QSE that has at least 51% Black ownership qualifies for Level 2 BBBEE.
A Start-up Enterprise must be measured as an Exempted Micro-Enterprise under this statement for the first year following its formation or incorporation. This provision applies regardless of the expected total revenue of the Start-up Enterprise recognition level.
Advantages of BBBEE compliance for businesses in the Metals and Engineering Industry
Within the metal and engineering industry, a BBBEE compliance certificate has many benefits in terms of providing opportunities for growth and giving your business a competitive edge in the market.
Having a BBBEE certificate allows your business to conduct business with public entities. This will allow your company the opportunity to tender for big industrial projects. The higher the level of your BBBEE compliance, the increased chances you have of being awarded the job.
Your BBBEE certification also showcases your commitment to solving issues related to skills development, unemployment and growing the economy through initiatives such as enterprise supplier development.
The transformation laws form an important framework within the metals and engineering sector as they drive industry competitiveness and growth, promote job creation and skills development and encourage joint ventures between large enterprises and smaller companies. As highlighted in the State of the Metals and Engineering Sector Report, for economic transformation to be successful and sustainable, the transformation framework needs to be correctly implemented and sector-related codes need to be achieved. For more on BBBEE and how to implement the framework effectively, sign up to SEIFSA’s Human Capital and Skills Development (HC&SD) Resource Portal.