What is BEE? Revised BEE Codes

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1 What is BEE? Broad-based Black Economic Empowerment (B-BBEE) is an initiative launched by the South African Government to address the restrictions that exist within the country for Black individuals to participate fairly in the economy. The BEE Act allows for the existence of the B-BBEE Codes of Good Practice which provide the structures for the BEE Scorecard and certain rules associated with claiming BEE points. BEE is essentially a sellers' club. If your company has a BEE Certificate then your customers can claim BEE points on their BEE Scorecard for buying from your business. You can get different level BEE certificates (from level 8 to level 1) depending on what contributions you have made to supporting the integration of black people into the economy. The better level of BEE Certificate you have the more BEE points they can claim. When your customers are choosing which supplier to use they are likely to look at price, quality and service and your BEE Score. Depending on how important BEE points are to your customer, the more they will consider your BEE Score over the other three elements. Revised BEE Codes The first BEE Codes were introduced in 2007 but following a review the South African Government revised the BEE Codes in October These Revised Codes are applicable from October However any entity may apply them in the transition period from October 2013 to October The table below shows the BEE Point requirement for each of the 8 BEE Status Levels and how much your customers can claim on their BEE Scorecard as a result. It shows the difference between the 2007 Codes and the 2013 Codes;

2 2007 BEE Codes 2013 BEE Codes BEE Status (Level) Procurement Recognition % % % % % % % % The Revised Codes have reduced the Scorecard Elements from 7 to 5 by combining Management Control and Employment Equity into one element and combining Preferetnial Procurement and Enterprise Development into one element. A portion of the old Enterprise Development element has been limited to Supplier Development.

3 The difference between the 2007 BEE Scorecard and the 2013 Scorecard is shown below; Criteria 2007 BEE Codes 2013 BEE Codes Weighting Bonus Weighting Bonus Ownership Management Control Employment Equity Skills Development Preferential Procurement Enterprise and Supplier Development Socio-economic Development TOTAL BEE's effect on different sized Entities The BEE Codes of Good Practice allow for three levels of measurement. The intention is to take into account the challenges faced by small businesses. Exempted Micro Enterprises (EMEs) It is unrealistic to expect a start-up or micro business to contribute to BEE as there are likely to be few employees. Most businesses are vulnerable try to limit their overhead costs in the first few years. For this reason any business that turns over less than R10 million is exempted from being measured against any BEE Scorecard. They get allocated a Level

4 automatically if they can prove their annual turnover is below this amount and as shown below; Black Ownership BEE Status Level Procurement Recognition 100% Black Owned EME Level 1 135% >50% Black Owned EME Level 2 125% <50% Black Owned EME Level 4 100% EMEs are required to produce an affidavit declaring their qualification as an Exempted Micro Enterrpise. EMEs automatically qualify as Empowering Suppliers so their customers are all able to claim BEE Points for buying from them. Under the Revised BEE Codes businesses are targeted to buy 15% of total Measured Procurement Spend from EMEs each year. This should give rise to the establishment and growth of EMEs in South Africa. Qualifying Small Enterprises (QSEs) Any business that turns over more than R10 million but less than R50 million qualify as a QSE. QSEs tend to be family run businesses that would struggle to include additional people at ownership and Senior Top Management level. However, a white owned QSE can start to employ black staff, train black staff, buy from BEE Certified Suppliers and support black businesses and communities. From 2007 until 2014 QSEs could chose 4 of any of the 7 BEE Scorecard elements to score their points. However, from 2014 they are required to use all 5 elements on the revised BEE Scorecard.Any QSE which is 100% Black Owned automatically qualifies as a Level 1 BEE Supplier and any QSE which is 51% Black Owned automatically qualifies as a Level 2 BEE Supplier. QSEs must qualify as Empowering Suppliers in order to secure a BEE Certificate. They are required to qualify under 1 of the following criteria;

5 At least 25% of costs of sales excluding labour costs and depreciation must be procured from local producers or local supplier in SA (for service industry labour cost are included but capped to 15%) 50% of jobs created are for Black people provided that the number of Black employees since the immediate prior verified B-BBEE Measurement is maintained. At least 25% transformation of raw material/beneficiation which include local manufacturing, production and/or assembly, and/or packaging. At least spend 12 days per annum of productivity deployed in assisting Black EMEs and QSEs beneficiaries to increase their operation or financial capacity. If a QSE does not qualify under 1 of these criteria then they cannot secure a BEE Certificate. Generic Enterprises Any business that turns over more than R50 million per annum is measured against a Generic BEE Scorecard. Generic (Large) Entities are required to be measured against all 5 of the BEE Scorecard elements from October During the Transitional Period from October 2013 to October 2014 they may elect to be measured against the 2007 Codes or the 2013 Codes. Generic Entities must qualify as Empowering Suppliers in order to secure a BEE Certificate. They are required to qualify under 3 of the following criteria; At least 25% of costs of sales excluding labour costs and depreciation must be procured from local producers or local supplier in SA (for service industry labour cost are included but capped to 15%) 50% of jobs created are for Black people provided that the number of Black employees since the immediate prior verified B-BBEE Measurement is maintained.

6 At least 25% transformation of raw material/beneficiation which include local manufacturing, production and/or assembly, and/or packaging. At least spend 12 days per annum of productivity deployed in assisting Black EMEs and QSEs beneficiaries to increase their operation or financial capacity. If a Generic Entity does not qualify under 3 of these criteria then they cannot secure a BEE Certificate. BEE Verification BEE Certificates can be issued by any Verification Agency so long as they are approved to do so by SANAS or IRBA. The Certificate can only be issued once a full verification has been performed and the documentation presented by your company has been verified. On your certificate you should find the following information; Company name and number Type of Certificate (Group/Entity/Division) BEE Category (QSE/Generic) BEE Level (1-8) Procurement Recognition % Black Ownership % Black Women Ownership % Value Adding Supplier (Yes/No) Certificate Issue Date Certificate Expiry Date

7 You do not need to provide any additional information to your customers. Your BEE Certificate is regarded as sufficient as supporting evidence of your B-BBEE credentials. During February 2009 the first batch of accredited verification agents was released by SANAS, this list has increased in number and currently includes the following verification agents: Accreditation Code Verification Agent BVA068 BVA021 BVA019 BVA050 BVA040 BVA057 BVA049 BVA014 BVA031 BVA023 BVA056 BVA037 BVA030 Apala VZR Verification Agency Aqrate (Pty) Ltd Aqrate KZN (Pty) Ltd BEE - Matrix Cc BEE BIZ Compliance (Pty) Ltd BEE Empowered and Labour Consultancy Cc BEE Rating Solutions (Pty) Ltd BEE Verification Agency Cc BEESA Rating Services (Pty) Ltd Client King CC DRGSiyaya (Pty) Ltd Emex Trust Empowerdex

8 BVA018 BVA041 BVA046 BVA052 BVA017 BVA020 BVA013 BVA032 EmpowerLogic (Pty) Ltd Grant Thorton Honeycomb BEE Ratings (Pty) Ltd Integra Scores (Pty) Ltd lquad Verification Services (Pty) Ltd National Empowerment Rating Agency - Gauteng Prostart Traders 24 (Pty) Ltd t/a CENFED BEE Verification Agency Small Enterprises Rating Agency (Pty) Ltd How to develop a strategy When you are either starting down the BEE road or if you are in the process of improving your score you need to have a strategy. Your BEE score will not manage itself and it is very dangerous to simply call a verification agency in to find out what score you achieved this year without managing it and being sure you have achieve your desired score before getting verified! Someone in your business should have a sound understanding of BEE and be able to calculate your BEE score. You need to choose which elements you are going to be scored against and then develop a strategy to ensure you score those points. Your strategy may span a 12 month period, 5 year period or simply be a once off project; Ownership Once off project Management Control Once off project (with succession planning) Employment Equity 12 month period

9 Skills Development 12 month period Preferential Procurement 12 month period Enterprise Development 5 year period Socio-economic Development 5 year period You should note that each section is also scored against different periods. These tend to tie in with your strategy timelines. If you want to do this properly it is advisable to call on consultants who can assist and share best practice tips and experience. As they have been developing strategies for other businesses that can share in their experience of what does and does not work. Consulting costs are not usually expensive with consultants charging between R800 R1,500 per hour. When choosing a consulting firm you should ask the specific consultant what experience they have and ask for references. There are examples of consultants providing in accurate information as BEE is a new issue and there is scope for interpretation which can lead to difficulties. BEE and the importance of Administration Systems BEE is all about being strategic and having good administration systems in place. This is good for South African business as typically we are weak on administration and having a good administration system will improve our businesses. Without the documentation to prove your BEE activities you cannot claim the associated BEE points. All activities relating to BEE have to be documented and then provided as proof to a verification agency. Listed below are the administration systems you should have in place; Ownership = none

10 Management Control none Employment Equity Payroll system, Employment Documentation File Skills Development Skills spend tracker, Skills Documentation File Preferential Procurement Procurement system Enterprise Development Documentation File Socio-economic Development Documentation File Who should manage BEE in a Business? You have three options when considering who should manage your BEE Score; The Chief Executive Officer (CEO) in any business should take direct responsibility for the company s BEE Score. We have not seen any business succeed in driving BEE successfully without the CEOs direct involvement. The CEO is likely to delegate certain operational responsibility to other staff members but the drive should come from them. The best structure is as follows; Chief Executive Officer Ownership and Management Control Chief Financial Officer Preferential Procurement and Enterprise Development Employment Equity Committee Socio-economic Development, Skills Development and Employment Equity. The Employment Equity Committee would need some training as they are likely to have limited experience in making strategic recommendations to the CEO on these issues. The CEO should sit in the Employment Equity Committee along with someone with HR experience (preferably the HR Manager). If the company to too small for this type of structure then the responsibility would fall back on the senior executive team.

11 In very large businesses it is advisable to appoint a Head of Transformation. See BEE and Transformation BEE and Transformation It is important to note that BEE is not transformation. BEE is a reporting exercise and encourages specific activity in a business. However it is a quantative measure and does not take into account any qualitative elements. If Transformation is not achieved then the business will struggle to maintain their BEE Score. This becomes more evident the larger the business. Transformation, in essence, is the establishment of a fair working environment along with the removal of preconceptions and assumptions. Once a staff team is operating together side by side with a common goal in mind and within a clearly understood corporate culture then you have achieved transformation. Employment Equity numbers do come into the equation but reporting on Employment Equity is obviously not transformation