B-BBEE Codes of Good Practice The Broad-Based Codes of Good Practice were gazetted in 2007 and provide a framework for the measurement of Broad-Based Black Economic Empowerment (B-BBEE) in terms of the BEE Act 53 of 2003 and on 11 October 2013 an amendment to the Codes was published. The Amended Codes apply from 11 October 2013, but include a transitional period during which companies may elect to be measured using the A mended Codes or the Current Codes. From 12 October 2014, all Measured Entities (ME s) that are not part of a Sector Code, must use the Amended Codes as a basis for measurement. ME s that fall within the scope of a gazetted Sector Code must be measured using the applicable Sector Code. Adjustment of thresholds and recognition of black ownership Automatic recognition is granted for ME s that meet certain combinations of turnover and black ownership, as outlined in the table below. Those EME s and QSE s are only required to present a sworn affidavit confirming their B-BBEE credentials. However, please note that unlike an EME, a QSE is not granted automatic recognition as an empowering supplier, regardless of its BEE Contributor status. Their sworn affidavit may not be used for rating purposes if their empowering status has not been verified. Automatic Recognition Category Annual Turnover Threshold Black Ownership Level Current (R) Amended (R) 100% >51% <51% Exempt Micro Enterprise (EME) Qualifying Small Enterprise (QSE) 5m 10m Level 1 Level 2 Level 4 35m 50m Level 1 Level 2 Generic None None Not automatic, use scorecard points Not automatic, use scorecard points Page 1 of 6
The scorecard and priority elements The Amended Codes combine certain elements and contain 5 scorecard elements rather than 7 as per the Current Codes. B-BBEE elements B-BBEE elements Current Codes Amended Codes Ownership 20 25 Ownership Management Control 10 15 Management Control Employment Equity 15 Skills Development 15 20 Skills Development Preferential Procurement 20 Enterprise and Supplier 40 Enterprise Development 15 Development Socio-Economic Socio-Economic 5 5 Development Development Total 100 105 Ownership, Skills Development, and Enterprise and Supplier Development have been designated as priority elements. Failure to achieve a 40% sub-minimum of the targets in these priority elements will result in a penalty drop of 1 level on the scorecard, after taking into account the final points scored in all elements. QSE s need only achieve the 40% minimum target for Enterprise and Supplier Development or Skills Development, in addition to Ownership. Generic Enterprises must meet the subminimum in all 3 priority elements. BEE Recognition Levels B-BBEE Level Current Codes Amended Codes Level 1 100 100 Level 2 85 95 Level 3 75 90 Level 4 65 80 Level 5 55 75 Level 6 45 70 Level 7 40 55 Level 8 30 40 Non-compliant 0 0 The points at which a ME is considered to be a level 4 Contributor (100% recognition) have increased from 65 to 80 points. An old Level 4 is now a new Level 7 with 50% recognition, resulting in an overall drop in levels by 20 50%. QSEs are required to measure themselves on all 5 elements but need only achieve the 40% minimum target for Enterprise and Supplier Development or Skills Development, in addition to Ownership and need not comply with all the criteria to be recognised as an empowering supplier. Page 2 of 6
Ownership Ownership is still measured based on the economic interest, voting rights and net equity interest. The targets of 25% are unchanged for black ownership and the net equity interest graduation table which measures the extent to which black debt has been repaid. The subminimum target is 40% of the Net Value points to avoid a 1 level penalty drop. That means that the ME must have an unencumbered 10% black ownership to avoid being penalised. The threshold for black new entrants has been increased from R20m to R50m and now also includes black military veterans. Mandated investments may now only be excluded if the modified flow through principle has not been used in the Ownership chain. The modified flow through may also now only be applied once in the total ownership structure of the ME to the voting rights and economic interest indicators. Bonus points have now been incorporated as part of the scorecard with the result that ME s are penalised for failing to support either black new entrants or broad-based / employee ownership schemes or co-operatives. Family trusts that grant trustees discretion on certain terms are expressly included, eliminating previous inconsistencies in application. Management Control Management Control and Employment Equity elements have been combined, but the total points have decreased from 25 to 15. There is no longer a subminimum requirement per occupational level. However, a ME will be penalised if it fails to have the required Economically Active Population targets for male and female African, Coloured and Indian senior, middle and junior management. Page 3 of 6
Skills Development An emphasis has been placed on Skills Development by increasing the target from 3% to 6% of leviable amount (payroll cost). And the training of unemployed black people has been included in the target spend. An unemployed person is defined as a person who is not required to attend an educational institution and has been actively looking for employment for at least 3 months. Learnership targets have been separated into a target for black learnerships and a target for the training of unemployed black persons. Therefore, training a black unemployed person results in points being allocated as a proportion of the ME s head count, and additional points being allocated as a proportion of the ME s total training spend. The previous targets for training of disabled persons remain. The allocation of Skills Development spend is also recognised based on the Economically Active Population targets for African, Coloured and Indian male and female employees. Non-core training expenses such as travel and catering have been capped at15% of the total value of Skills Development expenditure. Category F and G training have also been capped collectively at 15% of the total value of Skills Development expenditure, whereas previously only Category G was included in this capping amount. This reduces the proportion of training expenditure that can be included for rating on informal training. However, training costs can now include external training for non-employees, so school bursaries will now be regarded as Skills Development expenditure. An extra 5 bonus points are also awarded for the number of black people absorbed by the ME or other industry entity at the end of the learnership. The subminimum target is 40% of the total 20 points for the element to avoid a 1 level penalty drop. That means that the ME must achieve at least 8 points for Skills Development to avoid being penalised. Page 4 of 6
Enterprise and Supplier Development Enterprise and Supplier Development incorporates the old Procurement and Enterprise Development into a single element with specific emphasis on development of suppliers within the supply chain. Procurement The total contribution of Procurement has increased from 20 points to 25 points. The target for B-BBEE Procurement spend from all empowering suppliers has increased from 70% to 80%. Separate targets are given for Procurement spend from empowering QSEs and EMEs, as well as suppliers that are at least 51% black owned and black women owned. A new category of spend from designated group suppliers that are 51% black owned is awarded 2 bonus points. Designated groups are specific industries nominated by the DTI from time to time as focus industries for economic growth. Companies are being encouraged through the Codes to support designated groups. Imported goods and services may be excluded from the calculation of the Total Measured Procurement Spend provided the ME has developed and implemented an Enterprise Development and Supplier Development plan for imports. Empowering Suppliers The Current Codes designate ME s as Value-Added Suppliers where their Net Profit After Tax and labour cost are greater than 25% of their turnover. The Value-Added Supplier status has been dropped in the Amended Codes, and replaced with the concept of an empowering supplier. When measuring BEE Procurement spend, a ME may only include suppliers who are designated as empowering suppliers. An empowering supplier is a generic company that meets 3 of the 4 criteria below or a QSE that meets 1 of the criteria below, provided that it complies with all regulatory requirements and laws relevant to the entity: At least 25% of the Rand value of cost of sales excluding labour cost and depreciation must be procured from local producers or local suppliers in South Africa, labour costs are included but capped at 15% for the service industry Job creation 50% of jobs created are for black people provided that the number of black employees since the immediate prior verified B-BBEE measurement period is maintained At least 25% transformation of raw material / beneficiation which includes local manufacturing, production and / or assembly and / or packaging Skills transfer at least 12 days per annum of productivity deployed in assisting black EME's and QSE's beneficiaries to increase their operational or financial capacity Only EME s and start-up enterprises are automatically recognised as empowering suppliers. Page 5 of 6
Enterprise and Supplier Development Enterprise Development still contributes 15 points to the overall scorecard, for spending at least 3% of Net Profit After Tax (NPAT) on qualifying Enterprise Development contributions. Qualifying Enterprise Development contributions have been split into contributions to direct suppliers for 10 points (for 2% of NPAT) and other contributions for 5 points (for 1% of NPAT). A direct supplier is a supplier that provides goods or services to the ME no minimum spend criteria is set. Qualifying beneficiaries now only include entities that are at least 51% black owned with a turnover below R50m. There have been significant changes to the Benefit Factor Matrix and these details should be reviewed before making your contributions for the forthcoming Measured Period. The subminimum target is 40% of each of the points for Preferential Procurement, Supplier Development and Enterprise Development to avoid a 1 level penalty drop. Socio-Economic Development There are no material changes to SED, which continues to contribute a maximum of 5 points for a contribution of 1% of NPAT. Page 6 of 6