Broad Based Black Economic Empowerment (BBBEE) is back at the top of the business agenda as the new BBBEE codes get set for implementation in May next year.
Like it or not, a satisfactory BBBEE rating is perceived by procurement divisions in the public and private sector as an ‘entry ticket’, after which companies are expected to compete on capability, competency, price and the like. And the new BBBEE codes are going to make it that much more difficult for small, medium and large companies alike to get in on the game.
Businesses are already preparing themselves for a big drop in their BBBEE rating. The changes in the points necessary to reach the much sought-after level four rating; the need for especially qualifying small enterprises (QSEs) to bring about change in their ownership and management control; and the reduced points allocation for the likes of enterprise development and socioeconomic contributions leave a bitter taste in the mouths of especially SME business owners. The recently published amendments to the codes for QSEs, appear to offer little relief.
It is not all doom and gloom however. The new codes do offer some positive outcomes not only for SMEs, but for the economy and society in general.
The importance of SMEs (particularly blackowned ones) has been a key topic of the legislative and policy landscape in South Africa. With SMEs making up the greatest part of the South African business landscape, the enforcement of the ownership element on QSEs, which was discretionary in the past, will likely see a real and genuine move toward empowering previously disadvantaged communities, whether by way of direct equity, or the likes of employee empowerment trusts. If done right, enfranchising employees will also bring fresh energy to many SMEs. According to the book Equity: Why Employee Ownership is Good for Business published by Harvard Business Press Books, giving employees a financial stake in the business enables firms to grow faster and more profitably than conventionally run competitors.
Another real positive for SMEs is the increase in the targeted percentage procurement spend from 15% to 30%, and points allocation associated therewith, for companies who procure from value adding suppliers in their businesses that are deemed exempt micro enterprises (EMEs) (turnovers of up to R10 million) and QSEs (turnovers of greater than R10 million up to R50 million). Over and above this, procurement targets from 50% black-owned value adding suppliers has increased significantly from 12% to 40%, with a points allocation of nine points (as opposed to only three in the old codes). This, along with the increase of the turnover permitted to qualify as an EME to R10 million, creates real opportunities of sustainable growth for the plethora of companies falling within the expansive SME sector in South Africa.
In addition, the thoughtful inclusion of the need to advance suppliers through supplier enterprise development, rather than merely contributing to enterprise development alone, has the intended effect of enabling blackowned suppliers to the private and public sector to develop themselves beyond their own means and create sustainable enterprises that have a clearly defined growth path and potential.
The greatest benefit to be derived from the new codes will lie in the element of skills development. Though one might view the new codes as a passing of the education buck by government to the private sector, business should rather view this as an opportunity to make a real investment in its people. If strategised correctly, this element offers a relatively easy manner in which to obtain up to 25 points toward a competitive BBBEE rating, while gaining an advantage in the form of the training and education undertaken by employees.
The benefits a business will obtain will come down to the effort they put into sourcing training and education alternatives that bring about either an improvement in their core competencies and capabilities, or a rectification of the day-to-day frustrations and inefficiencies they face. Rather than waiting for the codes to hit them, there is much that business can do to step forward and meet them proactively, with a view to growing their businesses and contributing to the development of the South African economy.