BBBEE changes will have a big impact on SMEs with an annual turnover of between R5 and R10 million.
Recent changes to the Broad Based Black Economic Empowerment (BBBEE) codes that come into effect on 01 May this year will have a major impact on smaller enterprises operating across all sectors of the economy – specifically those that have an annual turnover of between R5 and R10 million.
Related: Making BEE work for you
In addition, says Standard Bank, the new codes will also impact on corporations forming partnerships with SMEs - their obligations to small businesses as well as their relationships with them will be impacted on by the new codes.
The amended codes will impact on nine sectors within the South African economy and will have the most impact on businesses whose growth will see them crossing the R10 million annual turnover mark.
As a result these businesses will become accountable for the full range of new measures and will be required to report under all five of the categories contained under the amended legislation.
These demands could therefore prove extremely onerous for businesses as they will not have had previous experience at reporting at this depth on B-BBEE, says Diale Mokgojwa, Senior Manager, Enterprise Development at Standard Bank.
“The effect of the amended codes is to bring smaller companies on to the same B-BBEE reporting level as much bigger enterprises. In addition to this, the new requirements have moved away from the principle of allowing companies to selectively apply the legislation when scoring their companies. All sectors now have to be scored,” adds Mokgojwa.
The newly introduced priority elements within the new B-BBEE amendments indicate that the government is getting tougher with the enforcement of this legislation. The new measures to be introduced include:
- The establishment of a B-BBEE Commission that will investigate complaints relating to B-BBEE, B-BBEE transactions and fronting practices. The new Commission will have the power to issue subpoenas and will be able to approach the courts to stop contraventions of the Act and fronting.
- Classing various offences-including misrepresentations or providing false information about B-BBEE status as criminal offences. The penalties include fines of up to 10% of a company’s annual turnover, imprisonment for individuals and bans from contracting with government and public entities for 10 years.
- Allowing government departments and public entities to cancel any contracts that have been found to be awarded on the basis of incorrect information being supplied.
- Making it mandatory for South African companies to provide a report to the B-BBEE Commission on their compliance.
Related: BEE certification
“In addition to these requirements, the B-BBEE scoring system has been changed. The new allocation of points will in many cases reduce a company’s B-BBEE status. This is because points in various categories have been reduced and the amendments could therefore see ratings dropping. This means that companies at all levels will have to undertake reviews of their current B-BBEE strategies so they can assess the impact of the changes and then take the necessary functional changes required to maintain or improve their B-BBEE status,” says Mr Mokgojwa.
The elements that will have to be taken into account when measuring a company’s rating will be:
- Management control and employment equity.
- Skills development.
- Enterprise and supplier development, preferential procurement.
- Socio-economic development.
“An essential part of the new amendments is that they will place more demands on how corporations relate to SMEs that have been retained to assist with processes and product services. From 1 May, the B-BBEE legislation will force corporations to not only assist their small black owned suppliers in terms of skills, but also ensure that these smaller companies retain their employees so that they meet a 50% target on black employees.”
“The Act is silent on how major companies are required to ensure that their small suppliers continually meet these new requirements. Reality, however, dictates that the larger companies will have to dedicate extra administration, management, time and costs to the process,” says Mokgojwa.
Related: BEE codes & scorecards
On the positive side the amendments provide opportunities for SMEs to break through barriers and increase their exposure to larger businesses, which with government tenders provide the major opportunities for the growth of SMEs.
“As in all business the onus will be on the SME to seek out opportunities and approach selected big business with proposals on how they can assist with production, products and services. With the emphasis on B-BBEE and partnerships-especially when it comes to bidding for government work, it can be expected that with the changes to be introduced, corporations and larger businesses will be actively seeking partnerships with SMEs.”
“It will be up to the SME to position themselves in the market. By emphasising what they can already supply, and how a relationship with a bigger partner can assist in promoting their growth, the new B-BBEE changes could result in SMEs taking their businesses to a more competitive level. The potential for job creation will also be increased,” concludes Mokgojwa.