Do you believe that BBBEE is a tax? We don't believe that it is. Paying tax cannot be developed into a strategic advantage, but investing in BBBEE can. Let's explore how it can be done.
All the answers to your unique business lifestage questions
Defensive versus offensive
BBBEE can be a defensive strategy (protecting market and margin), but it should preferably be an offensive strategy where markets and margins could be grown and new opportunities or niches be defined.
Both socio-economic and business benefits
BBBEE has been embedded in the fabric of our economy. Therefore it is suggested that companies embrace it - not only from a socio-economic perspective, but also purely from a business perspective. Government incentives now have a BBBEE component associated with it.
Related: You, your customers and BBBEE
The ramifications of non-compliance is currently being felt in the automotive value chain where companies cannot claim the incentive (Automotive Investment Scheme - AIS) until they have a compliant (Level 8) BBBEE scorecard.
This has resulted in many first-tier automotive suppliers having claims between R10 million and R20 million. They have to wait for their incentive until they attain a Level 8 BBBEE score.
BBBEE and its benefits can now be quantified. The investment decision and buy-in from shareholders and management is now significantly easier. The Aquaculture Development and Enhancement Programme (ADEP) also provides a greater incentive for companies who have a higher black ownership percentage.
Legal and licensing requirements
In some instances, BBBEE is a requirement from a legal and licensing perspective. The Renewable Energy (REI4P) programme for example has certain BBBEE requirements. Even the granting of water rights now has BBBEE requirements in place.
Development funding organisations, such as the Industrial Development Corporation (IDC), also provides a preferential interest rate for companies which have attained pre-determined BBBEE levels.
The Preferential Procurement Policy Framework Act (PPPFA), the policy which dictates how the public sector procures goods and services, also provides a tangible benefit to companies with a higher BBBEE level. As an example, currently tenders under the value of R1 million are adjudicated according to an 80/20 principle, where 80% of the tender adjudication is on price and 20% on BBBEE Level.
Related: The new BBBEE codes: What to expect
If there are two companies competing for the tender and the one company is at a Level 1 and the other is non-compliant from a BBBEE perspective, the Level 1 company can charge 25% more than the non-compliant company and still win the tender.
Even though the non-compliant company tenders R800 000 the Level 1 company, who quoted R1 million, will win the tender as both companies will end up on 80 points. The PPPFA states that if two or more companies end up with the same number of points, the company with the higher BBBEE score will win.
The draft PPPFA, which was recently released into the public domain, indicates that the 80/20 adjudication methodology will be proposed for tenders from R1 million to R100 million. In this case the Level 1 company could charge up to R20 million more than the non-compliant company on a tender of R100 million. The BBBEE benefit is absolutely tangible.