The Department of Trade and Industry finalised its new Codes of Good Practice (DTI CoGP) for broad-based black economic empowerment in February this year, leading to much speculation about how they would affect small businesses. On the one hand, white-owned SMMEs were concerned that they would be penalised for not being BEE compliant, while black-owned SMMEs were hopeful that the Codes would lower their barriers to entry into the contract and tender market.
Their purpose is not to penalise white-owned businesses and this is especially evident in the new BEE codes. Not only do they exempt small businesses from having to comply with onerous specifications, but they offer larger companies the opportunity to improve their overall BEE-compliance rating by using the services of black-owned SMMEs, thereby helping to develop these enterprises.
The good news for smaller SMMEs is that those with an annual turnover of R5 million or less are automatically considered to be BEE compliant, irrespective of whether their ownership and management are black or not. This means that they do not have to sell shares to black managers and partners.
Businesses with an annual turnover of between R5 million and R35 million are not automatically considered to be BEE compliant. But they can choose any four of the seven codes on which to be assessed for BEE-compliance. This means that they can still be compliant even if they are not black-owned or managed, provided they perform on their four chosen codes.
These businesses earn points (out of a possible 100) on their selected codes. For example, you can earn 20 points for buying goods and services from black-owned entities; 15 points for helping to develop black-owned enterprises; and five points for socio-economic initiatives that benefit historically disadvantaged groups. There is an incentive for such SMEs to comply on all codes; those who do will earn extra points and be allowed to tender for government contracts, giving them a competitive edge.
Empowerdex, in its Codes to Good Practice – Finding a Balance, explains that the aim of the new codes is to:
- Transform South Africa’s economy to allow meaningful participation by black people
- Substantially change the racial profile of companies’ owners, managers and skilled professionals
- Increase the ownership and management of companies by black women, communities, workers, cooperatives and others, and help them access more economic opportunities
- Promote investment that leads to broad-based and meaningful participation in the economy by black people
- Help rural and local communities access economic opportunities
- Promote access to finance for black economic empowerment
The Seven BEE Codes:
Code 100: Ownership (20 points)
Code 200: Management control (10 points)
Code 300: Employment equity (15 points)
Code 400: Skills development (15 points)
Code 500: Preferential procurement (20 points)
Code 600: Enterprise development (15 points)
Code 700: Social development (5 points)