When the new Constitution was adopted, a provision was made that government tenders must take black-owned entities into consideration.
The Preferential Procurement Policy Framework Act was then written and promulgated. This led to the implementation of Black Economic Empowerment in 2003. The focus of the policy was to give ownership in companies to previously disadvantaged groups. The method was flawed and only a small group of people benefited. Following this, Broad Based Black Economic Empowerment was formed and implemented in 2007. BBBEE comprises a scorecard with 5 elements (May 1, 2015). Companies are awarded points for each of the 5 elements to establish a total score out of 109. Based on the score, you obtain a certain level. Level 1 is very compliant while level 8 is noncompliant. Unlike the previous legislation, the new codes focus on all requirements to uplift economic participation and include socio-economic development, supplier development, enterprise development, skills development, employment equity and management control.
You have to be BBBEE compliant to be able to do business in South Africa. One of the 5 elements of the BBBEE scorecard is preferential procurement and supplier development. This is the element that carries the most weight (nearly 40%). If you procure from other entities that are BBBEE compliant your BBBEE score increases. One can see the trickledown effect from suppliers to government down to their suppliers. Once again the goal is to try and achieve a level 4 as this gives you 100% contribution towards preferential procurement. To address differences among different types of entities they are placed into 3 categories.
- The first is Exempt Micro Enterprises (EME). This represents entities with an annual revenue of less than R10 million. If you fall in this category you will be awarded as a Level 4 contributor
- The second category is Qualifying Small Enterprises (QSE). This represents entities with an annual evenue of between R10 million and R50 million. In the new codes QSEs need to comply with all 5 elements and at this stage the advantages of a QSE is not clear (prior to May 1, 2015, they only needed to comply with 4 out of 7 codes).
- The third category is Generic Entities; it represents all entities with an annual revenue of more than R50 million. These entities need to comply with all the elements of the BBBEE scorecard.
“The objective of Broad Based Black Economic Empowerment is to correct inequalities
stemming from apartheid. It has a real impact on business.”
Rossouw Pieterse CA (SA), ECOVIS ARB Auditors Inc., South Africa