Many South African businesses will face a stiff challenge in meeting their accreditation targets as they prepare for their first audits under the stricter Revised Broad-Based Black Economic Empowerment Codes that came into effect on 1 May 2015.
Many companies are scrambling to address the stricter Codes before they undergo their annual BBBEE audits for 2016. They have realised that the new Codes are here to stay and that they need to move quickly to ensure they comply.
Most organisations managed to squeeze an audit in last year under the old Codes before the new ones took effect. Now, they face their first audits under the new Codes. Many will see their ratings drop significantly unless they take drastic measures to improve their BBBEE credentials.
The pressure is growing as large organisations start to tighten the screws on other entities they do business with. When procuring goods, most state-owned entities and large organisations are demanding that companies still achieve good overall ratings levels even under the Revised Codes
In addition, when applying for licences and concessions, companies need to show they are aligned with BBBEE imperatives. This poses some serious challenges for companies who did not begin the process of transforming their businesses in line with the new Codes when they were first announced in 2013. Some businesses may see their BEE certification levels drop two to four levels under the stricter new Codes when they conduct their 2016 audits, with many previously compliant companies even becoming non-compliant.
Compliance levels for each pillar of BBBEE are much higher under the revised codes. Organisations with a turnover of more than R50 million a year must achieve a score of 40% in each of the following categories that have been deemed ‘Priority Elements’: Ownership, Skills Development, and Enterprise and Supplier Development. A company that fails to meet this threshold in just one of these elements will have its overall empowerment status drop by a level.
The Revised Codes also introduce the idea of an ‘Empowering Supplier’, defined as an entity that meets three of the following criteria if it is large entity (R35 million-plus turnover) or one if it is a medium-sized company (R10 million to R50 million turnover):
• Buys at least 25% of cost of sales excluding labour cost and depreciation from local producers or local suppliers;
• 50% of jobs created are for black people;
• At least 25% transformation of raw material/beneficiation;
• Spends at least 12 days a year of productivity in assisting small black companies to increase their operation or financial capacity; and
• At least 85% of labour costs should be paid to South African employees by service industry entities (only applicable to entities in the services industry).
Companies not deemed to be ‘Empowering Suppliers’ will find it harder to do business with larger companies and state owned enterprises because they will not count in their client’s preferential procurement calculations.
Thus, organisations must ensure that they do business with companies that meet the Empowering Supplier criteria to safeguard their own BBBEE ratings.
Against this backdrop of change, automation and the right strategic advice can help companies to master the BBBEE challenge.
Maximising your BBBEE score while making optimal use of your budget can be challenging, given how the Revised Codes have changed the game. However, achieving a high rating and the coveted empowering supplier status can give your business a competitive edge. Getting it right starts with having the correct data and information at your fingertips, which is where our tools have a valuable role to play.
In a time of seismic technological change and digital invention, our smart people use the smartest technology to reinvent and simplify business for our customers.
Saul Symanowitz is the Divisional Manager at Sage BEE123.