Black Economic Empowerment South Africa (BEE)

What is BEE and how does it affect business in South Africa?

Black Economic Empowerment (BEE)  is a racially selective program implemented by the South African government whereby business participation by Whites in South Africa is being limited.
Legislation is implemented to redress the inequalities in the business sector brought about by the previous Apartheid System. The progressive implementation of the BEE System renders economic and employment privileges to previous disadvantaged groups, namely Blacks, Coloureds, Indians, and Chinese that are citizens of South Africa.
The BEE system gradually transfers employment and business opportunities to previously disadvantaged groups.

Why is BEE important to you?

BEE influences each and every business and business owner in South Africa.
The BEE Act provides for codes of good BEE practice.  
Your company need to have a BEE certificate to allow your customers to claim points on their scorecard, showing that they are doing business with BEE certified companies.
BEE Codes are published in legislation. The first codes were published during 2007. In 2013, Government revised the codes, which came into effect during October 2014. The new codes  has amongst other, at aim to tighten the loopholes  regarding fronting that was possible from the 2007 publication.
This short video will explain some reason behind the 2013 revision.:

 
You may think that you’re not doing business with large companies and that your client base are consumer individuals. Legislation does have this covered too. Provision is however made for small businesses whose turnover is less than R10 million p.a. These are classified as Exempted Micro Enterprises (EMEs)

Exempted Micro Enterprises (EMEs)  (< R10m T.O p.a.)

The exemption allows start-up or micro business to be exempted from BEE as these are likely to only have a few employees. Therefore, any business whose turnover is less than R10 million p.a. is exempted from being measured against any BEE Scorecard. Such businesses get allocated a Level automatically should they be able to prove that their annual turnover is below this threshold amount.

Exempted Micro Enterprise (EMEs) automatically qualifies as follows;
    100% Black Owned EME – Level 1 BEE Status
    51% or more Black Owned EME – Level 2 Status
    Any other EME – Level 4 Status

An EME does not need a BEE Certificate, An EME have to produce an affidavit declaring:
1.  their turnover is less than R10 million and;
2.  what the percentage of black ownership in the business is.

Remember, for the definition of this legislation, A Black person is a Black African, Indian, Coloured or Chinese person, born in South Africa, a citizen by decent or a black person who became a citizen before 1994.

Qualifying Small Enterprises (QSEs) (>R10m, but <R50m T.O p.a.)

Businesses that has a turnover of more than R10 million but less than R50 million qualify as a QSE.
QSEs may be viewed as a family owned / operated business which may struggle to include additional people at ownership and senior management level. White owned QSE can however start to contribute to the BEE program by employing and training black staff, purchase from BEE certified suppliers and support black business.
According to the 2007 publication, QSEs were allowed to chose 4 of any of the 7 BEE scorecard elements to score their points. Since 2014 they are however required to use all 5 elements on the revised BEE scorecard.
A QSE which is 100% Black owned, qualifies as a Level 1 BEE Supplier.
A QSE which is 51% Black owned, qualifies as a Level 2 BEE Supplier.
QSEs need to qualify as Empowering Suppliers to secure a BEE Certificate. They are required to qualify under at least one of the following criteria;
•    At least 25% of costs of sales excluding labour costs and depreciation must be procured from local producers or local supplier in SA
•    50% of jobs created are for Black people provided that the number of Black employees since the immediate prior verified B-BBEE Measurement is maintained.
•    At least 25% transformation of raw material/beneficiation which include local manufacturing, production and/or assembly, and/or packaging.
•    At least spend 12 days per annum of productivity deployed in assisting Black EMEs and QSEs beneficiaries to increase their operation or financial capacity.

Generic Enterprises

Businesses that has a turnover of more than R50 million p.a.  is measured against a Generic BEE Scorecard.
Generic Enterprises need to qualify as Empowering Suppliers to secure a BEE Certificate. They are required to qualify under at least three of the following criteria;
At least 25% of costs of sales excluding labour costs and depreciation must be procured from local producers or local supplier in SA
•    50% of jobs created are for Black people provided that the number of Black employees since the immediate prior verified B-BBEE Measurement is maintained.
•    At least 25% transformation of raw material/beneficiation which include local manufacturing, production and/or assembly, and/or packaging.
•    At least spend 12 days per annum of productivity deployed in assisting Black EMEs and QSEs beneficiaries to increase their operation or financial capacity.

In Closure

The purpose of this post was to provide a short and basic overview of what business owners need to know about BEE. There are various companies or attorney firms who can further assist business owners with their BEE verification and certification.

Anyone who consider to sell or purchase a business or shares in a business should carefully consider the full implications of BEE before entering into a transaction.

The Government Gazette Publication on the 2014 BEE codes can be downloaded here.:

More comprehensive and valuable information on the subject can be viewed here:

...Was this post relevant and informative? Please leave your comment below.

Author: Cobus van der Merwe.
Disclaimer

Would you consider to sell your business or sell shares in your business?
We can assist.