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SOUTH AFRICA: Why BBBEE is important for business

The legislation Broad Based Black Economic Empowerment (BBBEE) has an impact on business. It is intended to be temporary in scope.

The objective of BBBEE is to correct inequalities that were placed on the population in the past through apartheid. ue to the lack of opportunities in terms of the education and skills development given to the previously disadvantaged groups the poverty gap has grown significantly and it is difficult to find a balance of economic participation. BBBEE is intended to stimulate the process of participation of previously disadvantaged groups in the economy to lead to increased economic growth.

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.
It is very important to be aware of BBBEE when doing business in South Africa. It is a unique piece of legislation and very important for economic growth in the country. Businesses need to embrace BBBEE to become successful. Planning ahead is vitally important to obtain the required level.

“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

Ecovis is a leading global consulting firm with its origins in Continental Europe. It has over 4,500 people operating in over 50 countries. Its consulting focus and core competencies lie in the areas of tax consultation, accounting, auditing and legal advice. The particular strength of Ecovis is the combination of personal advice at a local level with the general expertise of an international and interdisciplinary network of professionals. Every Ecovis office can rely on qualified specialists in the back offices as well as on the specific industrial or national know-how of all the Ecovis experts worldwide. This diversified expertise provides clients with effective support, especially in the fields of international transactions and investments –
from preparation in the client‘s home country to support in the target country. In its consulting work Ecovis concentrates mainly on mid-sized firms.
Both nationally and internationally, its one-stop-shop concept ensures all-round support in legal, fiscal, managerial and administrative issues.
The name Ecovis, a combination of the terms economy and vision, expresses both its international character and its focus on the future and growth.

ECOVIS AG Steuerberatungsgesellschaft
Ernst-Reuter-Platz 10
10587 Berlin

Julia Hanke
80687 München
Tel.: +49 89 5898 266
Fax: +49 89 5898 280

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