Business Link

The Broad-based Black Economic Empowerment (BEE) Codes of Good Practice came into effect during February.

After nearly three years of revision and participation from various business and role players in the economy, BEE was finally approved by Cabinet in December 2006.

As the new BEE appears to be more supportive and mindful of the realities of business in South Africa it should encourage entrepreneurship and improve the survival rate of businesses so that they can contribute more toward the economy. It should also create a more favourable environment for multinational companies that have set their sight on doing business in South Africa.

After Cabinet approved BEE, the Department of Trade and Industry deputy-director
general, Lionel October told the media that:

The new BEE exempts businesses with yearly turnovers of less than R5-million a year from being BEE compliant. Estimates are that over 80% of South African businesses are now automatically compliant. In the Eastern Cape the percentage may be higher.
Businesses with a turnover of between R5-million and R35-million a year can comply with four of the seven elements on the scorecard
Start-ups will be exempt from BEE compliance during the first year of operation
Multinational firms will not have to sell a share in their South African operations instead they will have to make an equity equivalent contribution, such as social development programmes and enterprise creation programmes for the ownership element

One of the biggest areas of relief was for compliance and small businesses. Peter Carruthers, founder of Business Warriors, one of South Africa’s leading small business communities welcomed the news, especially as 79.5 % of his current members have a turnover below the R5- million level.

The revised codes were also met positively by Businessmap Investment Strategy, a Johannesburg-based consulting firm with BEE as its key focus. “Small businesses [can] employ more people collectively and also contribute towards growth,” said Colin Reddy,
Businessmap’s director of BEE Research and added that a lesser compliance burden on such businesses will stimulate the economy.

“On the supply side we should see black people contributing more towards the productive economy through services and products provided by small businesses they own and manage.

“Productive family type businesses can continue to contribute towards the economy without fear of losing control.” The process of implementing the new BEE could take 10 years on a formal basis, or until a review is done. But for the meantime, business should continue as normal.

“The effects [of the new BEE Codes] have started already and are ongoing since a large number of companies have started BEE already if their clients are government, State-owned Enterprises and the Mining Sector.

“Remember too that Employment Equity, Skills development and Preferential
procurement have been around for some time now in the form of their own legislation. The BEE Codes have simply brought about some certainty on the way BEE should be implemented for businesses that wish to do more around transformation and those that have done little or nothing,” said Reddy.

New BEE Codes - business as usual?

Verification

In its analysis of the new codes, Webber Wentzel Bowens DTI representatives speaking at the announcement of the new codes were at pains to emphasise that the use of verification agencies was not a requirement of the final BEE Codes.

“Measured entities will have an option of self assessment and need not undergo evaluation by verification agencies. A related aim for government will be to introduce a method for penalising those entities which are guilty of fronting or subverting the “economic substance over legal form” principle.

Other than the obvious penalty of not being able to remain competitive in the market, effort will be made to see that enterprises which engage in thes practices face worse consequences, particularly in the context of self – assessment,” says the company.