No Black Ownership - Expect a drop in your BEE level

Black Ownership can no longer be side-stepped in favour of alternative avenues to score under the Amended Broad-Based Black Economic Empowerment Codes of Good Practice. It is now deemed a priority element for both medium and large businesses.

The current B-BBEE legislation, which remains applicable until the transitional period ends on 30 April 2015, makes it is very easy to attain a Level 1,2, or even 3 status (for medium enterprises or Qualifying Small Enterprises – QSEs as they are known), without considering black ownership. This is because the existing legislation allows businesses to choose which four elements they would like to be measured on.

With the new legislation, Ownership has a 25 point weighting on both the Generic and the QSE Scorecard. If you have no black ownership in your organisation the maximum points you can achieve (in the event that you score full points for all the other elements) will be 75 points for QSEs (because the QSE scorecard is out of 100 with no bonus points available) and 84 points for Generics (as their scorecard is out of 109 and there are 9 bonus points available).

The Procurement Recognition Table below shows a comparison of potential scoring.

With 75 points you will be a Level 5 contributor.

With 84 points you will achieve a Level 4 status and if you scored the 9 bonus points you would move up to a Level 3 with 93 points.

But you will automatically be discounted by 1 level for failure to address the Priority element of Ownership, which is compulsory for both Generics and QSEs.

This means that as a Qualifying Small Enterprise you will not be able to achieve higher than a Level 6 rating without considering Ownership. This is a vast difference when considering that most white-owned QSEs are presently scoring a Level 4 or better without addressing Ownership.

As a Generic you would score at best a Level 4, if you assume that you will score full points for all the other elements, plus all the bonus points. If you do not score all the bonus points the best level you can achieve will be a Level 5.

The outcomes above will only be achieved if you score full points for all the other elements. If you do not, you can expect an even greater drop.

The flip side of the coin is that black-owned QSEs receive an automatic Level 2 status if they are at least 51% black owned and a Level 1 if they are 100% black owned (without having to comply with a single element or even undergo a verification).

This is not quite the move away from the narrow-based BEE application as we had hoped. 

Maxi-lee Machado is co-author of The Practical Guide to the Amended B-BBEE Codes of Good Practice, published by LexisNexis South Africa.