Overview of Black Economic Empowerment

INTRODUCTION

Black Economic Employment ("BEE"), a programme that promotes the accelerated integration of black people into the South African economy, has been a policy of the Government since 1994.  Until 2003 implementation of the policy was not particularly effective.

In 2003 the Department of Trade and Industry published a strategy document for broad based black economic empowerment, the key theme of which was that black economic empowerment had to be viewed as a broad based, integrated and coherent socio-economic process.

This strategy statement has been crystallised in legislation with the promulgation of the Broad Based Black Economic Empowerment Act which came into operation in April 2004.  The Act houses the legislative framework for broad based black economic empowerment ("BBBEE") by defining the policy, outlining the mechanisms for the regulation and measurement of BEE, and establishing the Black Economic Empowerment Advisory Council.

BROAD BASED BEE

BBBEE involves the economic empowerment of all black people (which subject to certain limitations, includes Black, Indian and Coloured persons) within four interrelated contexts:-

* direct empowerment increasing the number of black people who manage, own and control enterprises and productive assets;

* human resource and skills development achieving equitable representation in all occupational categories and at all levels of the workforce;

* indirect empowerment promotion and preferential procurement from empowered enterprises and investment in enterprises owned or managed by black people; and

* residual involvement in socio-economic development initiatives.

IMPLEMENTATION OF BBBEE

Two primary mechanisms have been introduced to ensure that these socio-economic strategies are implemented:-

* Codes of Good Practice: issued by the Minister of Trade and Industry and which came into operation on 9 February 2007, specify empowerment targets consistent with the objectives of the Act, and the periods within which those targets must be achieved.  The public sector is obliged to apply and adhere to the BEE goals and targets set out in the Codes; and

* Transformation Charters: developed by major stakeholders in various sectors of the economy which promote transformation for that particular sector.  The charters set industry specific goals for black participation and target dates for achieving them and they bind the signatories thereto.

Several Charters have already been concluded Mining, Petroleum, Maritime, Financial Services, Information Communications Technology, Agriculture, Health and Tourism, amongst others, and numerous Charters are being negotiated amongst stakeholders on a continuing basis.  Many of these charters were concluded prior to the adoption of the Codes and may have to be revised to conform to the new Codes.

The Codes define the elements of BEE and specify the key principles relating to the measurement of BEE.  A generic scorecard (applicable to Code 000 Code 700) is used to measure progress in achieving the targets set.  Points are allocated in accordance with prescribed formulae to measure the level of an entitys compliance with the BEE targets set for each element of BEE on the scorecard.  The scorecard also provides for the award of bonus points if certain prescribed BEE milestones are attained or if performance is in excess of the requisite targets.  The key elements and their respective weightings in the scorecard, being the maximum number of points that may be attained for each element (excluding bonus points), are:-

Micro enterprises with a turnover of R5 million or less are completely exempted from participation.

Qualifying Small Enterprises (with a turnover of between R5 and R35 million) are dealt with in Code 800.  They have their own scorecard which is distinct from the generic scorecard shown above.  A QSE may select any four of the seven elements of BBBEE for the purposes of measurement under the QSE Scorecard.

COMPLIANCE

All organs of state and public entities will be obliged to take into account the BEE status of the party concerned when awarding licences and concessions, implementing preferential procurement policies, selling state enterprises or entering into public private partnerships.  An entity that attains 100 points or more (made possible by the award of bonus points) on the balanced scorecard will be regarded as a Level One Contributor to BEE, whereas a score below 30 points will categorise the entity as a Non-Compliant Contributor.

Non compliance will not result in criminal sanction but will mean that Government support will not be forthcoming.  This has a knock-on effect in the sense that compliance will require those seeking compliance themselves to enter into business relationships (such as supply contracts) only with parties who in turn are compliant.

CONCLUSION

Although the Codes are legally binding only on government agencies, all entities trading in South Africa will be seriously impacted by non-compliance as this will inhibit doing business with other entities that are seeking to obtain and maximise their BEE points.

The Codes will be in operation for 10 years and shall be reviewed by the Minister of Trade and Industry at the end of that period.

Helen Crosby, director at Deneys Reitz Attorneys