The good, bad and ugly of new BBBEE codes

The Broad-Based Black Economic Empowerment Codes of Good Practice (BBBEE) came into effect this year. Heres a look at why they've been generally well received - as well as a few of the idiosyncrasies thatll need some ironing out.

Most people agree regarding the pressing need to transform the economy, but up until a few months ago, there was much uncertainty over exactly what would be required of businesses. However, on the 9th of February this year, a collective sigh of relief was breathed in the business community as the new BBBEE Codes of Good Practice kicked in, introducing a number of welcome compromises and concessions, particularly for smaller companies.

Overall, the Codes have been well received, but according to Jonathan Goldberg, member and facilitator of the Institute of Directors Southern Africa (IoD)  there are some unintended consequences that are beginning to emerge in their implementation.

The new Black

The definition of a 'black' person in terms of the codes is likely to upset a few people, according to Goldberg. Black still means African, Coloured and Indian but you had to have been a South African citizen before 1994 in order to qualify as 'black' according to the new definition. Therefore, says Goldberg, "Anyone who gained citizenship after 1994 doesn't qualify for recognition." This is likely to have far-reaching implications on companies that are owned by, for example, Zimbabwean-born South African citizens.

Chinese South African citizens, who feel that they were also discriminated against during the Apartheid years, are challenging the definition of 'black' in the Constitutional Court. A decision is expected within the next few months.

Welcome concessions

On a more positive note, the Codes automatically grant 100% BEE recognition to companies with turnover of less than R5 million.

"The exemption from BEE of micro enterprises and their recognition as level 4 contributors is a major boost for small business owners who would otherwise struggle to adhere to the BEE requirements," says Goldberg. "This is government saying it recognises the need for business owners to focus their efforts on building their companies and making a positive contribution to the economy."

Another significant concession is the decision to allow businesses with turnovers of between R5 million and R35 million to choose which four of the seven elements of BEE they wish to comply with. "These businesses are still required to contribute towards broad-based black economic empowerment, but the freedom to choose which elements suit them will be an enormous help, " says Goldberg.

"This means that if complying with Equity ownership, Management and Employment equity is a bit of a stretch for your company at the moment, you can instead choose to concentrate on Skills development, Preferential procurement, Enterprise development and Socio-economic development."

The only ones who won't benefit from this exemption under the codes are the low-margin, high-turnover businesses which bring in more than R35 million per year. "Many retailers, such as the corner Spar shop, will have to comply with all the elements under the new BBBEE Codes," says Goldberg. "And this is likely to prove rather difficult, given the fact that many such businesses have single owners or are family-run."

Another contentious issue has emerged surrounding the verification agencies. Performance against the scorecards is to be assessed on an annual basis, preferably by accredited BBBEE rating agents. "It is no longer compulsory that assessments be carried out by verified agents," says Goldberg - a major oversight in his opinion.

Over and above the areas of concern mentioned, Goldberg is supportive of the Codes and believes that they will go a long way towards transforming our economy.

"But as with anything new, there are bound to be issues that only become apparent over time," concludes Goldberg. "The government would do well to address these as soon as possible."