Comment on new BBBEE Codes from Mazars
14 October 2013 | Views Letters Interviews Comments | All | Tony Balshaw, Mazars
“The latest government gazetted amended BEE Codes of Good Practice which focus excessively on black ownership, is contrary to government’s stated policies and, appears to be a reversion to narrow-based rather than broad-based Black Economic Empowerment,” says Mazars national B-BBEE leader Tony Balshaw. Mazars is a global audit, tax and advisory firm with 13 SA offices and over 900 staff.
Balshaw states forthrightly that the amendments, gazetted on Friday 11 October 2013, are far reaching, counter-productive and will have a significant, immediate impact on all businesses in South Africa. The impact is likely to be negative for existing B-BBEE compliant businesses as the amended Codes have moved away from being broad-based to narrow-based ownership-centric black economic empowerment.
"The amendments, unfortunately, do not reflect the reality of the South African economy,” says Balshaw.
While the market will take time to digest and feel the impact of the changes the effect will be that family, owner managed, small, medium and large businesses that do not have majority black ownership are unlikely to achieve more than a level 7 recognition on the Scorecard; the median will probably be level 8.
The only good news however seems to be that the existing Codes and current scores can be applied for a period of 12 months, starting from 11 October 2013. Although a year-long phasing-in period will apply, black owned businesses with annual revenue under R50 million will, however, no longer be required to be verified by an accredited verification agency or auditor. They will enjoy an automatic level 1 scorecard status if 100% black owned or level 2 if more than 50% black owned. These businesses are only required to make a sworn affidavit annually confirming turnover of under R50 million and level of black ownership.
The number of elements has been reduced to 5 from 7. The so-called Qualifying Small Enterprises must comply with the same complex scorecard as for the generic scorecard entities; coupled with penalties for not achieving priority element subminimum targets that apply to ownership and two other elements.
The 25 points for Socio-economic development have been reduced to 5 and will negatively impact the contributions received by needy local communities. Black communities will be the worst affected.
Balshaw points out that government was widely criticised last year when the proposed amendments were released amending the for Socio-economic development element. They retracted the proposed amendment in late 2012, but have now proceeded reducing the number of points from 25 points to only 5 for qualifying small enterprises.
The amendments require stratification and separate demographically gender aligned targets for Black, Indian and Coloured.
The new enterprise and supplier development element comprises of 40 points of which 23 points require majority black ownership. The procurement cascade effect of having good B-BBEE credentials has been diluted to 12 points, of which only 5 relate to all suppliers with BEE credentials (80% target), 3 to QSE suppliers and 4 points for exempt micro enterprises with a 15% target each.
"This places large corporates or, for example, fuel distributors at a disadvantage as they can never expect to have 30% of their total spend with the latter,” says Balshaw.
Enterprise development has been reduced to 5 points. Supplier development relates to suppliers of the measured entity for 10 points.
Balshaw points out that while the amendments introduce a new term, an ‘Empowering Supplier’ (10 points), the criteria requires cost of sales and raw material beneficiation but does not take into account whether or not the nature of a company allows for such facets.
The B-BBEE recognition level qualification levels have also been amended significantly – the non-compliance level has been adjusted to 39 points, level 8 with a 10% recognition level between 40 and 54 points and level 7 with a 50 % recognition level between 55 and 69 points.
He also says there are a number of apparent errors and inconsistencies such as referring to 51% black ownership and 51% black woman ownership (instead of 30%) in relation to the enterprise and supplier development element. There is also an entire section dealing with section 21 companies (sic) when the new companies (2008) replaced these with the Non-Profit Company.
"The impact of these amendments to the Codes will be disastrous for business, civil society and our economy as a whole We can now expect to see phantom shares schemes and opportunistic so-called ‘tender-trepreneurs’ being the conduit for delivery of goods and services, something we have been trying to rid the system of, says Balshaw.
