Broad-based black economic empowerment (B-BBEE)

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What is B-BBEE?

Broad-based black economic empowerment (B-BBEE) is a central part of the South African Government’s transformation strategy.

Prior to democracy in 1994, Africans, Indians, and Coloureds (who are classified as Black People) were excluded from meaningful participation in South Africa’s economy.

B-BBEE is aimed at increasing the number of Black people who manage, own, and control the country’s economy, and decreasing racially based income inequalities.

It is important to note that B-BBEE is not forced on any company by law.

However, companies will require a good BEE Scorecard because their business will have customers who must meet their own B-BBEE procurement targets. As a result, customers are likely to consider the B-BBEE rating of their suppliers and this will be a factor in determining the entities with whom to do business.

Who does B-BBEE apply to?

If your company is an EME (Exempt Micro Enterprises) with an annual turnover of less than R 10 million. Your company automatically qualifies for a B-BBEE Level 1 with a 100% black shareholding, a Level 2 with 51% or more black shareholding, and a Level 4 with 50% or less black shareholding.
If your company is a QSE (Qualifying Small Enterprise) with an annual turnover of between R 10 million and R 50 million. Your company automatically qualifies for a B-BBEE Level 1 with a 100% black shareholding, a Level 2 with a 51% or more black shareholding and would be required to undergo a generic B-BBEE scorecard audit with 50% or less black shareholding.
If your company is a Large Enterprise (Generic) – companies with a turnover above R 50 million per annum are subject to a generic B-BBEE scorecard audit.

What is a BEE Scorecard and how does it work?

A BEE Scorecard compromises five elements and is measured out of 100 points, this excludes the bonus points.
The measured entity would need to identify which scorecard it needs to follow, and the relevant targets associated with it. There are 3 priority elements under the BEE Scorecard.

The B-BBEE elements below are measured.

Ownership Element

Measures the percentage of Black ownership or shareholding in the company. Ownership is one of the priority elements on the BEE Scorecard, and the company will need to reach a subminimum target of 40% of net value, failure to do so will result in the company being discounted one level, irrespective of its overall scoring.

Enterprise & Supplier Development

This element measures your spending on helping other black businesses grow, irrespective if they are a supplier to you or not.
This element is broken down into 3 categories (preferential procurement, enterprise development, and supplier development).
This is a priority element, and a company would need to reach the subminimum target of 40% in all 3 categories to avoid being discounted one level.

Socio-Economic Development

This element measures the money you spend on charitable organisations. The targets are based on NPAT.

Management Control Element

This element refers to the number of Black members, and particularly Black women, who sit on the measured entity’s board of directors, as well as the number of Black people who participate in all levels of management (executive, senior, middle, and junior management).
Designated Employers also have a separate obligation in terms of the Employment Equity Act, 1998 to prepare employment equity plans and to submit reports regarding their progress on employment equity to the Department of Labour.

Skills Development Element

This element measures the amount of money that an entity spends on skills development programmes for Black employees and black people.
Employers are required to, by law, pay an amount equal to a prescribed percentage of all their employees’ salaries to the National Skills Fund in terms of the Skills Development Act, 1998 and the Skills Development Levies Act, 1999. Companies can also score points for the number of leadership they facilitate for Black people, Black women, and Black disabled persons, the amount of money they spend on bursary programmes, and the implementation of mentorship programmes.
This is a priority element, and a company would need to reach the subminimum target of 40% to avoid being discounted one level on the overall score.

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