After the 1994 democratic elections the South African government was mandated with the task of redressing the inequalities of the past. With that in mind various legislative initiatives have been implemented in an attempt to redress the imbalances inherent in the economy. One such initiative is Broad-Based Black Economic Empowerment (“BEE”).
The BEE framework is underpinned by the Broad-Based Black Economic Empowerment Act No. 53 of 2003 (“Act”). The main objective of the Act is that of advancing economic transformation by enhancing the participation of black people in the South African economy.
The Act must be read together with the Codes of Good Practice (“Codes”) and Transformation Charters published by the Minister of Trade and Industry which provide guidelines on how best to implement BEE. Sector Codes must also be considered as they serve to extend the Codes within a specific industry.
BEE compliance is compulsory for all State Owned Enterprises and Public Entities and is voluntary for Private Entities wishing to be BEE compliant. A Private Entity may choose to become BEE compliant if that entity conducts business with State Owned Enterprises or Public Entities which often require BEE compliance among its business affiliates.
The Codes allow businesses to achieve compliance by reaching certain contribution levels in 5 different areas of black enterprise development. These areas are known as elements. A business contribution to each element is measured through a BEE scorecard.
The extent of BEE compliance depends on the size of a business in accordance with its annual turnover. The Codes recognise three categories of business namely, Exempted Mirco Enterprises (“EMEs”), Qualifying Small Enterprises (“QSEs”) and Generic Enterprises (“GEs”). EMEs are businesses with an annual turnover of less than R10 million.
Due to the fact that the government is attempting to foster economic development, EMEs automatically qualify with a minimum level 4 BEE status and are exempt from being scored although they may choose to do so. As a result, the customers of such a business are all able to claim BEE points for buying from them, which encourages the growth of EMEs in South Africa.
QSEs are businesses with an annual turnover of more than R10 million but less than R50 million and GEs are businesses with an annual turnover of more than R50 million. Due to the difference in size, compliance requirements for a QSE are much less than those for GEs. QSE’s must meet at least 1 of the 5 elements in the BEE scorecard while GEs are required to be measured against all 5 elements.
BEE has been developed in order to enhance black people’s involvement in South African businesses while at the same time fostering national economic development. BEE is therefore a versatile tool that is being employed by the government to enhance economic transformation and fuel economic activity.