The government of South Africa embarked on a comprehensive programme to provide a legislative framework for the transformation of South Africa’s economy. The Broad-Based Black Economic Empowerment (“B-BBEE”) Act provides a legislative framework for the promotion of black economic empowerment (“BEE”), empowering the Minister of Trade and Industry to issue Codes of Good Practice and publish Transformation Charters.

Although there are no direct financial penalties that could be applied to non-BEE compliant businesses, the system ensures that procurement managers and buyers will favour those businesses who are more BEE compliant than others.

The size of the business in question is a relevant consideration when determining the levels of B-BBEE compliance. All organs of state, public entities and any private enterprise that undertakes business with a public entity must formally implement the Codes of Good Practice. The Codes of Good Practice provide three levels of compliance based on the size of your business –

  1. Exempted Micro Enterprises (“EME”), which are business with an annual turnover of less than R10 000 000 (ten million Rand). EME’s are exempt from BEE requirements and may be afforded an automatic preferential procurement rating;
  2. Qualifying Small Enterprises (“QSE”), which are businesses with an annual turnover of between R10 000 000 (ten million Rand) and R50 000 000 (fifty million Rand); and
  3. Medium to large enterprises (“M&L”), which are businesses with an annual turnover of more than R50 000 000 (fifty million Rand).

A company complies with BEE by ensuring that the company in question has obtained sufficient points in the BEE scorecards. There are two BEE scorecards; one for QSEs and one for M&Ls.  Points are allocated on the following categories set out hereunder-

  1. The percentage of the company’s outstanding shares that are held by black people (Ownership). When determining the level of black ownership, a business will score points based on the following:
    1. the extent to which black people can influence the strategic direction of the business through their shareholding;
    2. the current net value of their shares;
    3. the amount of profit (percentage of each Rand) that accrues to these black shareholders;
    4. whether these shares are paid in full or will be within 10 years or less; and
    5. bonus points are awarded if any of the black shareholders are new entrants (who have not previously benefitted from a B-BBEE deal).
  2. The number of directorships and senior management positions held by black people (Management Control). This refers to the proportion of black people who control the direction of the business.
  3. Whether there is an effective affirmative action plan firmly in place (Employment Equity).
  4. Whether there has been adequate money spent on the up-skilling of black people within the employ of the company (Skills Development).
  5. The frequency of the company’s purchases made from BEE-compliant companies (Preferential Procurement).
  6. Whether there is a proclivity for the company to develop small, black-owned companies (Enterprise Development).
  7. Whether the company is engaged in any social investment initiatives (Socio-economic Development).

The advantages of a high score on a company’s BEE scorecard are significant. An adequate score facilitates a company’s participation in the formal South African economy. The participation is made possible by, inter alia, other companies favouring BEE-compliant companies to boost their own BEE scores.