BBBEE Explained: A Guideline for Business Owners in South Africa
If you’ve been running a business in South Africa for a while, you’ll know there’s no escaping BBBEE terminology. While this may be confusing and even scary for some, setting up an effective BBBEE strategy for your business can reap many benefits. When implemented correctly, BBBEE can open up more opportunities for your business, generate jobs, enhance global competitiveness, and create a more skilled workforce. To help you on your journey to BEE compliance, we’ve put together a simple BBBEE guide so you can make BBBEE work for your business, rather than against it.
What is BBBEE?
While BBBEE has various components to wrap your head around, it’s important to first understand the foundational elements of the BBBEE landscape. The term BBBEE stands for Broad-Based Black Economic Empowerment. This is a transformation strategy set up by the South African Government to empower previously disadvantaged groups of people so that they can take part in the growth of the economy. These groups include African, Coloured, and Asian demographics that were affected by the apartheid era.
What is the difference between BBBEE and BEE?
Another trend you may have picked up on is that the terms BBBEE and BEE are used interchangeably. To distinguish between BBBEE and BEE it’s important to remember that this terminology is simply a technicality. Both acronyms refer to the same concept. BBBEE stands for Broad-Based Black Economic Empowerment while BEE stands for Black Economic Empowerment.
What are the Objectives of BBBEE?
Next, it’s important to understand why we need BBBEE. The main aim of the overall strategy is to grow the South African economy and give every demographic an equal opportunity to contribute.
More specifically, BBBEE has various objectives that it aims to meet. These include but are not limited to:
- Encouraging the growth of black-owned and black women-owned businesses
- Giving local and rural communities equal access to economic opportunities
- Providing black individuals with access to effective infrastructure, economic activities, and training programmes
- Providing financial assistance and resources to black-owned businesses
- Giving workplace and skills development opportunities to disadvantaged groups through programmes such as learnerships
- Promoting more black individuals into executive and senior management positions
- Reducing racial income inequalities and increasing the income levels of black individuals
Does your company need to be BBBEE compliant?
Now, you may be wondering, does my business need to be BBBEE compliant? The answer may depend on your company. While obtaining a BEE certificate isn’t an obligation for everyone, it does open your business up to more opportunities. To do so, you need to be BBBEE compliant if you do business with two major industries.
The first major industry to consider is any government department or government-owned enterprise. This includes municipalities and public entities. These industries won’t do business with you if you aren’t BBBEE compliant. Transactions that require BBBEE compliance include government tenders, applying for concessions or licenses, or establishing public-private relationships. It is also important to note that the higher your BBBEE score the more favourable you will be to government enterprises.
The second major industry to keep in mind are large organizations or thought leaders that are already BBBEE compliant. These industries have many incentives to work with other smaller BBBEE compliant businesses. Therefore, they will prefer to work with you if you already have a BBBEE rating as this will improve their own rating. Being compliant can also set your business up for preferential procurement. This affects most private businesses throughout the supply chain and can produce many benefits down the line.
The benefits of being BBBEE compliant:
Additionally, being complaint can benefit your company in other ways too:
- Your business will play a role in transforming South Africa and contributing to the growth of the economy
- Being compliant shows your employees and clients that you are doing what is necessary to make sure your business will thrive in the South African landscape
- Your business is able to obtain grants and financial assistance
- It can open doors to more profitable and sustainable business contracts
Are there any BBBEE Exemptions?
Although being compliant is important, there are situations where it isn’t necessary. Exempted Micro Enterprises also known as EME’s don’t require compliance. An EME is a small business that has an annual turnover of less than R10 million. Businesses that fall within this bracket automatically have a BBBEE score of 100%. This score can’t go lower than 100% but can go up to 135% if the business is fully black owned.
Another industry that was previously exempted from being compliant were Qualifying Small Enterprises also known as QSEs. Before, these were defined as SMEs that had an annual turnover between R10 million and R50 million. This meant that they only had to comply with some of the BBBEE requirements. However, this rule has been changed and QSEs are now required to comply fully with the BBBEE system.
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What is a BBBEE scorecard?
The BBBEE scorecard shows a measurement of the BEE compliance of your business. This criteria includes 5 main elements that make up your scored and run on a points system to determine the BBBEE level of your business. These elements in the criteria include ownership, management control, skills development, enterprise and supplier development, and socio-economic development and is one of the most common phrases you’ll hear about in the Skills Development landscape.
1. Ownership:
Ownership refers to measuring the level of black ownership in your business. By correctly implementing this into your business you could accumulate 25 points on your scorecard. This is measured by:
- The extent of influence black stakeholders have on the strategic direction of the business
- The net value of their shares in relation to the value of the business
- The percentage of profit given to these shareholders
- If the shareholders are paid in full or over a 10-year period
2. Management Control:
Management control refers to the number of black individuals that hold top managerial roles in your business and if they have an influence on decision-making processes. This also focuses on black women. You should therefore make sure that at least 10% of management roles in your business are held by black individuals. Points are calculated based on the percentage of black individuals in senior management positions, voting rights, and the control of the executive board. If done correctly this could give your company 15 points on your scorecard.
3. Skills Development
Skills Development focuses on the extent to which your company invests in skills training for your employees. This can improve the productivity of your company and create better workplace opportunities for unskilled workers who otherwise wouldn’t have had access to this education. This is often done through learnership programes that are run by Skills Development facilitators. To accumulate points for this element you need to set 40% of your targets in skills development. There are 20 points available and 5 bonus points for absorption. To accumulate these points you can:
- Put your staff on a 12 month learnership programme or other Skills Development courses that are accredited with a SETA that is relevant to your industry. To do this you can find a list of SETAs and SETA accredited training providers to make sure you are using the right learnerships for your business.
- You can put unemployed and disabled black individuals on a learnership programme to accumulate points
- Give bursaries to black students attending higher education institutions
- Absorb black individuals into your company at the end of the learnership programme. This will give you 5 bonus points for your scorecard
4. Enterprise and Supplier Development
Enterprise and Supplier Development, also known as ESD, measures the amount of spend you put into preferential procurement, enterprise development and supplier development of small, developing businesses. The minimum requirement for each of these three entities is 40%, which adds 40 points to your scorecard, with 23 being awarded for majority black-owned businesses.
- Preferential Development is the number of goods and services you procure from companies with high BBBEE ratings.
- Enterprise Development focuses on how much you spend on small, developing black-owned businesses. This typically involves businesses that are in the early stages of development and need training and financial support.
- Supplier Development is focused on empowering suppliers by giving them funding or contributing towards their training and equipment. These businesses, unlike businesses involved in Enterprise Development, are a bit further along in their development stages. They have been in operation for at least 3 years and have already accumulated corporate contacts or can supply to a business.
5. Socio-Economic Development
Socio-Economic Development, also known as SED, is the amount of money a company invests into uplifting communities and charities in need. This shouldn’t be mistaken as a handout. Successful Socio-Economic Development should make strategic sense for your business and should extend beyond just getting points for your scorecard. When done correctly, SED can add 5 points to your scorecard.
Disclaimer: This graphic is a general overview of the BBBEE scorecard. Please note that numbers may differ or vary depending on your outcome.
What is BEE Absorption?
As mentioned earlier, absorption is an attractive process to consider if you want to add an additional 5 bonus points to the Skills Development section of your scorecard. Absorption refers to the number of black unemployed or disabled students that you absorb into your company after they have completed their accredited learnership programme.
To do this there are a few things that need to be considered:
- The points are calculated based on 5% of your total employee headcount
- The black individual must be on a learnership that has a 12-month fixed-term contract of employment. They become eligible for absorption after the completion of their learnership
- If the black individual is already permanently employed and on a learnership, they can be counted in the total employee headcount, but they aren’t eligible for absorption as they are already considered employed
- Moving a black individual from one learnership to another is not considered absorption
What are BBBEE levels?
Once you’ve achieved points in each of the various elements of the BBBEE scorecard you will be given a final score with a BBBEE Level. This indicates to you and other companies how compliant your company is. Once your BBBEE level is calculated it will be printed as a BEE certificate. This certificate must be issued by a SANAS accredited verification agency. This SANAS BEE certificate will be reissued to you every year in order to update the status of your scorecard for that year. The highest level you can achieve is level 1, this is where you want your company to sit. The lowest level you can achieve is level 8.
- Level 1 is when you have 100 points and above. This means you have 135% procurement
- Level 2 is when you have 85 to 99.99 points. This means you have 125% procurement
- Level 3 is when you have 75 to 84.99 points. This is means you have 110% procurement
- Level 4 is when you have 65 to 74.99 points. This means you have 100% procurement. You are considered fully BBBEE compliant when you reach this level
- Level 5 is when you have 55 to 64.99 points. This means you have 80% procurement
- Level 6 is when you have 45 to 54.99 points. This means you have 60% procurement
- Level 7 is when you have 40 to 44.99 points. This means you have 50% procurement
- Level 8 is when you have 30 to 39.99 points. This means you have 10% procurement
- If you have points below 30 then you are not compliant. You therefore have no procurement recognition
Next Steps:
Now that you have a full understanding of the BBBEE process you should be well on your way to improving your BBBEE scorecard. If you’re still left with questions, you can reach out to a BBBEE consultant company that can help you put together an effective BBBEE strategy. In order to maximize your Skills Development points, you can reach out to Edge Training. We are a fully accredited training company and offer a variety of accredited learnerships, short courses and soft skills training workshops that focus on adding real value to your business and changing the lives of our students. Get in touch with us today so we can help you put together a skills development plan that works for your needs.
Furthermore, as Edge Training has a SANAS accredited Level 1 BBBEE certificate, you will benefit by 135% if you use us for procurement purposes. In fact, Edge can assist you in achieving points for Skills Development, Management Control, Enterprise and Supplier Development and Socio Economic Development. Reach out to us and let us show you how you can maximise your return on investment.