1. The New B-BBEE Codes – What they mean for business Presenter: Anton de Wet CA(SA) Specialist B-BBEE Auditor and Trainer

2. 22
March 2010
DISCLAIMER Whilst every effort has been made to ensure the accuracy of the seminar, presentation and handouts, the presenters/authors , the organisers and the Association of Chartered Certified Accountants do not accept any responsibility for any opinions expressed by the presenter/author, contributors or correspondents, nor for the accuracy of any information contained in the seminar COPYRIGHT Copyright of this material rests with SA Accounting Academy and the documentation or any part thereof, may not be reproduced either electronically, photocopied, scanned, typed, hand-written or in any other means whatsoever without the prior written permission of SA Accounting Academy.
Copyright South African Accounting Academy Presenter: N van Wyk

3. The benefits of B-BBEE compliancy
Retaining market share
Competitive advantage (preferred supplier)
New growth opportunities (tenders)
Economic growth (spending power)
“Licence to do business” in South Africa?

4. Turnover Thresholds Old Codes (R million) New Codes (R million)
Exempted Micro-Enterprise (EME)
0 – 5
0 – 10
Qualifying Small Enterprise (QSE)
5 – 35
10 – 50
Generic
35 +
50 +

5. What drives BEE? GOVERNMENT Supplier Supplier Supplier Supplier
Mainstream Economy
Supplier
Supplier
Supplier
Supplier
Supplier
GOVERNMENT
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier

6. Weightings Element Weighting (Old Codes) Weighting (New Codes)
Ownership 20 25
Management Control 10 15
Employment Equity -
Skills Development
Preferential Procurement
Enterprise and Supplier Development 40
Enterprise Development
Socio-Economic Development 5
Total
100
105

7. Contribution Levels B-BBEE Status Qualification points (Old Codes)
Qualification points (New Codes)
B-BBEE Procurement Recognition Level
Level 1 Contributor
≥100
135%
Level 2 Contributor
≥85 but <100
≥95 but <100
125%
Level 3 Contributor
≥75 but <85
≥90 but <95
110%
Level 4 Contributor
≥65 but <75
≥80 but <90
100%
Level 5 Contributor
≥55 but <65
≥75 but <80
80%
Level 6 Contributor
≥45 but <55
≥70 but <75
60%
Level 7 Contributor
≥40 but <45
≥55 but <70
50%
Level 8 Contributor
≥30 but <40
≥40 but <55
10%
Non-compliant Contributor
< 30 points
< 40 points 0%

8. General Amendments
7 elements reduced to 5
Management Control and Employment Equity consolidated into Management Control
Preferential Procurement and Enterprise Development consolidated into Enterprise and Supplier Development
3 Priority Elements with 40% sub-minimum targets:
- Ownership
- Skills Development
- Enterprise and Supplier Development
Large Enterprise to comply with all 3 Priority Elements to avoid 1 level discounting
QSE to comply with Ownership and either SD or ESD to avoid 1 level discounting

9. General Amendments (continued)
EME less than 51% black-owned automatic level 4
EME and QSE 51% or more black-owned only need to obtain a sworn affidavit confirming turnover and black ownership; no verification required; automatic level 1 (51%+) or 2 (100%)
QSE less than 51% black-owned need to comply with all 5 elements subject to discounting – verification is required similar to Large Enterprise
Adjusted Recognition for Gender removed; black woman are separately scored
In first year (until 11/10/2014) entities may opt to apply new codes, thereafter compulsory
Only one scorecard for QSE’s and Large Enterprises

10. Ownership
Sub-minimum to avoid discounting is 40% of Net Value points
Points increased from 20 to 25 points
Shareholding by Family Trusts clarified
Only SA based and regulated mandated investments qualify
More emphasis on:
- Employee Share Ownership Programmes
- Broad-based Ownership Schemes
- Co-operatives
Black New Entrant threshold was R20m, now R50m
Entities applying the Modified Flow Through cannot also apply the Exclusion principle

11. Criteria/Indicator
Weighting points
(Old Codes)
Compliance target
(New Codes)
Voting Rights:
Exercisable Voting Rights of black people 3
25% + 1 vote 4
Exercisable Voting Rights of black women 2
10%
Economic Interest:
Economic interest of black people
25%
Economic interest of black women
Economic interest of black natural people in Designated Groups; Employee Ownership Schemes; Broad-based Ownership Schemes; Co-Operatives 1
2,5% 3%
Involvement in ownership of black new entrants - 2%
Realisation Points:
Ownership fulfilment
No Restrictions
Net Value
Time-based graduation factor: 10% of Target (Year 1)
20% of Target (Year 2)
40% of Target (Year 3-4)
60% of Target (Year 5-6)
80% of Target (Year 7-8)
100 % of Target (Year 9-10) 7 8
Bonus Points: 0%
Involvement in ownership of black participants in Employee Ownership Schemes; Broad-Based Ownership Schemes; Co- operatives
Total
Bonus Points 25

12. Management Control
Now includes Employment Equity
Targets now takes the demographic breakdown of race-groups into consideration in terms of the Regulations of Employment Equity Act and the Commission on Employment Equity Report
Must use current payroll data
Must submit EEA returns if “designated employer”

13. Criteria/Indicator
Weighting points
(Old Codes)
Compliance target
(New Codes)
Board Participation:
Exercisable Voting Rights of black Board members 3
50% 2
Exercisable Voting Rights of black female Board members  
  % 1
25%
Black Executive Directors
Black female Executive Directors
0% 
Other Executive Management:
Black Executive Management
40%
60%
Black female Executive Management
30%
Black Other Top Management 0%
Bonus point for Black Independent Non-Executive Board Members
Disabled Employees
Black Disabled employees as a percentage of all employees 2%
Senior Management:
Black employees in Senior Management
Black female employees in Senior Management
Middle Management:
Black employees in Middle Management
75%
Black female employees in Middle Management
38%
Junior Management:
Black employees in Junior Management
88%
Black female employees in Junior Management
44%
Total
bonus points 19
Should be 15

14. Employment Equity (no longer a separate element)
Criteria/Indicator
Weighting points
(Old Codes)
Target
(New Codes)
Black Disabled employees as a percentage of all employees 2 3% 0%
Black employees in Senior Management 5
60%
Black employees in Middle Management 4
75%
Black employees in Junior Management
80%
Bonus for meeting or exceeding the EAP targets per category 3
Total
bonus points

15. Skills Development
Sub-minimum to avoid discounting is 40% of total weighting points
Main target significantly increased from 2/3% to 6% of “Leviable Amount” (annual payroll)
Now 4 points available for training black unemployed people
5 Bonus points available for absorbing registered learners as permanent staff
Targets now takes the demographic breakdown of race-groups into consideration in terms of the Regulations of Employment Equity Act and the Commission on Employment Equity Report

16. Skills Development (continued)
Must meet SETA requirements to qualify
Category F (uncertified) and Category G (in- house) training both capped at 15% of total skills spend
Legitimate training expenses such as accommodation, catering and travel expenses also capped at 15% of total skills spend
Mandatory sector training does not qualify
International training must meet SAQA requirements

17. Criteria/Indicator
Weighting points
(Old Codes)
Compliance target
(New Codes)
Skills Development Spend on Learning Programmes
Skills Development expenditure 6 3% 8 6%
Skills Development expenditure for black employees with disabilities 3
0.3% % 4
0.3%
Learnerships:
Number of black employees participating in Learnerships, apprenticeships or internships
5% *
2.5%
Number of unemployed black people participating in Learnerships, apprenticeships or internships 0%
Bonus point for number of Black People absorbed at the end of the learnership 5
100%
Total 15
Bonus Points

18. Enterprise and Supplier Development (continued)
Sub-minimum to avoid discounting is 40% in each of the three main indicators of the ESD scorecard
“Value-adding Supplier” concept replaced with “Empowering Supplier”
ESD contributes to 40 of the total 105 points
10 points for developing suppliers
5 points for developing other black businesses
21 of the 25 points for procurement only allocated to spend with Empowering Suppliers
EME’s and Start-ups are automatically Empowering Suppliers

19. Maximum 1.5 points for early payment of black-owned suppliers
Enterprise and Supplier Development (continued)
Maximum 1.5 points for early payment of black-owned suppliers
A three year contract with the following suppliers will result in enhanced recognition of 120% of actual spend:
- Supplier Development beneficiaries
- Black-owned EME’s and QSE’s
- All new suppliers of the measured entity

20. Criteria/Indicator
Weighting points
(Old Codes)
Compliance target
(New Codes)
2.1 Preferential Procurement
Broad-based BEE Procurement Spend from all Empowering Suppliers based on the broad-based BEE Procurement Recognition levels as a percentage of Total Measured Procurement Spend of the enterprise 12
70% 5
80%
Broad-based BEE Procurement Spend from all QSE Empowering Suppliers based on the applicable broad-based BEE Procurement Recognition levels as a percentage of Total Measured Procurement Spend for the enterprise 3
15%
Broad-based BEE Procurement Spend from all EME based on the applicable broad-based BEE Procurement Recognition levels as a percentage of Total Measured Procurement Spend for the enterprise 4
Broad-based BEE Procurement Spend from any of the following Empowering Suppliers as a percentage of Total Measured Procurement Spend:
suppliers that are 51% black owned;
12% 9
40%
suppliers that are 30% black women owned 2 8%
Bonus Points
Procurement Spend from Designated group suppliers that are at least 51% black owned 0% 2%
2.2 & 2.3 Enterprise and Supplier Development
Annual Value of all Supplier Development contributions as a % of Target 10
2% of NPAT
Annual Value of all Enterprise Development contributions as % of target
1% of NPAT

21. Enterprise Development (no longer a separate element)
Criteria/Indicator
Weighting points
(Old Codes)
Compliance target
(New Codes)
Bonus Points
Graduation from Enterprise Development to Supplier Development Beneficiary 1
Jobs created by a supported supplier
Total 20
bonus points
Enterprise Development (no longer a separate element)
Criteria/Indicator
Weighting points
(Old Codes)
Compliance target (Old Codes)
(New Codes)
Compliance target
Value of all Enterprise Development Contributions and Sector Specific Programmes made 15
3% of NPAT 0%
Total

22. Socio-Economic Development
No changes
NPO’s may however lose out on donations from QSE’s who will now only score a maximum of 5 points and no longer 25 points

23. Criteria/Indicator
Weighting points
(Old Codes)
Compliance target
(New Codes)
Value of all Socio-Economic Development and Approved Socio-Economic Development Contributions made 5
1% NPAT
Total

24. Some areas in need of clarification
Basis for application new codes?
Management Control scorecard - needs to be corrected
“Obtain” a sworn affidavit – from who?
Enterprise Development and Supplier Development Plan in place for imported goods or services – guidance needed
International training must meet SAQA requirements – guidance needed
“Trainee tracking tool”?
Applying demographics to skills spend?

25. Some areas in need of clarification (continued)
What is exactly is an Empowering Supplier:
An Empowering Supplier is a BEE compliant entity which demonstrates that it is a “good citizen South African entity” complying “with all regulatory requirements of the country”. A Large Enterprise must comply with 3 of the following criteria and a QSE with only 1:
25% of Cost of Sales, excluding labour and depreciation, must be procured from South African suppliers or producers. (For the service industry labour costs are included but capped at 15%);
50% of jobs created must be for black people - provided the number of Black employees since the immediate prior B-BBEE verification is maintained;
25% of production must be local production including local manufacturing, and/or assembly, and/or packaging;
At least 12 days a year must be spent on skills transfer to assist black EME’s and QSE’s to increase their knowledge in operations or financial capacity.

26. Factors to consider going forward
Be verified now and before 11/10/2014 and stay compliant for two year more years!
QSE: Consider donations in February 2014
The need for BEE consultation
Plan for higher verification costs
Start using BEE management software
Get your accountant/auditor involved!

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