The Codes of Good Practice on Black Economic Empowerment provide a standard framework for measuring empowerment across all sectors of the economy.
According to the Broad-Based Black Economic Empowerment Act of 2003, state organs and public entities must take the codes into consideration “as far as is reasonably possible” on licensing, procurement, selling state-owned enterprises and public-private partnerships.
The department and the codes
The department of trade and industry drafted these codes and they were gazetted on February 9. The codes are available on the website www.thedti.gov.za. The department will release a publication this month to simplify the codes in layperson’s terms.
The codes commit the department to monitor the impact of BEE on the economy and its unintended consequences annually.
Structure of the codes
The codes are divided into nine series. The first series (titled 000) sets out the framework for measuring BEE. The next seven series measure the following elements: ownership; management control; employment element; skills development; preferential procurement; enterprise development; and socio-economic development.
The ninth series (titled 800) comprises regulations for measuring qualifying small enterprises.
The first three series of codes constitute the first phase, which were launched in November 2005. They deal with “narrow” BEE, consisting of ownership and management control elements.
The next five series constitute the second phase, which covers the broad-based elements of BEE.
Within each series are “generic statements”, a further subdivision of the codes. For example, within the first series on the framework for measuring BEE, there is a code statement on general principles and the generic scorecard and a statement detailing how to develop charters and sector codes.
The statements consist of several subsections, which explain the regulation in detail. There is an explanation of key objectives and key principles for each statement.
The generic scorecard
Enterprises use the generic scorecard laid out in the first code series to measure their empowerment rating.
The different elements of BEE have different weightings. For example, ownership counts for up to 20 points, while employment equity counts for up to 15 points.
The score determines what level of contributor the enterprise is defined as. The contributor level has a corresponding BEE recognition level. For example, a level one contributor has 100 or more points on the generic scorecard, meaning that it occupies the 135% BEE recognition level. The codes define eight contributor levels.
In addition, an enterprise with less than 30 points is considered a “non-compliant contributor” and their BEE recognition level is 0%.
An enterprise must supply evidence or documentation to back up claims about their BEE compliance.
A firm is encouraged but not required to use a verification agency. If a firm has its score verified, the verification agency must be accredited with the national accreditation agency Sanas.
Who is measurable under the codes?
Any enterprise that undertakes any business with any organ of state or public entity is measurable using the codes. Other enterprises that are measurable are those that wish to undertake business, directly or indirectly, with another enterprise that seeks to be measured under the codes. The codes refer to other legislation to define which public entities are measurable.
The transitional scorecard
Until 2008 enterprises can use the generic scorecard or the transitional scorecard. The transitional scorecard derives a rating using two elements: ownership and management control.
The adjusted scorecard
State companies, higher education institutes, Section 21 companies and not-for-profit companies use an adjusted scorecard and are not required to meet the ownership element.
Exempted micro enterprises
An enterprise with an annual revenue of R5-million or less qualifies as an “exempted micro enterprise.”
This automatically grants the enterprise a procurement recognition of 100% and gives it the status of a level-four contributor. The enterprise can be measured in terms of the scorecard for qualifying small enterprises in order to change levels.
Start-up enterprises qualify as exempted micro enterprises regardless of revenue for the first year following their formation. These enterprises must rate their empowerment rating using a scorecard if they apply for a government tender of more than R5-million.
Qualifying small enterprises
An enterprise with annual revenue between R5-million and R35-million is titled a “qualifying small enterprise”.
Qualifying small enterprises choose four of the seven elements of the BEE scorecard to arrive at an empowerment rating in terms of the qualifying small enterprises scorecard.
Charters and sector codes
Representative bodies can apply to the trade and industry minister to gazette a transformation charter subject to a sector code, which can have different weightings and measurement criteria from the generic scorecard.