A slew of proposed changes to the Broad-Based Black Economic Empowerment codes will see a higher weighting to Enterprise Development and Procurement, reason enough to investigate ED as a strategic business imperative. But the real power of ED lies in its potential to stimulate the economy and create jobs.
Rough guide to Enterprise Development – vital for economic stimulation and growth
- Background
- Enterprise Development’s key objective is to facilitate in the development of sustainable businesses that will create jobs and add stimulus to the economy.
- ED is defined as contributing to the development, sustainability, financial/non-financial and operational independence of beneficiaries, with beneficiaries being black majority owned businesses. Black in terms of the BEE Acts implies Africans, Coloureds and Indians.
- This Enterprise Development contribution is measured as a percentage of Net Profit After Tax (NPAT) which is 3% for business entities with annual turnover in excess of R35m.
- Key to successful implementation of ED include providing of clear mandates, targets, authority, and responsibilities towards implementation as well as systematical monitoring deliverables.
- Undoubtedly, allocation of resources (monetary & non monetary) is pivotal to achieving sustainable ED points.
- Some ideas towards successful implementation of ED spend:
- Achieve a thorough understanding of ED elements as well as Preferential Procurements (you can score bonus points for Preferential procurements when sourcing from ED beneficiaries)
- Identify ED projects with your organization and understand how they will impact on job creations as well as how to claim ED points
- Managing the on-going collection of ED data that will be evidence in preparation of a formal Rating or Verification.
- Guide buyers and procurement staff to source from ED beneficiaries and the benefits thereof.
- Exposure to the calculations for points on the Scorecard
- Further new developments
Recently the Cabinet has announced further amendments on the BEE Act as follows:
- Further alignments were proposed between the New Growth Path (NGP), the Industrial Policy Action Plan (Ipap) and the BEE Act.
- The Cabinet proposes that the BEE Act be amended with a higher weighting to the issues of enterprise development and procurement than has hitherto been the case.
- Should the legislation be approved, enhanced recognition will also be given in the scorecard to enterprise development in the sectors identified for priority attention under Ipap and the NGP.
- A penalty provision for noncompliance with enterprise development and procurement elements of the BBBEE scorecard is proposed, which could result in a discount from the overall score being applied.
- The points associated with the ownership element of the scorecard could also be “broadened” to create a greater incentive for “genuine broad-based ownership”, such as employee share ownership, co-operatives and community ownership.
- The qualifying small enterprises scorecard will also be adjusted and the thresholds for exempted micro enterprises will be reviewed.
- The legislation also makes provision for the imposition of fines against those companies found to be fronting, as well as for criminal sanction against executives. The fines could be as high as 10% of a firm’s yearly turnover and individuals could be imprisoned for up to ten years.
- Government would also be permitted to cancel contracts if it were found that companies had put forward false BBBEE claims
- Amendments will for the first time introduce penalties for fronting — 10% of annual turnover for companies and a fine or imprisonment of up to 10 years for individuals. Fronting is when companies misrepresent their black empowerment levels to win contracts, mainly from government.
- The bill provides that the government may unilaterally cancel contracts awarded on account of false information related to a company’s BBBEE status