A first phase of amendments to the Broad-Based Black Economic Empowerment (B-BBEE) Codes of Good Practice (Codes) was gazetted on 11 October 2013 (Revised Codes) with a transitional period of 18 months, up to 30 April 2015. Click here to read our E-Alert on the Revised Codes. The Department of Trade and Industry committed to reviewing and gazetting the outstanding statements for public comment and finalisation before the end of the transitional period. The second phase of amendments and additions to the Codes were published for comment on 10 October 2014 (Draft Amended Codes).
Key amendments proposed in the Draft Amended Codes are set out below.
Sector transformation plans and measurement
Where no sector codes apply, sector transformation plans, which are aimed at addressing sector-specific peculiarities, are to be used by private sector entities as guidelines for transformation of their sectors. However, private sector entities will use the Codes for purposes of measurement of their B-BBEE status.
Specialised enterprises (being companies limited by guarantee, higher education institutions, non-profit organisations, public entities and other enterprises exclusively owned by organs of State, public benefit schemes or public benefit organisations, and section 21 companies) are measured under the specialised generic scorecard (previously "adjusted generic scorecard"). The allocation of weighting points in this scorecard has been amended. It is proposed that four B-BBEE elements (previously, six elements) be measured, being management control, skills development, enterprise and supplier development and socio-economic development.
Exempted Micro Enterprises which are specialised enterprises and which have an annual total revenue, allocated budget or gross receipts of ZAR10 million or less (specialised EMEs) are deemed to have a level 4 B-BBEE status, with a B-BBEE recognition level of 100%. Specialised EMEs with at least 75% black beneficiaries qualify as level 1 contributors, with a B-BBEE recognition level of 135% and EMEs with at least 51% black beneficiaries qualify as level 2 contributors, with a B-BBEE recognition of 125%.
Qualifying Small Enterprises which are specialised enterprises and which have an annual total revenue, allocated budget or gross receipts of ZAR50 million or less (specialised QSEs) qualify as level 1 contributors, with a B-BBEE recognition of 135% if they have at least 75% black beneficiaries. Specialised QSEs with at least 51% black beneficiaries will qualify as level 2 contributors, with a recognition level of 125%, and specialised QSEs with less than 51% black beneficiaries will qualify as level 4 contributors, with a B-BBEE recognition level of 100%.
Measurement of qualifying small enterprises (QSEs)
Perhaps the most controversial amendment proposed is that QSEs will no longer be measured in terms of a choice of four of the five B-BBEE elements, but all five B-BBEE elements. The B-BBEE elements and their respective weightings under the amended QSE scorecard are:
- ownership, 25 points;
- management control, 15 points;
- skills development, 25 points;
- enterprise and supplier development, 30 points; and
- socio-economic development, 5 points.
Sale of assets, equity instruments and other businesses
Amended rules will apply to the recognition of the sale of assets, equity instruments and other businesses for purposes of the ownership scorecard.
Equity equivalent investment programmes (EEIPs)
It is proposed that some of the requirements for recognition of EEIPs as a contribution towards the ownership element of B-BBEE made by multinationals be amended, including the government strategic economic development policies and programmes which may be supported through EEIPs and the qualifying beneficiaries of EEIPs. EEIPs must promote and advance enterprise and supplier development, research and development, and critical and core skills to be accorded recognition towards the ownership element. It is possible for multinationals to make partial contributions to an EEIP and they will receive pro-rata recognition of ownership points accordingly. The minimum partial contribution is 40% of the compliance target for the ownership scorecard. Rules have been drafted for the administration of EEIPs and investment periods are regulated.
The period for submission of public comments on the Draft Amended Codes ends on 14 November 2014. The amended Codes are due to come into effect on 1 May 2015.