The Broad-based black economic empowerment (B-BBEE) policy system provides the country with a growth strategy that aims to promote a more equitable and economically inclusive society that will help South Africa realise its full economic potential. Small businesses, as economic drivers and engines for job creation, have an important role to play in contributing towards this national objective.
B-BBEE can serve as powerful stepping-stone for business growth, particularly for SMEs who aim to work closely with large corporates and government departments. As an SME owner, these are the B-BBEE basics that you need to be aware of:
Does your SME qualify for B-BBEE scorecard completion?
There are currently two categories within which the majority of South African SMEs fall in terms of B-BBEE. Exempted Micro-enterprises (EMEs), which have an annual turnover of less than R10 million, are not currently audited in terms of their B-BBEE status. Qualifying Small Enterprises (QSEs) are businesses with an annual turnover of between R10 million and R50 million.
How a BEE scorecard works
QFEs are evaluated according to five B-BBEE codes: ownership, skills development, management control, enterprise and supplier development, and socioeconomic development. Each of these are equally weighted at 25 points, resulting in a score out of 100 points.
- The ownership score measures the percentage of the SME that is owned by black individuals and is evaluated as at the date of B-BBEE verification.
- Management control is determined by payroll details and is measured according to the level of control that black employees hold within an SME.
- An SME’s skills development code measures the extent to which employers support ways in which the competencies and skills of black employees can be improved.
- A business’s socioeconomic development measurement is determined at year-end and concerns the extent to which an SME carries out specific initiatives that contribute towards better economic access for black individuals.
- Finally, enterprise and supplier development is measured by the extent to which an SME procures goods and services from suppliers with B-BBEE recognition, whether an SME takes measures to develop other enterprises and assists suppliers to become more economically sustainable.
Your scorecard will determine your B-BBEE status or the level at which are you recognised. Level 1 companies have scores of 100 points and above. The lowest level, level 8, applies to companies with less than 39.99 points.
Fast track to better B-BBEE
If a QSE is 100% black-owned, it will automatically qualify for level 1 status. If it is at least 51% black-owned, it will qualify for an automatic level 2 B-BBEE status. And if a QSE is less than 51% black-owned it will be rated according to the scorecard and must be verified by a South African National Accreditation System (SANAS) B-BBEE rating agency.
Changing legislation and what it means for your SME
Changes to B-BBEE legislation are underfoot, with the legislative process around the Employment Equity Amendment Bill set to conclude in September 2022. A research note by consultancy firm, Songhai Advisory, forecasts that the Bill will allow the state to set employment equity targets for certain business sectors. What is most significant for the majority of South African businesses is that the Bill will require the government to limit the issuing of contracts to businesses that are not compliant with B-BBEE law.
Therefore, if a large component of your business model rests on wining state tenders and becoming a supplier to government, it is important that you work towards being B-BBEE compliant. Several large corporates have also developed policies that make B-BBEE compliance a mandatory requirement for their suppliers. In addition, as a B-BBEE compliant SME, you will gain access to a number of favourable tax gains and in general, will be better positioned to attract more business opportunities.