A Sign that Regulators are Getting Smarter About Empowerment
A year ago almost to the day, I wrote in this newspaper about the draft amendments to the generic broad-based BEE (BBBEE) codes and some of the weird changes proposed. My biggest concern was the notion that big companies could essentially get level 1 or level 2 based purely on their black shareholding. As we know, this never saw the light of day, and while my deep-seated ego would like to think this was due to someone important reading this column, it is more likely that our regulators are getting smarter about this BBBEE thing and beginning to realise that business reacts to regulation, not prompts to do the right thing.
When the draft changes were first introduced they contained an "enhanced recognition" clause that would automatically score all 100% black-owned businesses as level 1 BBBEE contributors and those with black shareholding above 51% as level 2.
This bizarre proposal was sending the wrong message: that black people, no matter how successful they were, had no part to play in empowering other black people. More important, it was potentially sending BBBEE back to pre-2007 crony elitist deals where a few well-connected individuals were issued vendor-financed shares at a huge discount, and that was all the "empowerment" corporations had to do.
Among a plethora of Government Gazettes published at the end of last month are four that deal with amendments to the BBBEE codes. I am delighted to see that this proposal has been removed, and, in its stead, corporations will be allowed to earn 1.2 times the procurement points if they spend with businesses that are more than 51% black-owned. This will provide black business with a competitive edge that will go some way in countering the racial exclusion still evident in our economy.
BBBEE has often been accused of marginal transformation at the expense of economic growth because it imposes additional costs and regulations on business. In the amendments, skills development and enterprise & supplier development stand out as going beyond mere redistribution in aiming to stimulate economic activity through increasing SA's productive capacity and nurturing entrepreneurship.
The other challenge with last year's amendments was the unintended impact that enterprise & supplier development was having on small black-owned business. By setting turnover thresholds for small businesses to qualify for development support and preferential procurement, the codes essentially incentivised corporations to keep those businesses small. Basically, if your small business grew, you lost your black card. As soon as the black-owned small and medium business grew beyond the turnover thresholds of R10m and R50m, corporations could no longer claim BBBEE benefit for supporting them. This perpetuated the silly stereotype that black business means small business.
Imagine my excitement, and the excessive fermentation of my ego, when I realised the department of trade & industry had listened to my plea. Corporations can now claim BBBEE points for the development support they provide to small business for a five-year period even if that small business grows into a large business in that period. A corporation can issue a large five-year contract to a small or medium enterprise, provide it with development support and enjoy the full compliance benefits of these actions over the five-year period.
Will these changes make a difference? It depends on the extent to which corporate SA leverages on the new provisions. It is still up to business to make good on its commitment to transformation.
Thanks to the new codes, it at least has one less excuse come November this year.
This article first appeared in The Sunday Times on 16 June 2019