When companies start their new financial year, part of their planning must involve implementing the revised B-BBEE Codes of Good Practice. The codes include priority elements with sub-minimum criteria, and if these are not met, companies will lose their achieved B-BBEE status.
“We have done preliminary assessments for some of our clients and the results speak for themselves. The majority of them sit at a B-BBEE procurement level 4, and if they don’t implement the necessary changes they will drop to a level 7 or even 8. This would have a serious impact on their business,” says Petra Rees, from Lean Enterprise Acceleration Programmes (LEAP,) a subsidiary of the PLP Group. “The biggest challenge for companies lies in the area of Enterprise and Supplier Development, with the procurement element forming part of that," adds Rees.
If a company has a target turnover of over R50m for the year, and they are not aligned to the new codes, their procurement level recognition will be affected and their clients will be penalised. It will have a snowball effect. The revised codes applicable to qualifying small enterprises, with an annual turnover below R50m, are yet to be gazetted.
With the amended codes, the seven existing elements have been reduced to five. “Three out of five elements are essentially straightforward to work with, but the other two, ownership and employment equity (now known as Management Control), are harder to implement, as they require long-term planning and buy-in from key stakeholders,” clarifies Rees.
“People often think that meeting the minimum criteria requires your business to sell a 25% stake in the business to a black consortium, but this doesn’t have to be the case as there are other ways to structure this component. The bottom line is that if your company has less than 25% black ownership, one has to implement strategic steps to meet at least 10 points, in order to not be discounted by a level in terms of the B-BBEE scorecard,” says Rees.
The amended codes also bring new opportunities to businesses, such as the area of skills development, where 6% of a company’s payroll is to be spent on black people in order to achieve all 25 points.
According to Rees, “People think they need to spend all this money on black employees but the revised codes promote black people. So if a company is a big importer, it has a great opportunity now to invest money for up-skilling its local suppliers, whilst scoring points for skills development.”
Localisation is a key message from the Department of Trade and Industry, therefore up-skilling suppliers and service providers must be embedded in the policies of South African companies. To deal with skills shortages, businesses can set up specialised incubators, a service LEAP performs on behalf of companies.
“One has to understand that setting up an incubator is a long-term commitment but in three years it starts showing fantastic results,” concludes Rees.
B-BBEE is fundamental for transformation and it must be strategically integrated into the everyday operations of businesses. It does, however, involve costs and companies must set aside budgets to achieve a reasonable level of B-BBEE procurement recognition.