Sabeeha Husain, a candidate attorney at Norton Rose SA, explains, “The intended revisions to the Codes of Good Practice on Broad-Based Black Economic Empowerment will help smaller enterprises to engage on the economic playing field.”
One of the revisions that will affect exempted small enterprises such as micro-enterprises (EME) and qualifying small enterprises (QSE) is the provision relating to the entities’ annual turnover. The revisions propose to increase this threshold and allow any entity with an annual total revenue of R10 million or less to qualify as an EME.
The revisions intend that the scope for QSEs will be broadened so that the qualifying annual revenue is between R10 million and R50 million.
Increasing the threshold for both EMEs and QSEs opens the way for a larger number of these enterprises to engage in the market economy as active BEE enterprises.
One of the benefits is that such enterprises will be able to engage with larger entities as suppliers which in turn will increase both of the entities BEE scores.
It also encourages competition for larger enterprises with lower BEE status due to the increased number of BEE-compliant smaller entities that may compete for work based on their elevated BEE status.
The revisions will reduce the BEE scorecard from 7 to 5 elements. The introduction of ‘priority elements’ will encourage interaction between large and small enterprises.
The priority elements for large enterprises are:
- skills development, and
- enterprise and supplier development.
The latter promotes “indirect BEE” by encouraging entities to procure goods and services from entities with good BEE status.
Procurement and development promoted
Large enterprises must achieve a minimum of 40% of the target defined in three of the sub-elements of the enterprise and supplier development scorecard. Failure to meet this threshold will result in the overall scorecard being discounted, even if the minimum threshold is met for the other elements.
An entity that fails to comply with the threshold requirement for the priority elements will be discounted by two levels.
Such revisions place a far more onerous burden on large enterprises to ensure that they meet the minimum requirements. This ensures that large companies place emphasis on procurement and enterprise development.
More effort will be required by large entities to procure goods and services from black owned suppliers, as well as to assist and accelerate the development of entrepreneurial enterprises who contribute towards B-BBEE.
A symbiosis thus develops, with both the large and small enterprise benefitting. The large enterprise will have to draw on smaller, emerging entities to fulfill needs, thus also achieving higher points on its own scorecard.
The small enterprise, keen to secure such work, will in turn aim to be BEE compliant, which will result in greater revenue when working with the larger entities and will increase points on its scorecard.
To sum up, the intended revisions, if adhered to correctly, will on two accounts increase smaller enterprises’ interaction with bigger businesses, thus increasing new opportunities for small and new businesses to enter the market:
- Firstly, due to the requirements of compliance becoming more stringent, bigger business will have to focus more on enterprise and supplier development and engage with smaller enterprises in order to meet the minimum threshold.
- Secondly, increasing the qualifying turnover means that more entities will qualify as EMEs and QSEs and enjoy the enhanced status such qualification confers.