BLACK ECONOMIC EMPOWERMENT (BEE)

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Cody Reed
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1 BLACK ECONOMIC EMPOWERMENT (BEE) TABLE OF CONTENTS 1. What Is BEE? 2. Brad-Based BEE (B-BBEE) 3. Key Definitins 4. The 7 Elements Of BEE 5. The BEE Screcard 6. T Whm Des BEE Apply? 7. Verificatin 8. Sectr Cdes And Charters WHAT IS BEE? Black Ecnmic Empwerment (BEE) is the prcess by which the gvernment is seeking t ensure increased participatin f black peple in the ecnmy f Suth Africa. BEE is a legislatively based prgram established in terms f the Brad-Based Black Ecnmic Act, BROAD-BASED BEE (B-BBEE) Prir t 2007 BEE was vaguely a defined cncept, with the private sectr fcusing almst exclusively n the narrw BEE criteria (Ownership and Management). Much uncertainty existed, with disparate views as t the nature f BEE and hw it shuld be measured. The gazetting f the BEE Cdes f Gd Practice ( the Cdes ) in February 2007 has added certainty t the BEE landscape. The Cdes prvide universal standards fr the implementatin and measurement f BEE initiatives, with the view f prviding cnsistency, transparency and clear directin n BEE. The Cdes have thus seen BEE becme an bjective discipline with quantifiable and defined criteria and rules and have facilitated a mve away frm BEE being measured nly in terms f the riginal narrw BEE criteria twards a mre Brad-Based apprach t empwerment, nw incrprating 7 BEE elements (discussed mre fully belw). Accrdingly, BEE is nw technically termed Brad-Based Black Ecnmic Empwerment r B-BBEE. The bjective f B-BBEE is t ensure that the majrity f the black ppulatin, acrss all sci ecnmic levels, are able t participate in the psitive benefits f empwerment.

2 Fr the purpses f simplicity and in accrdance with cmmn usage, fr the remainder f this dcument all references t BEE shall mean B-BBEE, and the terms shall be used interchangeably. KEY DEFINITIONS The fllwing are sme f the key BEE definitins and terms, as cntained in the Cdes: Black Peple African, Indian, and Clured (including Chinese) peple wh are citizens f Suth Africa by: birth; r descent; r naturalizatin prir t the cmmencement date f the Interim Cnstitutin (1993); r naturalizatin after the cmmencement date f the Interim Cnstitutin, but were prevented frm becming naturalized by Apartheid Black wned cmpany a juristic persn in which black participants enjy rights t mre than 50% f the ecnmic interest f the entity in which they are sharehlders. Adjusted recgnitin fr Gender is a frmula in the Cdes which seeks t ensure participatin f black females in the BEE prcess. Essentially, where the adjusted recgnitin fr gender applies, 50% f targets must be cmprised f black females in rder t btain full pints. EMEs Exempt Micr Enterprises are entities with an annual turnver f less than R5 millin QSEs Qualifying Small Enterprises are entities with an annual turnver f between R5 millin and R35 millin Generic enterprises - are entities with an annual turnver f mre than R35 millin THE 7 ELEMENTS OF BEE In rder t give affect t the Brad-Based apprach f BEE, the Cdes cntain 7 elements in terms f which BEE is nw assessed, as fllws: 1. Ownership Ownership measures equity held by black peple. The 3 subcategries in terms f which wnership is assessed are:

3 a. Vting Rights cntrl f the enterprise thrugh the exercise f vting rights at sharehlders meetings b. Ecnmic Interest the entitlement t dividends, capital gains and ther rights f sharehlders c. Realisatin Pints the accumulatin f net ecnmic interest in the hands f black sharehlders, after the deductin f mnies wed by such sharehlders Specific Pints have been made available fr black females and brad-based type structures. 2. Management Cntrl Management Cntrl measures black participatin at Bard and Senir Management Psitins. The adjusted recgnitin fr Gender principle is applicable. 3. Emplyment Equity Emplyment Equity measures the percentage f black staff emplyed in the business. On the Generic screcard nly senir, middle and junir management emplyees cunt (semi skilled and unskilled emplyees d nt cunt) On QSE screcard all emplyees cunt, with the distinctin being between management and all ther emplyees. The emplyment equity targets are staggered (yr 0-5 and yr 5-10). N pints will be earned unless 40% f the targets are achieved. The adjusted recgnitin fr Gender principle is applicable and specific pints are allcated fr black disabled emplyees. 4. Skills Develpment The Skills Develpment element is designed t imprve the skills set f black emplyees. The Skills Develpment element is split ut between: Skills and Training Learnerships Target n skills spend is based n annual leviable payrll. Target fr learnerships is based n ttal emplyees. The adjusted recgnitin fr Gender principle is applicable and specific pints are allcated fr black disabled emplyees. Measured entities will nly scre pints twards skills develpment if there has been: Cmpliance with the Skills Develpment & Skills Develpment Levies Act.

4 Registratin with the applicable SETA. Develpment f a Wrkplace Skills Plan. Implementatin f prgrammes targeting the develpment f Pririty Skills specifically amngst black peple. 5. Preferential Prcurement Preferential Prcurement measures the empwerment levels f ne s suppliers. Preferential Prcurement is the driver f the whle BEE prcess due t the cascade r trickle dwn effect. The cascade effect is the mechanism will cause entities t call n their suppliers fr their screcards, in rder t calculate the prcurement element f their wn screcards. These suppliers will then have turn t their suppliers fr their screcards and s n. Preferential/Enhanced Recgnitin is affrded in respect f prcurement frm : EMEs and QSEs. Suppliers that are 50% black wned. Suppliers that are 30% black wned. Black wned Prfessinal Service Prviders and Entrepreneurs. Enterprise Develpment Beneficiaries. Value adding Suppliers. 6. Enterprise Develpment Enterprise Develpment must be directly aligned t the enterprise develpment principles f cntributing t the develpment, sustainability and financial and peratinal independence f Enterprise Develpment Beneficiaries. There are 2 categries f Enterprise Develpment Beneficiaries Categry A Enterprise Develpment Beneficiaries: QSEs and EMEs that are 50% black wned r 50% black wmen wned. Categry B Enterprise Develpment Beneficiaries Any size cmpany that is 50% black wned r 50% black wmen wned Any size cmpany that is 25% black wned r 25% black wmen wned and have a BEE Status level ne t six. Enterprise Develpment cntributins can be: Mnetary r nn-mnetary Recverable r nn-recverable Targets are measured cumulatively frm the earlier f the cmmencement f the Cdes r a maximum f 5 years prir t the cmmencement f the Cdes until the date f measurement.

5 7. Sci Ecnmic Develpment Sci Ecnmic Develpment seeks t encurage initiatives that enhance the ability f black peple wh remain nnparticipants in the ecnmic mainstream (primarily wning t lack f educatin and pverty) t be included in participating in the ecnmy in a sustainable manner. Essentially, qualifying charitable dnatins t Sci Ecnmic Develpment beneficiaries will be applicable. Sci Ecnmic Develpment beneficiaries are: Black individuals, cmmunities r grups Where mre than 75% f the beneficiary grup are black, the full value f the cntributins will be recgnizable Where less than 75% f the beneficiary grup are black, the pr-rata percentage f the cntributins will be recgnizable Sci Ecnmic Develpment cntributins can be mnetary r nn-mnetary NOTE: The cmplete Generic and QSE Screcards cntaining all targets and weightings are cntained in Annexures A and B belw. THE BEE SCORECARD The Cdes prvide fr a screcard apprach, where pints are allcated fr the attainment f certain targets in each f the 7 elements. An entity s BEE status level is then determined in accrdance with the cumulative scre it receives in respect f the afrementined elements. B-BBEE Status Qualificatin B-BBEE Recgnitin Level Level 1 Cntributr 100 pints 135% Level 2 Cntributr 85 but <100 pints 125% Level 3 Cntributr 75 but <85 pints 110% Level 4 Cntributr 65 but <75 pints 100% Level 5 Cntributr 55 but <65 pints 80% Level 6 Cntributr 45 but <55 pints 60% Level 7 Cntributr 40 but <45 pints 50% Level 8 Cntributr 30 but <40 pints 10% Nn-Cmpliant Cntributr <30 pints 0% The Cdes prvide fr 3 categries f entities, classified in accrdance with annual turnver, with different screcard criteria applicable t each. These are as fllws:

6 Entity Type Exempted Micr Enterprise Qualifying Small Enterprise Generic Enterprise Annual Turnver Threshld Less than R5 millin R5 millin t R35 millin Abve R35 millin 1. Exempt Micr Enterprises ( EMEs ) EMEs are entities with annual turnver f belw R5 millin. EMEs are autmatically deemed t be: Level 3 cntributrs if they are mre than 50% wned by black persns. Level 4 cntributrs if they are less than 50% wned by black persns. EMEs may hwever elect t use a QSE/Generic screcard shuld they wish, and are required t d if they are tendering fr a public cntract abve R5M/R35M in value. A certificate frm an auditr, verificatin agency r accunting fficer is sufficient prf f an entities qualificatin as an EME Start-up enterprises are measurable as EME s fr the first year fllwing their frmatin r incrpratin, regardless f the expected ttal revenue f the start-up In instances where such start-up enterprises tender fr any cntract with a value higher than R5millin but less than R35millin, they have t cmply with the QSE screcard. In instances where such start-up entities tender fr cntracts with a value abve R35millin they have t cmply with the generic screcard. 2. Qualifying Small Enterprises ( QSEs ) QSEs are entities with an annual turnver f between R5 millin and R35 millin. QSEs are measured in accrdance with the QSE screcard as cntained in Cde Series 800, as fllws: Element Ownership Management and cntrl Emplyment equity Skills develpment Preferential prcurement Enterprise develpment Sci ecnmic develpment 25 pints 25 pints 25 pints 25 pints 25 pints 25 pints 25 pints Weighting

7 NOTE: A detailed QSE Screcard cntaining all targets and weightings fllws under Annexure B. QSEs may select any 4 f the 7 elements each weighted 25 pints, in rder t btain an verall scre ut f 100. The practical cnsequences f this are that entities will select easiest 4 elements by which t be measured, and means that QSEs may legitimately exclude any 3 elements frm their screcard. This is significant as it effectively renders BEE a far mre manageable, practical and less nerus exercise fr QSEs. 3. Generic Enterprises Generic enterprises are entities with an annual turnver f abve R35 millin. Generic enterprises are measured in accrdance with the Generic screcard as cntained in Cde Series , as fllws: Element Ownership Management and cntrl Emplyment equity Skills develpment Preferential prcurement Enterprise develpment Sci ecnmic develpment 20 pints 10 pints 15 pints 15 pints 20 pints 15 pints 5 pints Weighting NOTE: The detailed Generic Screcard cntaining all targets and weightings fllws under Annexure A. Generic enterprises must include all 7 f the abve elements in rder t calculate their verall BEE scre. Summary table The table belw cntains a summary f hw the Cdes apply t EMEs, QSEs and Generic entities: Weighting Element Generic (use all 7/7) QSE (use any 4/7) EME (N/A) Ownership 20 pints 25 pints If 50% black Management and cntrl 10 pints 25 pints wned:

8 Emplyment equity 15 pints 25 pints Deemed Level 3 Skills develpment 15 pints 25 pints Status; Preferential prcurement 20 pints 25 pints Otherwise Enterprise develpment 15 pints 25 pints Deemed Level 4 Sci ecnmic develpment 5 pints 25 pints Status TO WHOM DOES BEE APPLY? 1. Private Sectr When private sectr entities engage with ther private sectr entities, it is vluntary fr such entities t prduce screcards and there is n legislative requirement cmpelling same Frm a business perspective hwever, it is becming increasingly imprtant t prvide all custmers with yur BEE certificate, as yur BEE scre will directly impact yur custmers n their BEE scre in terms f the preferential prcurement element f their BEE screcard. If an entity des nt have a BEE screcard its custmers will earn zer pints in respect f their dealings with that entity. When a private sectr entity engages with any rgan f the state r public entity, per S3 f the Cdes, the prductin f BEE certificate will be required. 2. Public Sectr BEE is applicable t public sectr entities, bth in terms f: a. hw each public sectr entity is rated internally fr BEE purpses and accrdingly the BEE Status Level that that specific public sectr entity has achieved, and b. hw public sectr entities must utilise the principles f BEE t measure third party suppliers fr prcurement, licenses and similar activities. a. Internal BEE Measurement Public Sectr Entities are t be measured in accrdance with the Screcard fr Specialised Entities.

9 The Screcard fr Specialised Entities is essentially an adjusted Screcard measuring 6 BEE elements and excluding wnership. b. BEE principles in relatin t third party suppliers S10 f the B-BBEE Act requires rgans f state t apply the Cdes when entering int decisins affecting: Prcurement; public private partnerships (PPP s); The sale f state-wned entities. Public sectr prcurement is gverned by the Preferential Prcurement Plicy Framewrk Act, 2000 ( the PPPFA ). The PPPFA prvides a scring system fr assessing suppliers in relatin t the award f public sectr prcurement. The scre achieved by the supplier is essentially calculated in accrdance with 2 cmpnents: General Factrs (eg price, delivery time, quality etc); and BEE Factrs Until recently there has been n alignment between the PPPFA and the BEE Cdes. The BEE Factrs cnsidered have been variable at the discretin f the bdy that issued the tender. Histrically the BEE Factrs that have been primarily utilised have been the black wnership and management credentials f the supplier As f 7 December 2011, new Regulatins t the PPPFA require that public sectr enterprises must utilise the supplier s BEE Screcard in calculating the scre achieved in relatin t the BEE Factrs. The value f the tender will affect the allcatin f pints between the General Factrs and the BEE Factrs, as fllws: Fr tenders with a value f belw R1 Millin: 80 pints are allcated twards the General Factrs; and 20 pints are allcated twards the BEE Factrs. Fr tenders with a value f abve R1 Millin: 90 pints are allcated twards the General Factrs; and 10 pints are allcated twards the BEE Factrs. The number f pints achieved under the BEE Factrs cmpnent will be calculated in accrdance

10 with the BEE Status Level f a supplier, as determined by their BEE Screcard, as fllws: B-BBEE Status Tender value belw R1millin (20 Pints allcated fr BEE Factrs) Level 1 Cntributr Level 2 Cntributr 18 9 Level 3 Cntributr 16 8 Level 4 Cntributr 12 5 Level 5 Cntributr 8 4 Level 6 Cntributr 6 3 Level 7 Cntributr 4 2 Level 8 Cntributr 2 1 Nn-Cmpliant Cntributr 0 0 Tender value abve R1 millin (10 Pints allcated fr BEE Factrs) This new system will ensure an bjective and standardised apprach twards the calculatin f the BEE Element under public sectr prcurement, thrugh the alignment f the PPPFA and the BEE Cdes. VERIFICATION Verificatin is the prcess f assessing and verifying an entity s BEE status, and issuing a BEE certificate relating t same. Verificatin agencies are independent BEE auditrs that prvide this service. Verificatin Agencies can receive accreditatin thrugh SANAS (Suth African Natinal Standards). There are strict rules gverning the cnduct and methdlgies f verificatin agencies, as cntained in the Cdes and the Verificatin Manual As f February 2010, nly BEE certificates issued by accredited verificatin agencies will be valid. The industry bdy regulating verificatin agencies is ABVA (Assciatin f BEE Verificatin Agencies). Cmpanies perating under the QSE and Generic screcards must be assessed by a verificatin agency. EMEs may be assessed by: Verificatin agency Auditr Accunting Officer As f 1 Octber 2011, auditing firms that have undergne the necessary training and have met the

11 relevant criteria may be accredited by IRBA (independent Regulatry Bdy fr Auditrs) t cnduct BEE verificatins and issue BEE certificates. Such auditing firms will be knwn as Apprved Registered Auditrs. SECTOR CODES AND CHARTERS 1. Sectr Cdes Sectr Cdes are the BEE rules specific t certain industries. Essentially they will be similar t the Cdes, with certain targets being able t be manipulated t fit the specific requirements f the industry. Sectr Cdes are gverned by S9 f the Act. Sectr Cdes are binding. Sectr Cdes enjy equal status with the Cdes and fr practical purpses will replace the Cdes in that industry. 2. Sectr Charters Sectr Charters are statements f intent develped by majr stakehlders in each industry Sectr Charters are gverned by S12 f the Act. Sectr Charters have n binding authrity and the Cdes shuld thus be fllwed in respect f these industries. 3. Gazetted Sectr Cdes and Charters The fllwing Sectr Cdes and Charters have been gazetted: Sectr Cdes gazetted under Sectin 9(1) f the Act: Integrated Transprt Sectr Cdes Frest Sectr Cde Cnstructin Sectr Cde Turism Sectr Cde Chartered Accuntancy Charter Sectr Cdes gazetted under Sectin 9(5) f the Act:

12 Draft Prperty Sectr Charter Draft Financial Sectr Charter Sectr Charters gazetted under Sectin 12 f the Act: Agri-BEE Charter Marketing, Advertising and Cmmunicatin (MAC) Sectr Charter Charters gazetted under the Mineral and Petrleum Resurces Develpment Act Mining Charter Petrleum and Liquid Fuels Industry Charter

FORM 2. INDEPENDENT REGULATORY BOARD FOR AUDITORS (Established under Section 3 of Act 26 of 2005)

FORM 2. INDEPENDENT REGULATORY BOARD FOR AUDITORS (Established under Section 3 of Act 26 of 2005) FORM 2 INDEPENDENT REGULATORY BOARD FOR AUDITORS (Established under Sectin 3 f Act 26 f 2005) APPLICATION BY A FIRM FOR ADMISSION TO THE REGISTER OF AUDITORS (Fr applicatin in terms f Sectin 38(2)) and