• Date Posted: December 9, 2015
  • Author: Deon Oberholzer

Update on the Progress of the Amended BBBEE Codes and How It Affected You

Several amendments to the Broad-Based Black Economic Empowerment (BBBEE) Codes have created some confusion amongst business owners about the impact, the process and the applicability of the Codes to the specific industry. One of the major effects of the amended BBBEE Codes is that fronting practices will no longer be able to operate under the radar.

Here are a few amendments of the Codes affecting your business:

  • New priority elements have been introduced, including Skills Development, BBBEE Ownership and Supplier Development.
  • Procurement and Enterprise Development point earning abilities have been changed significantly with the introduction of the Empowering Supplier.
  • The elements have been reduced from seven to only five – including Management Control and Enterprise/Supplier Development.
  • Debt-free ownership concept has been introduced for measurement of 10% BBBEE shareholding.
  • Firms operating within a sector code must meet the sector code requirements instead of that required by the Generic Codes.
  • Sector codes have been issued for Property, Tourism, Transport, Forest, Information & Communication Technology, Financial, Construction, and Agricultural sectors.

One of the issues that must be dealt with is that of sector codes that have not been aligned to the amendments in the BBBEE generic codes. Firms operating under some of the sector codes are able to earn better scores with less effort than companies operating under the generic codes.

Only the Property Sector Code has so far been updated to ensure generic codes alignment. With such, a dual measurement system is still in place though the Minister of Trade & Industry already announced in May earlier in the year that sector codes must be aligned to the generic codes by end of October. Failure to do so at that stage meant possible repealing of the particular sector code, leaving the firms in the particular sectors without choice in complying with the requirements of the generic codes.

The draft Tourism Sector Code was also issued during October with 60 days for public comment, which means it will only come into effect earliest January 2016. It also means that an extension can be given to the particular sector to ensure alignment. With some of the Sector Councils still in disarray, firms operating in these sectors, such as ICT, still fall under the particular sector codes. This may not necessarily be a good thing, since firms in the ICT sector must meet a stricter requirement for BBBEE Ownership than those operating under the generic codes. For generic codes the target is only 25%, whereas the ICT Sector has a 30% target for ownership.

Amended Property Sector Code

The amended draft Property Sector Code has been made available with an invite to public for submission of comments by the end of December 2015. The Code is applicable to any commercial activities relevant to the commercial property and residential property sectors and includes the related value chain such as valuation services, estate agents, broker services, property management, development and related professional services. The Code provides for a black ownership target of 27% for firms owning property and a target set for financial support related to 51% black-owned companies involved in development and purchasing of properties. The Code includes an Economic Development element with a 10% target of the per annum investment for re-development or the development of property.

Sector Code Alignment Deadline

The deadline for submission of aligned Sector Codes was 15 November 2015 and the Minister announced that any Sector Codes that have not submitted the applications at the deadline date will be repealed. Sector Councils already received extension on May 15, 2015.

Business Effects of the Amended BBBEE Codes

Business owners and analysts have expressed their concerns with the possible impact of the Amended BBBEE Codes on business competitiveness. Though it was expected that businesses may drop one level on their BBBEE scorecard, the impact on QSEs may be extreme with some even facing a discounting to Level 5 or even 7, which will seriously affect their ability to compete favorably in the market. What should be of more concern for the economy is the possible knock-on effect where suppliers and business partners are will also face discounting because of doing business with a non-compliant partner, client or supplier.