• Date Posted: September 29, 2015
  • Author: Deon Oberholzer

You wanted to know how bad the new codes crisis was…now we can tell you.

Thousands of businesses face the imminent threat of losing their empowerment status with the new codes – in many cases, crippling their volumes and growth prospects at a time when the economy faces possible recession. We have uncovered the likely scale of the new codes crisis following scrutiny of real-life impacts at more than 1000 companies across numerous industrial and service sectors. Businesses have long feared that next year’s implementation of the Department of Trade and Industry’s amended new codes will compromise their status. Now, after detailed work in sector after sector, we have built an accurate picture of how severe the consequences might be.

Our studies on the new codes show that it’s not just a case of a business falling by perhaps one level. Many businesses will plummet from a previously acceptable Level 2 or 3 to Level 5, with a potential for discounting down to Level 7 or a non-compliant status. Typically, we see point tallies in the high 80s and 70s under the old codes falling to the mid-20s under the new codes.  The impact is notably worse for Qualifying Small Enterprises (QSEs) – those with an annual revenue of between R10 million and R50 million.

Non-BEE compliance on the new codes for these companies will have knock-on effects across the business. Affected companies that previously used strong BEE credentials to secure competitive advantages will need to totally rethink marketing strategies and customer relationships. The effects are seismic. Business as usual is impossible, but many firms remain unaware of how serious the situation has become with the new codes. For our clients, the wake-up call comes in the form of a Veri-Com Impact Assessment and Scenario Planning Report itemising points potential across the five empowerment categories – ownership, management control employment equity, skills development, preferential procurement enterprise development and socio-economic development.

Demand for this inside track on the potential for a points’ meltdown has rocketed. In a year, our volumes attributable to this service have tripled. We expect demand to rise even further as it dawns on companies that they will have to comply with the new codes by the end of their current financial year, which often means the end of December 2015 or February 2016. We are concerned that the lack of a competitive current BEE profile for 2016 and 2017 will not only dent growth prospects at companies serving government and state-owned enterprises. Major corporates are widely expected to revisit supplier relationships to ensure that they receive maximum credit for dealing with empowered suppliers. At Gestalt, we believe that the knock-on effects of the new codes will be most severe for QSEs

It’s not all bad news. After the impact assessment, we move on to scenario planning. This usually generates specific action points with the potential to cushion the blow or bolster a company’s projected status. We even see cases where elevation to Level 1 is possible with the new codes. But it takes time to develop the right strategy and maximise the gains. If you’re serious about maintaining momentum in a tough economy, delay is not an option.