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What The New B-BBEE Codes Mean For Your Business

 

Now that the dust has settled after the new B-BBEE code amendments have been announced, Deon Oberholzer, CEO of Gestalt Growth Strategies  and sustainable transformation expert weighs in on what the amendments mean for your business.

Before we start, it’s important to understand the context for the amendments by taking into account 2 events. The first being that the B-BBEE Commissioner declared a large number of Broad-Based Ownership schemes and trusts invalid for BEE ownership recognition. And secondly, as an apparent parting gift from retiring Minister Rob Davies, the DTI gazetted the final versions of the draft amendments that came out for public comment about a year ago. The gazette includes an updated General Statement 000 (General Principles) and changes were made to Statement 300 on Skills Development, Statement 400 on Preferential Procurement and ESD, and Schedule 1 containing the definitions used in the Amended Codes and a few Sector codes.

Here are the most notable amendments according to Gestalt.

Timelines

Luckily the implementation for these changes has a grace period, but it effectively means any company with a financial year ending after the end of November 2019 will have to affect these amendments in their current financial year. This includes the vast majority of businesses in South Africa.

Oberholzer cautions businesses to take careful note and expect verification agencies to be compelled to apply the changes to any verification from December onwards, irrespective of the financial year or measurement period. He explains that “if your year-end was in December 2018 or February 2019 to be sure to have your next BEE certificate done by November 2019 prior to these amendments affective date. There would be very little leeway to change skills development and procurement retrospectively, so it is unlikely to be to your advantage to linger.” Notably with regard to skills development, absorption is redefined and the option of term contracts or continued education is removed.  Absorption now means a contract of employment until mandatory retirement. These changes will have tremendous impact on further education and development of new staff, more on this later.

No Generic Exemption For Big Black Business

Interestingly the biggest bombshell is not what was included, but was EXCLUDED entirely.  2018’s draft Statement 000 included a conditional exemption for Large Black Owned Companies; however, this clause has been removed in the final version.

This means all companies with annual revenue in excess of R50m have to comply with the Codes without the option of exemption. Make no mistake, Black Owned Companies will continue to enjoy significant preferential treatment over all other companies, especially if they operate anywhere in the government’s extended value chain. However, there will be added pressure to ensure that the broad based emphasis of the codes are equally engaged with no matter the shareholding.

Probably one of the most exploited “escape clauses” in the previous Codes was the exemption of 51% Black Owned EME and QSE companies. A plethora of ownership schemes, scams and structures mushroomed under this pretext “with only 26% effective ownership” held under easy to dismantle structures. Understandably the Commissioner issued a modification to this flow-through principle.  An unintended consequence however, the Codes did not specifically preclude, lead to considerable debate. The new release makes it clear that exemption can only be based on 51% and 100% using the flow-through principle.

The dispute is, however, far from over. The current release does not address the ownership element with regard to broad-based ownership schemes. The B-BBEE commissioner castigated several of the dominant broad-based schemes, triggering intense debate in the media. Should your business have such a scheme in place, Oberholzer recommends you seek advice from an expert B-BBEE consultant to help you navigate your way through this matter.

#FeesMustFall University Subsidy Scheme.

It would seem that government’s apparent response to the #FeesMustFall student-led protest movement is to pass some of the responsibility to business. Skills development expenditure has now been separated into 2 streams, namely funding students for higher education and everything else.

The total skills development target of 6% has not changed, but 2 more points have been allocated to the total expenditure score to increase it to 10. Of this, 4 points are allocated to “bursaries for students at higher education institutions with a target of 2.5%, and 6 points for any other qualifying training utilizing the remaining 3.5% of the allocated spend.

Few companies manage to get full points for the expenditure targets in Skills Development and it is interesting to note that a company that spent 3% (or half of the 6% target) would have received 4 points in the past and qualify for 5.14 points now.

This shift towards higher education will likely have a positive impact, as it will assist the plight of poor students with the added benefit of creating a more direct link between students and industry.

Obzerholzer says, “Any expectation that companies will henceforth spend 2.5% of their payroll on bursaries for full time students is unrealistic and we can expect a number of more business-friendly or budget friendly models hitting the market. Fortunately, a work linkage is added in, in the form of allowance for student stipends. We expect that the most popular models will contain some form of ‘study while you work for a stipend’ programmes, in combination with a strong focus on online learning. There are a growing number of learnerships and skills programmes that run on similar models.”

“One hopes that SARS will produce a higher education equivalent to the Section 12h tax benefits and further that the SETAS investigate more favourable discretionary grants for higher education. If this happens, we may have the potential to achieve some phenomenal and sustainable career outcomes for our youth.”

The 2 points mentioned above were skimmed off the Internship, Learnership and Apprenticeship headcount points without a reduction in headcount targets, but the employed and unemployed categories are now blended along with their targets to go from the previous 2.5% each to 5%.

However, with demographics as the basis of the calculation, it will be beneficial towards business, and the Coloured and Indian minority groups that were largely excluded from this opportunity in the past.