In an effort to allay fears by business that newly reworked black economic-empowerment (BEE) legislation would stifle growth and introduce further bureaucratic convolution, the Department of Trade and Industry (DTI) has assured the private sector that the Amended Broad-Based BEE (BBBEE) Codes of Good Practice seek to provide opportunity to the previously economically marginalised rather than to penalise traditionally white-owned and controlled industries.

Noting that the BBBEE legislative framework had been revised to drive supplier development, localisation, job creation and skills development, DTI BEE unit acting chief director Liso Steto told a gathering of business owners, BEE verification agencies and the media on Wednesday that the amended codes were “more focused and constructive”, while strengthening the consequences for noncompliance and deficient reporting.

The BBBEE Act, as amended by the BBBEE Amendment Act, came into effect in October last year, ushering in significant changes in the areas of compliance, monitoring, enforcement and implementation, and was followed by the introduction of the BBBEE Codes of Good Practice in May.

“The DTI will do its best to provide clarity to facilitate the process of [adherence] to the revised codes, which have been sculpted through inputs from business, labour and civil society.

“They are a reflection of what we’ve been told is required to make a shift [in terms of empowerment and transformation]. There are, however, certain things that can be misunderstood, which is the purpose of our ongoing engagement with [the private sector],” he said.

PRIORITY ELEMENTS
Outlining the key changes contained within the amended codes, Steto noted that the new codes would allow greater alignment with the BBBEE Act and would reduce the seven compliance categories to five, merging employment equity with management control, and enterprise development with preferential procurement, while retaining ownership, skills development and socioeconomic development.

Emphasis had also shifted from ownership to include the priority elements of enterprise, supplier and skills development. Of the 109 available points on the scorecard, 25 were for ownership, 20 for skills development and 40 for enterprise and supplier development.

Measured entities were required to meet 40% of each of the priority elements or have their overall BBBEE recognition level discounted one level down.

Thresholds for exempted microenterprises (EMEs) had, meanwhile, been increased from yearly revenue of R5-million to R10-million, while the threshold for qualifying small enterprises (QSEs) had been lifted to those with a yearly turnover of between R10-million and R50-million.

Large entities were considered those earning upwards of R50-million a year, he added.

EMEs and QSEs that were 50% black-owned automatically qualified for a level two status, while those that were 100% black-owned were considered level one contributors.

“The codes also enhance the recognition of black-owned EMEs and QSEs . . . and all companies, except for EMEs, will have to comply with all five of the compliance elements.

“In this way, we’ve sought to relieve the pressure on smaller, family-owned businesses,” he commented.

TRUMP CLAUSE
The amended legislation also contained a new addition – the so-called “trump clause” – which was a provision under the interpretation clause that stated that the BBBEE Act trumped any law in force prior to commencement of the Act if conflict arose between the two in relation to any aspect that was dealt with within the ambit of the BBBEE Act.

“This could pertain to [conflicting] provisions in National Treasury, the Department of Energy, the Department of Transport, the Department of Public Enterprises and the Department of Mineral Resources.

“We want to align our approach so that there is no confusion about what we expect from industry,” he said, noting that this provision would come into effect in October 2016, following a 12-month transition phase.

ADD-ONS
The amended legislation would further result in the formation of a BEE Commission, which would complement the functions of the DTI’s BEE unit and report to the department’s accounting office.

Its mandate would be to oversee, supervise and promote adherence to the BBBEE Act; receive and investigate complaints relating to BBBEE; investigate any matter relating to BBBEE; promote advocacy and educational programmes relating to BBBEE legislation; maintain a registry of major BBBEE transactions; and receive and analyse prescribed reports concerning compliance.

“The process to establish the commission is at an advanced stage and we are awaiting Cabinet consultation before appointing a commissioner, which is expected by next month.

“In two to three years, we expect to have a fully-fledged, strong entity, but it will be visible and available this year,” he said.

Further provided for under the amended codes was the introduction of penalties and prohibitions, replacing earlier “soft” legislation that lacked consequences for noncompliance.

The legislation also introduced the concept of a BBBEE verification regulator, which would regulate the verification industry to avoid fronting.

Under the new codes, the Trade and Industry Minister’s powers had also been clarified and extended, enabling him or her to issue codes or establish regulations.

“The Minister may also allow State-owned companies and public entities to set higher criteria for procurement and other economic activities,” Steto held, adding that the legislation now provided explicitly that every organ of State take into account the relevant BBBEE Codes of Good Practice when undertaking its mandate.

Private sector companies would, meanwhile, be required to adhere to stricter BEE requirements to access DTI incentives.

Attempting to reassure business over the new sector-specific codes that would be introduced under the amended Act, Steto said the codes were sector-driven initiatives that aimed to create a “harmonised environment” for the implementation of transformation and empowerment policies.

Companies that derived over 50% of revenue from a particular sector would be required to be measured for BBBEE compliance.

Ten sector codes had thus far been gazetted and would be made effective on November 1.

He added that the DTI had completed a BEE verification manual for use by the verification industry that would be published by the end of the month. The department was in the process of finalising a technical assistance guide for business to ensure legislative compliance.