Making BBBEE compliance work for your business
How businesses can benefit from BBBEE legislation.
The post-apartheid South African government implemented broad-based black economic empowerment (BBBEE) legislation as a policy to promote an equal-opportunity economy. The continuing business goal of BBBEE is to empower groups who had been disadvantaged by apartheid and provide them with economic and business opportunities that they were previously denied. BBBEE is intended to create more black-owned businesses in a viable, sustainable ecosystem. The aim is to give black-owned businesses access to public-sector procurement and business opportunities, and encourage the inclusion of more black women in business.
Government uses preferential procurement guidelines, the main mechanism of the BBBEE programme, to incentivise companies to use black-owned businesses as suppliers. Government departments at national, provincial and local level must award preferential contracts to BBBEE-compliant businesses, and also give them tax incentives. Apart from government departments, BBBEE compliance is also a factor when doing business with large private sector enterprises. So your BBBEE rating is important, no matter what business you own.
Business BBBEE requirements: A detailed look
BBBEE compliance is non-negotiable when doing business with government-related businesses or departments. It also enables you to:
- Apply for licences or concessions from the government.
- Tender for government-issued work and purchase orders.
- Enter public-private business relationships.
- Buy stakes in any state-owned enterprises.
Government compliance conditions are also relevant when you’re doing business with private sector corporations. If you’re supplying goods or services to a corporation, it benefits them if your business is BBBEE compliant, as well as enabling your business to take advantage of BBBEE incentives.
The compliance criteria for BBBEE in your business are laid out in more detail below, but there are situations where your business can be exempt from these requirements. The most common exemptions are:
- Exempted microenterprises
Exempted microenterprises (EMEs) are small businesses with an annual turnover of less than R10 million. The exemption means that EMEs are automatically assigned a BBBEE score of 100% – they do not have to conduct a full BBBEE verification to achieve a BBBEE level.
Their score cannot go lower than 100%, but it can go as high as 135% if the EME is 100% black-owned, so it still provides an incentive for larger businesses to use such EMEs.
How is compliance calculated?
Compliance with national BBBEE goals is calculated on a scorecard system evaluated according to 5 main criteria. These are given relative weightings, which in turn gives your business an overall score, commonly called your BBBEE rating or level.
1. Equity ownership (25% weighting)
Overall equity ownership of your business relates to shareholders and ownership rights. When this is calculated, the following factors are considered:
- Percentage of black female ownership.
- Percentage of black ownership below 35%, or above 65%.
The points … give you a score that qualifies your business for a certain accredited BBBEE compliance level
2. Management control (15% weighting, 4% bonus possible)
This refers to who has overall decision-making control of your company. Points are calculated based on the percentage of black individuals who:
- have voting rights,
- hold senior management positions, and
- have control of the executive board.
You should therefore make sure that at least 10% of management roles in your business are held by black individuals. Points are calculated based on the percentage of black individuals in senior management positions, voting rights, and the control of the executive board.
If done correctly, this could give your company 15 points on your scorecard.
3. Skills development (20% weighting, 5% bonus possible)
This refers to the extent to which a company invests in the skills development of its black employees. A business benefit of compliance in this area is that it improves your productivity and business sustainability by upskilling your workforce. There are 20 BBBEE scorecard points available and 5 bonus points for absorption. To gain points you can:
- Put your staff on a SETA-accredited learnership programme that is relevant to your business.
- Put unemployed or disabled black individuals on a learnership programme.
- Give bursaries to black students attending higher education institutions.
Absorption is a separate process that involves bringing black learners into your company as employees at the end of an accredited learnership programme. This will give you 5 bonus points for your scorecard.
4. Enterprise development (40% weighting, 4% bonus possible)
This refers to how much your company invests in developing smaller black-owned companies, through mechanisms such as preferential procurement, or enterprise and supplier development of these developing businesses. The minimum requirement for each of these 3 entities is 40%, which adds 40 points to your scorecard, with another 23 being awarded for majority black-owned businesses.
5. Socioeconomic development (5% weighting)
This is measured by the amount of money your company invests in uplifting communities and charities in need – with the condition that these partnerships should make strategic sense for your business.
BBBEE levels and your business
The points you accumulate on all these criteria give you a score that qualifies your business for a certain accredited BBBEE compliance level. This accreditation is your certification of your company’s BBBEE status and must be updated each year by an accredited agency. There are currently 8 levels, the highest being 1.
- Level 1
100 points and above. This means that you have 135% procurement, which is the ability to do business with government and enterprises that require BBBEE compliance.
- Level 2
85–99.99 points, or 125% procurement.
- Level 3
75–84.99 points, or 110% procurement.
- Level 4
65–74.99 points. This level represents 100% procurement, meaning that you are considered fully BBBEE compliant.
- Level 5
55–64.99 points, or 80% procurement.
- Level 6
45 to 54.99 points, or 60% procurement.
- Level 7
40–44.99 points, or 50% procurement.
- Level 8
30–39.99 points, or 10% procurement.
A company with a score below this last level is not compliant and if your business is not exempt, you’ll have no official procurement recognition.
The BBBEE landscape can be difficult to navigate. The Nedbank Business Team is on hand to help you with investments and advise you on procurement and empowerment issues for your business.
