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Framework for Broad-based Black Economic Empowerment [BBEE]

A guide for International In-Bound Businesses“a practical perspective”

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This presentation is not intended to be all encompassing of the BBEE process, it is a summarised KEYFACTS guide providing you with insight and salient key points for understanding .

OWNERSHIP

MANAGEMENT

EMPLOYMENT

EQUITY

PROCUREMENT

SKILLS

DEVELOPMENT

SOCIO ECONOMICDEVELOPMENT

ENTERPRISE

DEVELOPMENT

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What is Broad-based Black Economic Empowerment [BBEE]

BBEE is described as “not simply a moral initiative to redress the wrongs of the past.

• It is a pragmatic growth strategy

• that aims to realise the country’s full economic potential

• while helping to bring the black majority into the economic mainstream.

Broad Based Black Economic Empowerment is the cornerstone of the South African Government’s efforts to educate

and train the large sector of the population that was disadvantaged under apartheid rule. It aims to accelerate the

participation of black people in the economy by encouraging change in a number of key areas of business

When the South African Government gazetted the BBBEE Codes of Good Practice at the beginning of 2007, it made

the implementation of black economic empowerment a legal reality.

BBBEE is not intended to be a knee-jerk reaction that puts your business at risk or limits your operational capability. Instead, it is a process that works within the context of sound business practices.

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Broad-based Black Economic Empowerment [BBEE] – a business imperative

The business advantageAll businesses need access to capital and markets in order to operate successfully, and a carefully planned BBBEE strategy can help to provide these in the following ways:

• Providing access to finance for BBBEE companies is a priority for banks and other lending institutions. Assuming there is a strong business case to support the application, a BBBEE-compliant company is therefore likely to find it easier to access financial and related resources such as training and mentoring.

• Businesses that are BBBEE compliant have a competitive edge when tendering for new work. Preferential procurement is rapidly becoming standard practice and when all other factors are equal (such as price, quality and product offering), BBBEE compliance is the one factor that could determine which business wins the work.

BBEE is not about giving away or receiving free shares in a business just to meet legislative requirements. Rather, it is a tool for growth and sustainability that every prospective South African business owner should utilise to the full extent.

• Broad Based Black Economic Empowerment (BBBEE) is the cornerstone of the South African Government’s efforts to educate and train the large sector of the population that was disadvantaged under apartheid rule. It aims to accelerate the participation of black people in the economy by encouraging change in the key areas of business.

• When implemented correctly, BBBEE supports job creation, global competitiveness and economic growth. It also has the potential to reduce the burden on business owners creating a more skilled workforce.

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Broad-based Black Economic Empowerment [BBEE] – a business imperative

The business imperativeIn other words, they will require all their suppliers to be BBBEE-compliant and the cascading effects thereof will make it hard for any non-compliant company to grow or maintain their level of business success in South Africa.

In terms of the Codes, preferential procurement counts as much as ownership does, which means that publicly-owned companies will also be looking to use suppliers who themselves have high BBBEE ratings.

Even if you don’t do business with governmentor public entities, your clients might – and they will need your score to help improve theirs.

Simply put, BBBEE is an economic strategy, not a political one. A comprehensive, well thought-out empowerment plan can help to deliver both the capital and broader markets that your business needs in order to grow.

Is anyone exempt?• Only one category of business falls outside the ambit of

BBBEE regulation, and that is any enterprise with an annual revenue of less than R5 million. Known as Exempted Micro Enterprises (EMEs), these businesses automatically qualify as Level 4 BBBEE contributors.

• Ultimately, however, BBBEE affects everyone and every part of a business, and here’s why: the BBBEE Codes of Good Practice are legally binding on all State and State-owned entities, which have 10 years to reach the stated targets. This means that all government entities are obliged to use the Codes to measure BBBEE compliance when choosing suppliers, granting licences or making concessions.

Ownership

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Broad-based Black Economic Empowerment [BBEE] – The Scorecard Framework

SkillsDevelopment

TRAINING & DEVELOPMENT OF BLACK STAFF

Preferential Procurement

PURCHASES FROM

BBEE COMPLIANT SUPPLIERS

Socio-Economic Development

CONTRIBUTIONSTO PROMOTE

DEVELOPMENTOF UNDERPRIVILEGED

PEOPLE.

Enterprise Development

CONTRIBUTION TO GROW BLACK BUSINESS

WHOMANAGES

THE BUSINESS

ManagementControl

Employment Equity

WHO IS EMPLOYEDBY THE BUSINESS

The BBBEE generic scorecard, as well as any industry or sector codes that are based on it, will measure BBBEE

compliance in three broad areas: direct empowerment, HR development, and indirect empowerment. These are

further broken down into seven sub-indicators, as referred to above, ie, ownership, management and control,

employment equity, skills development, preferential procurement, enterprise development and socio economic

development.

WHO OWNS THE BUSINESS

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Broad-based Black Economic Empowerment [BBEE]–The Generic Scorecard Framework

The BBBEE generic scorecard, as well as any industry or sector codes that are based on it, will measure BBBEE

compliance.

Element Weighting Code series reference

Ownership 20 points 100

Management Control 10 points 200

Employment Equity 15 points 300

Skills Development 15 points 400

Preferential Procurement 20 points 500

Enterprise Development 15 points 600

Socio-Economic Development 5 points 700

Ownership

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Broad-based Black Economic Empowerment [BBEE] – The Scorecard FrameworkDRAFT AMENDMENT

SkillsDevelopment

TRAINING & DEVELOPMENT OF BLACK STAFF

Socio-Economic Development

CONTRIBUTIONSTO PROMOTE

DEVELOPMENTOF UNDERPRIVILEGED

PEOPLE.

Enterprise &

Supplier Development

CONTRIBUTION TO GROW BLACK

BUSINESSPURCHASES FROM

BBEE COMPLIANT SUPPLIERS

WHOMANAGES

THE BUSINESS

ManagementControl

The BBBEE generic scorecard, is subject to a pending amendment which reduces the Framework to 5 elements as

opposed to the existing 7. Enterprise Development and Preferential Procurement are combined , Employment

Equity is combined with Management Control

WHO OWNS THE BUSINESS

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Broad-based Black Economic Empowerment [BBEE]–The Generic Scorecard FrameworkDRAFT AMENDMENT

The BBBEE generic scorecard, is subject to a pending amendment which reduces the Framework to 5 elements as

opposed to the existing 7. Enterprise Development and Preferential Procurement are combined , Employment

Equity is combined with Management Control

Element Weighting Code series reference

Ownership 25 points 100

Management Control 15 points 200

Skills Development 20 points 300

Enterprise and Supplier Development 40 points 400

Socio-Economic Development 5 points 500

• Opportunism — this includes joint venture type arrangements with black people to boost one party's BBBEE status, but where the bulk of the work is outsourced back to the non-BBBEE company, or to its non-BBBEE-compliant suppliers.

Currently, those found guilty of the practice can be charged with fraud and face imprisonment.

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Broad-based Black Economic Empowerment [BBEE] – What “Fronting” means.

Simply put, "fronting" is the practice of misrepresenting your BBBEE status and claiming to be empowered in order to secure work, when in fact you are not. Any business arrangement that involves only token or superficial involvement by black people or a black company, can be regarded as fronting. This includes:

• Window dressing — when black people are appointed or introduced to a business purely because of their colour, and are discouraged or prevented from participating in the core activities of the business.

• Benefit diversion — when the economic benefits of a project that is awarded on the basis of a favourable BBBEE rating are diverted away from the black participants upon whom the rating is based.

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Broad-based Black Economic Empowerment [BBEE] – Documentation.

• The BBBEE evaluation is based on the assessment against each of the criteria on the scorecard.

• Each of the criteria require substantiation and evidence for assessment purposes.

The following reflects the validation documents that are required for assessment purposes.

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Broad-based Black Economic Empowerment [BBEE] – Scorecard Documentation.

• Official EEA2 and EEA4 forms as submitted to the Department of Labour

• The CM27 and CM29 forms, as submitted to CIPRO

• Employment records

• Written confirmation of directors' voting rights should this not be stipulated in the shareholders agreement. The declaration should be signed on behalf of the Board of Directors.

• A signed declaration by each Independent, Non-executive Director, confirming their relevant status.

• Name list attached of Top Management – with accompanying indication of gender, race, and whether the employee is foreign / not

• Official documentation of board members – with an accompanying indication of % voting rights, executive/ non-executive, race, gender, nationality

• Documentation of performance evaluation of employees

• Official EEA2 and EEA4 forms as submitted to the Department of Labour

• The EEA1 forms, with doctors documentation for all disabled employees

• Copy of Employment Equity plan and Affirmative Action policy

• Name list for all employees, with accompanying indication of gender, race, employment category, and whether the employee is foreign / not (already supplied.

• Photocopied ID documents of each employee

MANAGEMENT EMPLOYMENT EQUITY

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Broad-based Black Economic Empowerment [BBEE] – Scorecard Documentation.

• Copy of contracts with outsourced training providers

• Learnership agreements

• Most recent Annual Training Report as submitted to your SETA

• Skills Development Levy returns for scorecard period

• Be able to produce photocopied ID document of each employee (see above – Employment Equity)

• Record of each training intervention, including service provider (if any) / name of trainer, name of course, length of course, course category (according to the learning programme matrix), cost of course

• Substantiation of course costs in each case, ie record of what costs were taken into account, and be able to draw on invoices / financial records if necessary

• Record of each participant in each training intervention, including name of participant, gender, race, position in company

• Substantiation of Total Leviable Amount – ie, be able to draw on actual figures of each employee’s salary included in the total amount

• Be able to substantiate spend claims from each supplier (invoices as recorded by accounting department)

• Verification certificates for all the suppliers for which Client name will count BBBEE spend / proof of status if under R5 million turnover

• In the case of the supplier being counted as a Value Added Supplier, this must be stated on the verification certificate

• For exclusions, justification for the exclusion from the Total Measured Procurement Spend

• Be able to respond in the same way as the company would respond to annual auditors

SKILLS DEVELOPMENT

PREFERENTIAL PROCUREMENT

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Broad-based Black Economic Empowerment [BBEE] – Scorecard Documentation.

• Copy of agreement between Client name and Socio-Economic Development beneficiary company (if any)

• Financial substantiation of expenditure

• In the case of expert assistance / other assistance not financially recordable that is rendered by Client name to beneficiary company, a signed letter from the beneficiary company (on a letterhead) indicating the exact nature of assistance rendered by Client name

• A signed letter from beneficiary organisation (where applicable) stating the percentage of black beneficiaries of the contributions provided by Client name

• In the case of bursaries awarded, copy of ID book of beneficiaries, and contract entered into with Client name (where applicable)

• List of names, gender and race of each beneficiary from each recipient organisation where possible

• Income statement (used for NPAT figure)

• Verification certificate for all beneficiaries who are not EME’s or Category A beneficiaries

• For EME beneficiaries, proof of annual turnover

• Copy of agreement between Client name and Enterprise Development beneficiary company

• Scorecard of Enterprise Development beneficiary company

• Conformation of shareholders for Category A beneficiary companies

• Financial substantiation of expenditure

• In the case of expert assistance / other assistance not financially recordable that is rendered by Client name to beneficiary company, a signed letter from the beneficiary company (on a letterhead) indicating the exact nature of assistance rendered by Client name

• Income statement (used for NPAT figure)

SOCIO ECONOMIC DEVELOPMENT

ENTERPRISE DEVELOPMENT

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Broad-based Black Economic Empowerment [BBEE] – Scorecard Documentation.

• Shareholders’ Agreement Who owns the shares and what their rights of ownership are.

• Share Certificates and Share Register Proves current ownership

• All company registration papers Who the members of the company are

• Loan agreements most recent loan account statement If money has been borrowed to purchase the shares, the loan agreement will show the terms of such a loan. The most recent loan account statement will show what the current outstanding amount is – needed to calculate the score for Net Value

• Valuation certificate Shows the current value of the company – needed to calculate net value

• Any other agreement pertaining to the ownership of shares Indicates whether there are any other terms of agreement that would affect the rights of black shareholders.

• Affidavit confirming that all documentation supplied is the most recent and that there are no documents omitted.

• That you have no hidden agreements that may affect the BEE score.

OWNERSHIP

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Broad-based Black Economic Empowerment [BBEE] – BBEE Status.

BBEE Status Qualification on Generic Scorecard

BBEE Recognition

Level

Level 1 Contributor >100 points 135%

Level 2 Contributor >85 but <100 points 125%

Level 3 Contributor >75 but <85points 110%

Level 4 Contributor >65 but <75points 100%

Level 5 Contributor >55 but <65points 80%

Level 6 Contributor >45 but <55 points 60%

Level 7 Contributor >40 but <45 points 50%

Level 8 Contributor >30 but <40 points 10%

Non Compliant <30 points 0%

Based on the overall performance of a Measured Entity using the Generic Scorecard It receives the appropriate BBEE Status as follows:

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Other associated and relevant legislation.

• Employment Equity Act (1998)The Employment Equity Act applies to black people, all women and disabled people, and stipulates the requirements for affirmative action to ensure that qualified people from these groups are equitably represented in all occupational categories and levels of a company. The Act is binding on any business that employs 50 or more staff, or that has an annual turnover of more than R2 million to R25 million (depending on the industry in which you operate).

• Skills Development Act (1998) and Skills Development Levy Act (1999)These provide a framework for improving the skills and employment prospects of black people. These Acts also make it compulsory for certain employers to contribute a percentage of their payroll (known as the Skills Development Levy) to a fund that can be used to train staff. The current generic BBBEE scorecard awards points for skills development, but only for that which is over and above the payment of this levy.

• Preferential Procurement Policy Framework Act (2000)This allows any State entity to give preference to black people when awarding contracts. It also aims to boost SME development, create new jobs and promote local enterprises in specific provinces. Currently, the regulations of this Act are based largely on ownership, but this is likely to be revised in order to align it with the BBBEE Act and the Codes.

The BBBEE Codes of Good Practice evolved from a number of BEE initiatives since 1999, and are supported by several other, related pieces of legislation. Empowerment legislation in South Africa came about as the result of the myriad conflicting ideas on how best to achieve the economic equality that the country sought. This led to the formation of the BEE Commission in 1999, The basic tenet of the BBBEE Strategy Document is that BEE needed to be implemented in a manner that is sustainable in the long term, and that all BEE decisions must be based on sound economic principles.

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The Codes of Good PracticeWhile the Act provides guidelines on how empowerment should be constructed, the finer details are left to the Codes of Good Practice, which were gazetted in February 2007. These Codes provide clarity on what BBBEE is and how an enterprise's contribution should be measured.

Code 000: Outlines the general principles of BBBEE, including the generic scorecard and framework for

measurement.

Code 100: Measures the level of black ownership of a business.

Code 200: Measures the level of black management and control of a business.

Code 300: Outlines general principles for measuring employment equity in the workplace.

Code 400: Measures the extent to which employers develop the skills and competencies of black people.

Code 500: Measures the level of goods and services that a business buys from BBBEE-compliant suppliers.

Code 600: Measures Enterprise Development

Code 700: Measures Socio-Economic Development

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This presentation has aimed to provide you with an understanding of the core elements of BBEE. Operationally there is a vast amount of additional information and the information is freely available.

The entire BBEE process is an operational business imperative for any business in South Africa.

• The process is clear and should not be an inhibitor save when it is a poor or inadequately planned

implementation.

• It is commercially non intrusive, with a sound strategy and implementation plan provides significant

commercial benefits.

My contact email is:

cecil@corporatev.co.za for additional information and support

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