SMALL businesses make up about 96% of businesses in SA, and will be among the biggest beneficiaries of the revised Codes of Good Practice for Broad-Based Black Economic Empowerment.

The revised codes are expected to be finalised by cabinet this month, almost a year after the second phase of the codes was released for public comment. But the bulk of the private sector and especially the small business community — are bound to find that it was well worth the wait.

The trade and industry department has, since the end-March cut-off for the public consultation process, substantially reworked the codes. While it has significantly simplified the codes for easier understanding and implementation, it has gone out of its way to ensure that it will not be adding to the regulatory, financial or capacity constraints already weighing on small companies.

Not only do the new codes exempt more of micro-enterprises from having to implement BEE, they also further ease compliance for small companies.

The department has revisited the thresholds and categories that define qualifying small enterprises and as a result of consultation with stakeholders, there is an increase in the thresholds for both qualifying small enterprises and exempted micro-enterprises.

While the draft codes said only enterprises whose annual turnovers fell below the VAT threshold of R300000 would be exempted, the threshold for exempted micro-enterprises is now R5m. The new codes have also increased the turnover threshold for companies that can be classified as qualifying small enterprises from R2m to R15m and R5m to R25m.

This means that firms with a turnover of R5m or less will be treated as BEE compliant; regardless of whether they are white or black-owned or controlled. Companies with turnovers of between R5m and R25m qualify for measurement against the qualifying small enterprises scorecard. They can therefore choose the elements they wanted to be measured against.

You may recall the draft codes said those companies that fall into the definition of a qualifying small enterprises need only comply with five of the seven elements featured on the scorecards. These elements are ownership, management, employment equity, skills development, enterprise development and corporate social investment.

The new codes require qualifying small enterprises to comply with only four of the seven elements. This means small companies do not necessarily have to sell stakes in their companies or even bring black partners and managers on board if they concentrate on achieving good scores for the remaining elements.

However, those companies which do comply with all the elements of the scorecard stand to earn extra points and all those who comply are eligible to bid for government work. This should be an attractive incentive for companies to comply with BEE.

Government said last month that it had drawn up a list of its 10 most procured products and that it planned to procure these solely from small, medium and micro enterprises in future.

While the plan still needed to be approved by cabinet, Trade and Industry Minister Mandisi Mpahlwa said in this way government would be contributing to growing and developing small business in this country and thereby benefit the South African economy.

These products are largely in the services sector, such as transport supply, information and communications technologies services, consultancy services and catering services. But it must be kept in mind that BEE credentials are among the criteria evaluated in the awarding of all government tenders.

Government further simplified the codes by doing away with the classification of qualifying small enterprises by sector and number of employees.

Previously companies, depending on the sector they operated in, had to employ 10 to 50 people to qualify for the eased application of BEE. But this was dropped due to concerns that this may inadvertently cap job creation in the small business sector, which employs more than half the number of people that work in the private sector.

Perhaps the bigger-picture consequences of the changed thresholds lie in the fact that more than 400000 companies, or an effective 96% of all companies in SA, will have to comply with no or relaxed BEE requirements.

This means that the burden of compliance will rest on the shoulders of the remaining 15000 to 17000 companies, representing 3,5% to 4% of all companies operating in SA.

Although only 3,5% to 4% of the economy will be subject to the full codes requirements, these companies collectively contribute more than 60% of the country’s GDP.

These companies also have the financial resources and capacity to ensure that they do meet the requirements. The companies that have their requirements relaxed or are exempt collectively contribute less than 40% of GDP.

Bridge is research and publications manager, Empowerdex.