WITH the approval by cabinet of the broad-based black economic empowerment codes of good practice in December, South African businesses are keen to understand the implications of empowerment compliance targets.

The codes, which were gazetted earlier this month, exhibit a number of new options.

After an extensive consultation process involving civil society, big business, state-owned enterprises, international stakeholders and black businesses, the final codes intend to present a scenario where language has been simplified and the number of indicators being measured on the codes has been reduced from 42 to about 23.

This results in a significant reduction in the amount of time needed to spend to achieve BEE compliance.

Since BEE is intended as an economic growth strategy, it makes some sense that government has eased the regulatory burden on smaller enterprises, many of which already struggle under financial and capacity constraints.

Businesses with an annual turnover of less than R5m are now considered exempted micro enterprises (EME), and while not being required to comply with any of the BEE codes they automatically receive a compliance level of four.

Businesses with an annual turnover of between R5m and R35m are now considered qualifying small enterprises (QSE) and need to comply only with four of the seven BEE elements. Each element on the QSE scorecard carries a weighting of 25%. The draft codes of good practice held the EME threshold at R300000 and required QSEs to comply with five out of the seven elements. Each element measured only 20% on the QSE scorecard.

In addition, employee head-count has been removed as a determining threshold factor. In reality, EMEs and QSEs make up about 98% of SA’s businesses, leaving the remaining 2% typically with an annual turnover of more than R35m eligible to implementing all seven of the BEE elements.

Regardless of their expected total revenue, all start-ups are measurable as EMEs for the first year following their formation or incorporation.

Another notable easing up of the codes is the introduction of staggered targets. Three elements — employment equity, skills development and preferential procurement — allow for interim targets (to be achieved within five years) and end targets (to be achieved within 10 years), as a means of achieving compliance.

It means that businesses can develop short and long-term goals that are easier to implement.

The continuing consequence principle is a new addition to the codes. Basically, it means that, assuming the shares were held for more than three years, value was created in the hands of black people and there is demonstrable transformation, a company is able to claim a limited amount of ownership recognition even if the BEE partner has liquidated.

Multinationals have been provided with an extended option for their ownership requirements.

They are either able to sell off a portion of their local operations to black investors, or they can make an equity- equivalent contribution, for example towards social development or enterprise development interventions, that would be marked against the value of their South African local operations.

The trade and industry department seems confident that the new codes of good practice not only address the concerns raised by the key stakeholders, but that they would be implemented with much more ease and understanding. If so, we look forward to learning more.

Marr is director of BEE and enterprise development consultancy Social Advantage.