THE trade and industry department’s broad-based BEE codes of good practice, which were approved by Cabinet in December, were gazetted earlier this month.
So the codes are now binding on the state and at last we begin government’s envisaged “BBBEE age”, which is expected to last for at least 10 years.
The intention has been to simplify the codes by reducing the number of requirements; however, it does appear that by reducing the number of requirements it has made the codes more difficult to understand.
Be that as it may, the department has certainly opted for a business-friendly approach in its definitions of exempt microenterprises (EMEs) and qualifying small enterprises (QSEs). EMEs are any enterprise whose annual turnover falls below R5m while a QSE’s turnover falls between R5m and R35m.
The Small Business Review of 2003-04 found that companies that turned over less than R1m a year contributed only 10% to gross domestic product. The department obviously felt that adding BEE compliance to the already complicated rules of doing business in SA would not have a positive influence on the lower echelons of the SA economy. It raised the threshold up to R5m and thereby exempted about 450000 companies from any form of BBBEE.
EMEs are regarded as level four contributors which means that companies may claim R1 for every R1 they spend with EMEs on their own scorecard.
Despite their exempt status, EMEs are still not clear of the BEE woods. Of all sectors, EMEs are perhaps the one entity that should have the strongest working knowledge of their BEE status and what it means to their business. Rienzo Colpo of the Caird Group has identified these tips for EMEs:
Bigger companies (known as generic companies, with annual turnover greater than R35m) are awarded points on their own preferential procurement scorecard for buying from EMEs;
EMEs would find it a challenge to convince their clients that they are exempt. Most companies understand only the equity aspect of BEE and are quite likely to request a scorecard, shareholders’ details or any other BEE-related information
Colpo recommends that EMEs take a proactive approach and submit an affidavit confirming their EME status to their clients. One of our large clients is more than happy with a signed affidavit from EMEs;
There also seems to be little need for EMEs to be officially rated by a verification agency, as the evidence to prove their EME status is easily attainable. Every small business owner has a very clear idea of what his annual turnover is. The year-end financials should be kept on hand in case their EME status is ever queried by a client; and
EMEs should watch out for BEE courses or BEE software being offered as these courses and tools could have very little significance to their particular situation. There are many companies out there offering all sorts of verification services, courses and software tools without alerting EMEs that these services are not applicable to them.
There is a wealth of BEE information available, online and in the press. Experience has taught us that the best BEE information is contained in the financial publications, their reporting steers clear of the emotive and sensational. Other sources are blogs and websites.
There is no doubt that many EMEs will find themselves paying money for BEE things they don’t need; however this situation can be averted with a firm understanding of the new codes of good practice.
Janisch is a director of transformation consultancy Caird Group. He keeps a BEE blog at http://bbbee.typepad.com/paul_ janisch/.