What is BBBEE? Understanding the Basic Principles

Broad-Based Black Economic Empowerment (BBBEE) aims to promote economic transformation and inclusion in South Africa. It has a profound impact on economic practices, yet many business owners don’t have a clear understanding of the policy. In order to truly understand BEE, we must uncover its 5 key pillars and associated legislation. What is BBBEE and how does it work?

 

Definition of BBBEE

BBBEE is a set of government policies and laws designed to address the economic inequalities from South Africa’s Apartheid era. It aims to level the playing field by promoting economic participation and business ownership among previously disadvantaged groups, particularly black people. The main law guiding this policy is the Broad-Based Black Economic Empowerment Act, No. 53 of 2003, along with its associated regulations. 

 

What does BBBEE Stand for?

BBBEE stands for Broad-Based Black Economic Empowerment. Nevertheless, people still refer to the policy as ‘BEE’ for the sake of brevity. It was also previously known as BEE when introduced in 1994. The name change happened in 2003 to reflect the BEE amendments of that year. The revised act places less emphasis on business ownership and focuses on the demographics of an entire business.

 

BEE Requirements

BEE requirements are the criteria and conditions that businesses must fulfill to comply with BBBEE policies. These requirements are designed to ensure that companies contribute to economic transformation and empowerment in South Africa. 

 

BEE requirements include:

• Compliance with the BBBEE Codes of Good Practice: Businesses must align their practices with the specific codes set out by the Department of Trade and Industry.
• Submission of Annual Reports: Companies are required to submit annual reports detailing their BBBEE efforts and progress. 
• Verification by Accredited Agencies: An official BBBEE scorecard is issued after verification by an accredited BBBEE verification agency. The scorecard evaluates performance across all five BBBEE pillars and determines the company’s overall BBBEE rating.
• Adherence to Sector-Specific Codes: Companies operating in certain sectors must follow additional guidelines and codes specific to their industry.

 

What are the 5 Pillars of BBBEE?

BBBEE operates on the foundation of five crucial pillars. The pillars serve as the core principles that guide BBBEE initiatives, aiming to rectify economic imbalances.

 

Each pillar contributes to a company’s BBBEE scorecard and determines its BBBEE level. Qualifying small businesses and large corporates that fall under the 12 BBEEE sector codes must adhere to these pillars.

 

The BBBEE pillars include:

• Ownership (25 Points)

Black ownership is based on various criteria, including the net value of shares, the influence of black individuals on business direction, profit distribution among black shareholders and the share payment timeline.

• Management Control (19 Points)

This pillar involves the representation of black individuals who guide the business’s direction, along with those in key management positions responsible for day-to-day operations.

• Skills Development (20 + 5 Bonus Points)

Measuring investment in black employee training and development, the Skills Development pillar acknowledges qualifying learnerships and upskilling programmes.

• Enterprise and Supplier Development – ESD (40 + 4 Bonus Points)

Businesses can claim points for offering ESD support programmes. An example of this is donating vehicles to black company drivers, helping them start a delivery business.

• Socio-Economic Development (5 Points)

Distinct from Corporate Social Investment (CSI), Socio-Economic Development creates sustainable access to the South African economy. A minimum of 1% of expenditure must go towards long-term social development initiatives.

 

BBBEE Legislation

The BBBEE Act establishes a legislative framework to advance economic empowerment for black people in South Africa. It grants authority to the Department of Trade and Industry to formulate BBBEE Codes of Good Practice.

 

The core BBBEE acts include:

• Employment Equity Act of 1998 (Revised in 2023)
• Skills Development Act of 1998 (Revised in 2011)
• Skills Development Levies Act of 1998 (Revised in 2010)
• Preferential Procurement Policy Framework (PPPF) Act of 2000
• Broad-Based Black Economic Empowerment (BBBEE) Act of 2003 (Revised in 2023)

 

Who Qualifies as Black for BBBEE?

In the context of BBBEE, people who qualify as black include black Africans, Coloureds, Indians and Chinese people (since 2008). To qualify, you must also be a South African citizen by birth, descent, or naturalisation. This classification is crucial for effective BBBEE implementation. It’s a way to acknowledge and include individuals from diverse backgrounds who have historically faced economic disadvantages.

 

Impact of BBBEE on South African Companies

The impact of BBBEE on businesses in South Africa has been significant, especially regarding ownership and senior management positions. According to a 2021 report by the BBBEE Commission, 51.5% of JSE-listed company directors were black South Africans.

 

However, there has also been a notable decline in the percentage of 100% black-owned businesses listed on the JSE. *In 2019, 3% of JSE-listed businesses were fully black-owned (the highest percentage to date). By 2020, this had decreased to 0%. Ultimately, this reflects the need to continue with BBBEE incentives in alignment with the sector charters.. 

 

Advantages of BBBEE

The decision to embrace BBBEE carries several advantages for South African businesses. While participation is voluntary, the benefits can improve a company’s annual turnover and opportunities within the broader economic landscape. Notable BBBEE advantages include:

• Enhanced Contract Opportunities: A BEE scorecard with more points increases the likelihood of securing government tenders and private sector contracts.

• Skills Development: BBBEE promotes learning across formal, non-formal, and on-the-job settings.

• Workplace Diversity: Employment Equity practices ensure fair representation of historically marginalised groups.

• Preferential Procurement: BBBEE encourages support for local black-owned suppliers, driving economic growth within communities.

• Enterprise Development: Investment in black-owned businesses leads to job creation and economic growth.

Disadvantages of BBBEE

While BBBEE aims for economic empowerment, there are disadvantages and challenges that can arise. This can discourage business owners from considering participation. Notable BBBEE disadvantages include:

 

• Inadequate Financial Resources: Fulfilling BBBEE ratings often requires significant financial contributions from the private sector.
• Inefficiencies in Decision-Making: Incorporating non-economic factors in business decisions can affect overall productivity and competitiveness.
• Fronting: Some companies attempt to bypass BBBEE through deceptive techniques like fronting. This involves assigning superficial roles to black individuals without giving them actual influence or involvement in the business.
• Risk of Unethical Activities: The pressure to meet BBBEE requirements might lead to counter-productive or even illegal activities.

 

Why is a BBBEE Rating Important?

Overall, BBBEE compliance is an important aspect of conducting business in South Africa, both for legal and strategic reasons. By obtaining a BEE certificate, companies can improve their competitiveness in the market. The certificate is issued after an in-depth verification process with an accredited BEE verification agency. It also demonstrates a commitment to social responsibility and contributes to the development of a more inclusive economy. 

 

*https://www.bbbeecommission.co.za/b-bbee-commission-annual-report-on-national-status-and-trends-on-b-bbee-show-stagnation-in-changing-ownership-patterns/ [Accessed: 15 August 2023]