What is BEE? Someone may wonder what this means especially if they are not in business. Basically, BEE is Black Economic Empowerment which is a racially inclusive initiative by the government of South Africa to redress the inequalities brought during apartheid. This program seeks to offer Africans, that is blacks, Asians, and coloureds citizens of South Africa, equal opportunities accorded to whites as affirmative action.
BBBEE, on the other hand, is the Broad-Based Black Economic Empowerment which is responsible for the implementation of BEE as it provides the legal legislative framework for its implementation. The BBBEE act of parliament was amended and became operational from October 24th, 2014.
BEE levels explained
To be BEE complaint depends on the score and procurement recognition you get as a business. 100% owned black EME are level 1 compliant which translates to 135% procurement recognition. What this means is that with an annual turnover of between R10 million and R50 million, you are categorized as a Qualifying Small Enterprise(QSE). Check out the following levels and their explained procurement qualifications. They explain the BEE contribution level, the scorecard points, and procurement recognition percentage.
- Level 1 - 100 points and above - 135% procurement
- Level 2 - 85 to 99.99 points - 125% procurement
- Level 3 - 75 to 84.99 points - 110% procurement
- Level 4 - 65 to 74.99 points - 100% procurement. This level s considered to be BEE fully compliant.
- Level 5 - 55 to 64.99 - 80% procurement
- Level 6 - 45 to 54.99 - 60% procurement
- Level 7 - 40 to 44.99 - 50% procurement
- Level 8 - 30 to 39.99 - 10% procurement
- You are Non-compliant if the points are below 30 and as such no procurement recognition is availed to such.
What is the BEE scorecard and how does it work?
The BEE scorecard is an important element in any business in South Africa. Business owners are advised to understand the scoring for their own good. This is because the higher your BEE score, the higher the chances of your business gaining from different opportunities. As already described above, the scores are given based on different weighted elements.
Apart from ownership, other areas that are looked into include management, employment equity, skills development, enterprise development, preferential procurement, and socio-economic development. The new BBBEE level came into existence in 2013. Although there are slight variations, the basics remain the same. For instance, BBBEE level 1 contributor must have attained 100 points on the generic scorecard to attain a recognition level of 135%.
What are the benefits of BEE certification?
With an emphasis on scoring higher in BEE, one may wonder what the true gains really are. One thing is clear though, businesses stand to benefit in various ways including:
- You will be able to offer services to government and large corporates if you have a higher BEE score as an incentive
- It comes with favourable tax gains
- You stand to get more business
How does it work for different sized companies?
While generally all companies are advised to consider the BEE scores, the application differs depending on the size of the company in question. As of now, large companies and the government need to support small businesses that are BEE compliant by choosing their services over other companies. In case you have the certification, the companies that buy from you can also claim their own BEE points by virtue of being your customers. This act applies to 3 different sized companies as described below:
- Exempted Micro Enterprises (EMEs)
This category refers to a business whose annual turnover is below R10 million. These companies are exempted from the scoring and area warded an automatic 100% compliance without factoring any other elements. It could increase to 135% if there is black ownership.
- Qualifying Small Enterprises (QSEs)
Before, these companies hose annual turnover is between R10 to R50 million only had to comply with some of the elements. However, with the new revised BBBEE, they must meet all 5 elements on the scorecard and points.
- Medium to large enterprises (M&Ls)
Just like the businesses in QSEs, the Medium to large enterprises must also meet all the 5 elements on the scorecard to be rated. The category of businesses here turns over R50 million every year.
BBE score criteria
Previously, 7 categories were considered when scoring. These have been reduced to 5 as follows:
1. Equity Ownership
Accounts for 25% of the weighting. This concerns the voting rights and shareholding. When calculating the score, black ownership is generally considered, as well as the ownership by black women specifically. The acts also allow for the calculation of ownership and voting rights among certain groups, with a good example being between those aged below 35 years and also above the age of 65.
2. Management Control
Takes up to 15% of the weighting with a 4% bonus for certain criteria. It accounts for the extent to which voting rights on the board is held by black members, the control of the executive board, and what percentage of senior management is held by blacks.
2. Skills development
This accounts for 20% weighting with a 5% bonus for certain criteria. Here, the extent to which a company invests in its workers and works towards the improvement of their skills and competencies with a bias to its black workforce.
3. Enterprise development
Takes up 40% weighting with a 4% bonus for certain criteria. This focuses on the extent to which small, black-owned companies receive support and are helped to develop.
4. Socio-economic development
Accounts for 5% of the weighting. This one focuses on the extent to which a company carries out social investment initiatives.
Even though you may have wondered what is BEE, by now you understand that this is a crucial system that business needs to work on complying with. Any business owner that wants to increase their chances of getting business deals should work on being compliant.
DISCLAIMER: This article is intended for general informational purposes only and does not address individual circumstances. It is not a substitute for professional advice or help and should not be relied on to make decisions of any kind. Any action you take upon the information presented in this article is strictly at your own risk and responsibility!
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