Broad-Based Black Economic Empowerment In South Africa

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  • Broad-Based Black Economic Empowerment In South Africa
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Nicolas Sheard

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Nicolas Sheard

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Perspective 2022 vol 1
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Its impact on the South African Construction and Built Environment firms

Construction and Built Environment firms in South Africa face a very distinctive challenge when bidding or tendering for new projects. Irrespective of size, reputation, experience and capability, being awarded a project is not as easy and achievable as in other countries due to the B-BBEE (Broad-Based Black Economic Empowerment) legislation introduced by the Government of South Africa, which is unique and only applicable to firms registered and trading in South Africa.

The B-BBEE Act and initial Codes of Good Practice were gazetted by the Department of Trade and Industry (the DTI) in 2007 to provide a legislative framework for the transformation of South Africa’s economy. The aim was to redress the economic inequality that exists as a result of the exclusion of Black people from meaningful participation in the economy during the Apartheid years. It was conceived to advance economic transformation and participation of Black people in the South African economy by providing economic privileges and advantages.

‘Black People’ is a generic term that essentially embraces African, Coloured, Indian and Chinese South African citizens who were either born in South Africa or became a citizen by descent. Throughout the years, the Act has been amended to correct gaps and inadequacies identified in this empowerment programme, and has become the most significant piece of legislation affecting South African businesses today.

The DTI gazetted Sector Codes in recent years, which were sector and industry specific B-BBEE Codes developed on collaboration with major stakeholders in the relevant industries, addressing sector specific transformation requirements.

Contractors and Built Environment professionals are measured against the Construction Sector Code, which addresses the identified inequalities in order to unlock this sector’s potential and enhance its growth through the creation of equal opportunities for Black people and firms. The Construction Sector Code consists of two sub-sector codes for Contractors and Built Environment professionals, each with its own unique sub-scorecard, weighing points and targets, and is the most complex code with the highest targets in the B-BBEE environment. It makes it extremely challenging for firms in this industry to be compliant and remain competitive and sustainable.

While B-BBEE compliance for companies is not a legislative requirement, it is seen as a business requirement.  Having an official B-BBEE certificate is compulsory, and the Act requires all JSE listed entities to submit an annual compliance status report. However, the reality is that whether one complies or not, it has become an integral part of being able to do business and to be sustainable in South Africa. The increasing pressure from private clients and Government, together with the disqualification from participation in projects, has made it imperative to have a compliant certificate. Generally, an officially verified 51% Black ownership is required, with emphasis placed on Black women ownership.

Government tenders make use of a Preference Points system where the higher a tenderer’s B-BBEE Level, the more points they will score. Ultimately, the bidder scoring the highest points will be awarded the tender. To earn any Preference Points a bidder must have a B-BBEE Certificate. The B-BBEE Levels range from Level 1 being the highest and best, through to Level 8 being the lowest, and a Level 9, which indicates non-compliance.

B-BBEE compliance is measured against a comprehensive B-BBEE scorecard with targets and weighting points. A certificate is then issued indicating the scorecard points achieved under each element measured and confirming the resultant B-BBEE Level. The certificate is only valid for 12 months from date of issue and firms have to submit to an annual B-BBEE audit measuring the most recently completed financial year, and covering any new B-BBEE empowerment initiatives and spend. Consequently, B-BBEE compliance is an ongoing process and has to be proactively managed and maintained throughout each financial year to ensure you sustain a competitive advantage over your opposition.

There are five main elements measured under the latest Amended Codes:

Scorecard elementDescription
OwnershipThe percentage Black Ownership and Black Women Ownership (voting rights as well as economic interest) in the company are measured. There are various methods through which Black Ownership can be held e.g. individual ownership, indirect ownership through legal entities, employee share ownership schemes, broad-based ownership schemes, private equity funds etc.
Management control
The percentage Black Executive Management (Directors, Board Members, Top Management) as well as the percentage Black Non-Executive Management (Senior, Middle and Junior Management staff) are measured.
Skills development
The amount spent on training Black People through means of external training, internal training, bursaries, learnerships, internships and apprenticeships, as well as spent on disabled Black people are measured.
Preferential procurement and supplier development
The percentage of the total procurement spend is measured for procuring products or services from companies with compliant B-BBEE Certificates.

Supplier development is measured for providing monetary or non-monetary financial support and assistance through initiatives where the beneficiaries are small or medium sized majority black owned companies.
Socio-economic development
Monetary or non-monetary financial support and assistance provided through initiatives where the end-beneficiaries are Black People.

A firm’s B-BBEE Level is important to clients when they go through their own annual B-BBEE audit. A supplier with a higher B-BBEE Level will provide more enhanced recognition under the Procurement scorecard, whereas a supplier with a lower level will provide reduced recognition, and a supplier with a non-compliant Level will provide no recognition for the annual spend done with that supplier.

B-BBEE compliance is an expensive programme and a demanding portfolio to manage and maintain, but a B-BBEE Certificate increases commercial credibility and is your ticket to participate and prosper in the economy of South Africa. 

FURTHER INFORMATION:

Nicolas Sheard
Nicolas Sheard

Chief Executive Officer (RLB Pentad & Africa Group)