The Codes of Good Practice (CoGP) are now in effect in terms of compiling your Broad Based Black Economic Empowerment (B-BBEE) scorecard. One aspect of the new codes that has caused difficulties is the Enterprise and Supplier Development (ED) category.
It is a priority element (if you miss your target scorecard, you drop a level), it carries 40 scorecard points out of 105 (there are also 4 additional bonus points) and it involves substantial changes with the previous codes.
What is Enterprise and Supplier Development about?
ED has two components:
- Supplier development or preferential procurement. There are 25 points on offer where 9 points are awarded for purchasing from 51% black owned businesses and 4 points for buying from businesses which are 30% owned by black women.
- Empowering suppliers with a total of 15 points. This consists of enterprise development or sector programmes to establish, incubate and mentor black owned small to medium sized businesses (5 points). Once established, there are 10 points for getting these businesses into best practices so they become a viable organisation. The target spend for empowerment suppliers is 3% of profit after tax.
The aim of this is to bring black entities into the economic mainstream.
This requires a considerable investment for a business which needs a B-BBEE rating. Careful strategic consideration is needed.
For example …..
You do a review of your business and your IT department is non-core to your organisation. It is mainly staffed by black employees and as your business is struggling to comply with ED, you approach the IT staff and propose they form their own company. You undertake to exclusively use their services, you approach the bank (they get B-BBEE points as well) to finance the business and you begin a mentoring process with the new black owned IT business.
Not only do you score ED points but you take out cost from your business. As you have negotiated a comprehensive service level agreement, you find an improvement in the firm’s IT performance.
As this business will presumably be a deemed micro-enterprise (turnover up to R10 million per annum), it will automatically qualify as an empowerment supplier. In addition, B-BBEE scorecard points are increased by 25% when dealing with a micro-enterprise which is 51% or more black owned.
To get scorecard points businesses must deal with empowerment suppliers (value adding in the previous codes) which means, inter alia,
- compliance with all laws,
- 50% of all new jobs go to black employees,
- 25% of all purchases are from local suppliers and
- 85% of labour costs must be paid to South African Citizens (if the business is a service industry).
To be successful in the ED category you need to be identifying (even, as in the example above, initiating) black businesses which you can mentor to a competitive state and then buy from them.
That’s a major win-win for everyone – you, your employees, and your BEE scorecard.
Ask your accountant for help. It is important to use an expert when implementing B-BBEE, the rules are myriad and subject to interpretation.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)