Broad-Based Black Economic Empowerment (B-BBEE) is a factor that affects business, and it is known to correct inequalities placed on black people, along with several other groups in the past through apartheid.
However, following 1994 and the end of apartheid, with the adoption of the new Constitution, there was significant provision made for government entities to consider black-owned entities, with the Preferential Procurement Policy Framework, which was written and promulgated, leading to the implementation of Black Economic Empowerment in 2003.
Implemented in 2007, B-BBEE in South Africa involves a specific B-BBEE scorecard that has five different elements and up to eight levels, with Level 1 being the most compliant, and level 8 being classified as non-compliant.
Unlike any other previous legislation, the new B-BBEE codes focus on all requirements that help to uplift economic participation, and to include:
- Socio-economic Development
- Supplier Development
- Enterprise Development
- Skills Development
- Employment equity and Management Control
What is enterprise development?
Enterprise Development, also commonly referred to just as ED, involves the investment of both capital (money) as well as time to help people establish, expand, or improve their business.
Enterprise Development typically helps people either earn a living or help them find a sustainable way out of poverty, resulting in long-term economic growth not only for the individual but also for their families and the communities in which they live and operate.
Enterprise Development is a critical component of Broad-Based Black Economic Empowerment, typically referred to either as B-BBEE or BEE, is an accepted way to combat poverty on national and international levels.
What is enterprise development in B-BBEE?
B-BBEE was designed specifically to ensure that there is economic transformation as well as redistribution in the corporate section in South Africa. The latter is to the benefit of all racial groups who previously experienced discrimination, or who are subjected to inequality.
B-BBEE works to correct inequalities due to a lack of opportunities where education, skills and development is concerned. This results in stimulation of the process of participation of previously disadvantaged groups in the South African economy. It also leads to increased economic growth and equality.
Enterprise Development (ED) alongside Supplier Development (SD) forms part of the three Priority Elements of the Broad-Based Black Economic Empowerment Scorecard. Businesses are required to achieve at least 40% subminimum of each category on both the ED and SD scorecard.
Where businesses fail to comply with this minimum of 40%, it will result in a drop of one level on the business’ B-BBEE scorecard. Entities may then make monetary or non-monetary contributions to a specific Beneficiary Entity.
Depending on the company, industry, and sector in South Africa, there may be specific requirements subjected to verification on a specific Sector Code. Where both ED and SD are concerned, beneficiaries must be at least 51% black-owned.
In addition to this, the beneficiary must be an Exempt Micro Enterprise (EME), with an annual turnover of less than R10 million, or a Qualifying Small Enterprise (QSE), with an annual turnover of less than R50 million, as per the specific Sector Code.
How does enterprise development work?
Enterprise Development works to create sustainable businesses that can grow, leading to increased and effective job creation and, subsequently, contributes to a growing economy in South Africa.
Enterprise development alongside B-BBEE in South Africa can result in the growth of more small businesses. It can also help those who enter the job market with opportunities, ensuring that these opportunities are not only feasible but sustainable.
There are many Enterprise Development programmes aimed at transferring skills along with wealth, which will lead to the sustainable growth of a business if it is done strategically.
This means that Enterprise Development is a strategic priority for the South African government. It is therefore imperative for private companies and large corporations to become involved in the efforts to provide opportunities to local entrepreneurs.
Through dedicated efforts made by private companies, South Africa will be able to face increased pressure surrounding a globalized economic environment.
Enterprise Development is a business (Measured Entity) to black business (Beneficiary Entity) transaction and the aim with this is to offer contributions that will assist in the operations, finances, and development which will lead to business sustainability.
The Enterprise Development contributions can take a variety of forms, and it is not the value of a contract that is given to a black-owned business, but the contributions which are made toward technical aid, the transfer of knowledge and skills, operating cash flows, and either loans and/or investments.
These are known as an Enterprise Development Programme, which consist of these components:
- Preferential Procurement
- Supplier Diversity
- Supplier Development
- Enterprise Development
While these programmes are an effective way for black-owned EME and QSE’s to receive help from larger organizations, the requirements are quite stringent, one of which involves the ability to deliver goods and services to a level that the supporting company expects.
However, ESD projects are a joint-venture that can lead to quantifiable and measurable results and various business benefits. Those who qualify as Measured Entities must also ensure that they embark on an ESD project with sound reasons, including the following:
- Improvements in the existing B-BBE rating of the company
- Improvements in beneficiary performance
- Reduction of costs
- Resolution of serious quality issues
- Development in supply routes
- Business improvement and alignment between the beneficiary and sponsoring organization.
Development of products and/or services that are not currently available in the South African marketplace
Generating competition for a higher price product and/or service which is dominating the marketplace in South Africa
Lastly, the types of contributions that are made to either Enterprise Development or Supplier Development can be any of the following:
- Grant contributions
- Direct costs incurred by the Measured Entity (ME) on behalf of the Beneficiary Entity.
- Discounts in addition to normal business operations.
- Professional services rendered by the ME to the Beneficiary Entity free of charge.
- Overhead costs which are incurred by the ME on behalf of the Beneficiary Entity
- Loans on favourable terms, and several more.