The revisions to the BEE Codes of Good Practice in 2015 had serious ramifications for businesses across all sectors in South Africa. Among the biggest changes was the amendment to the preferential procurement section of the BEE scorecard. Where previously entities had earned points for doing business with value-adding suppliers that had good BEE ratings themselves, suddenly the bar was higher, and they were required to engage with “Empowering Suppliers” in order to get points. This proved challenging for many companies, with the result that the Department of Trade and Industry (DTI) put the provision on hold in November last year.
This announcement was met with a sigh of relief, as, until further notice, entities in South Africa will enjoy automatic recognition of Empowering Supplier status. All valid BEE verification certificates, Exempt Micro Enterprise (EME) and relevant Qualifying Small Enterprise (QSE) sworn affidavits and the Companies and Intellectual Property Commission (CIPC) certificates issued on or before April 30, 2016 will be recognised as Empowering Supplier until the date of expiry, and any entity measured on or after May 1, 2016, will be recognised as such until a further notice is issued.
This provides entities with a bit of breathing space and the time needed to get their BEE plans in order. The requirements for Empowering Suppliers, which, once the hold period ends, will once again come into effect are threefold.
- The entity must be BEE compliant. They can have a level of one, four, eight or any other number on the BEE scorecard; the rating will, however, affect the percentage of the supplier spend that can be claimed towards the engaging company’s procurement targets (therefore, the higher the score the more likely the supplier is to get business).
- The entity must be a good corporate citizen. This means that they need to be compliant with all relevant South African laws and regulatory requirements, including tax, occupational health and safety, employment equity and skills development.
- Finally – and this is the requirement that was found to be most difficult to meet in the past two years – the entity must meet one or three of the following criteria, depending on whether they are a QSE or Generic Enterprise. EMEs are not required to meet any of these five requirements:
– At least 25% of the cost of sales, excluding labour costs and depreciation, needs to be spent in South Africa.
– At least 50% of jobs created must be for black people, provided that the number of black employees since the time of the prior BEE verification is maintained.
– At least 25% beneficiation/transformation of raw materials (locally).
– A minimum of 12 days per year need to be allocated to helping black EME and QSE beneficiaries improve their operational and financial capacity.
– In the service industry, 85% of labour costs should be paid to South African employees.
As these provisions have merely been placed on hold, it is advisable to start making the necessary changes in your business to ensure that it retains Empowering Supplier status once this period of leeway comes to an end. Cenfed can assist you in this regard – contact one of our consultants to find out more.
Photo by: FreshWaterHouse