Research Study and Training

Property Point says understanding the revised B-BBEE codes has big benefits for small businesses

Trevor Tshabangu, Director of Transcend Corporate Advisors.

Property Point, a Growthpoint Initiative, explored the revised DTI B-BBEE codes in its latest information-packed To-The-Point session in Johannesburg, helping small businesses and entrepreneurs get to grips with how this new development on the SA business landscape impacts them.

In a masterclass with Trevor Tshabangu, Director of Transcend Corporate Advisors, Property Point unpacked the main changes introduced with the revised B-BBEE codes. It highlighted how they impact different size businesses, the costs and benefits of implementing transformation strategies and the consequences if targets are not met.

Both Property Point and Transcend are focused on helping businesses thrive. Property Point is an enterprise initiative founded by Growthpoint Properties, South Africa’s largest JSE-listed property company. It has grown to collaborate with partners across the property industry, like Attacq, to drive enterprise development forward for the sector.

Shawn Theunissen, head of Property Point and head of Corporate Social Responsibility for Growthpoint Properties, says: “Property Point is here to support small business. We truly want to uplift and transform. To-The-Point sessions are always enthusiastically attended for the insight and access to leading business minds they offer entrepreneurs. The positive impacts are helping develop a vibrant SME sector.”

Tshabangu, a highly-regarded expert in B-BBEE Strategies and processes, says if your company’s current BEE strategy is based on the old B-BBEE codes, it is important to change your strategic focus and implementation to ensure transformation and alignment with the Revived B-BBEE Codes.

He adds that revising your B-BBEE strategy could also have big benefits for small business.

To business-hungry entrepreneurs Tshabangu says: “B-BBEE is not only a compliance issue, but a sustainable growth strategy if implemented strategically. It is there to address transformation. But it can be a selling point too. If you want to sell yourself and win that contract, read up, put a strategy in place, have a plan to sell yourself in it, and apply that.”

Tshabangu notes that about 80% of businesses in SA are small businesses under R35 million. When considering this figure, it becomes clear why most jobs are created within small businesses and underscores the important role they play in our economy.

Looking at the generic codes, Tshabangu believes, in general, the revised codes are harder to achieve. This is because priority elements and sub-minimums have been introduced, and targets in certain areas have been increased – in some instance even doubled. Some elements now have different measurements.

However, he notes the revised codes make it easier for small businesses to achieve higher ratings because compliance targets are lower for small businesses. But, it’s not only small businesses that benefit from this. Large enterprises that use small businesses as suppliers can reap exponential benefits for their own B-BBEE rating scores.

Tshabangu advises the first thing to be aware of for B-BBEE compliance are the changes in company turnover thresholds in the revised codes.

The threshold has changed from less than R5 million annual income a year to below R10 million in turnover to be an Exempt Micro Enterprise (EMEs). EMEs and Start-Ups (businesses less than a year old) are automatically recognised as Empowering Suppliers. That means they are recognised as compliant, good corporate citizens. In addition, all businesses with valid B-BBEE certificates are considered Empowering Suppliers. Companies with annual income between R10 million and R50 million a year are qualifying small enterprises (QSEs). Companies with annual turnover bigger than R50 million are large or generic enterprises.

Among the big changes to be aware of in the revised codes is the fact that scorecard elements have reduce from seven to five. Previously, the seven elements were: ownership, management control, employment equity, skills development, preferential procurement, and enterprise development with preferential procurement. In the revised codes, management control is combined with employment equity, and enterprise development is pooled with preferential procurement and is now known as enterprise and supplier development.

Tshabangu explains that previously QSEs could choose to focus on any four of the seven scorecard elements. Now, within the five revised scorecard elements, three priority elements have been introduced. They are Equity Ownership, Skills Development (SD) and Enterprise and Social Development (ESD). Under the revised codes, Large Enterprises must score 40% subminimum for all three priority categories. Making compliance a little easier for QSEs, they must score a least 40% for two priority elements. One of these elements has to be Equity Ownership. The two priority elements they can choose from are SD and ESD.

The priority elements now have new sub-minimum scores, and this is also important. If you fail to achieve a sub-minimum, whatever your total B-BBEE score level achieved, it will be discounted one level down until the next verification period when you are able to achieve the required sub-minimums.

Digging deeper into the three priority elements, when it comes to ownership, Tshabangu explains that EMEs with less than 51% Black ownership automatically qualify for B-BBEE Level 4 and enjoy a 100% procurement spend. If small businesses have Black ownership of 51% or over, they automatically qualify as B-BBEE Level 2 with 125% procurement spend. EMEs and QSE’s with 100% Black or Black female ownership are automatically B-BBEE Level 1, and benefit their clients with 135% procurement spend.

“There is no need for these companies to be rated by a verification agency, because they can simply produce an affidavit from a commissioner of oaths, a charted accountant with a practice number or the IRBA,” explains Tshabangu. “However, being verified has advantages, so we advise that all businesses, no matter their size, get verified if they can.”

He adds simply because a business automatically qualifies for a B-BBEE level 2 or 4, doesn’t mean it shouldn’t strive to improve its rating.

ESD represents a massive 44 points on the scorecard as a priority element. Within this, large enterprises have to meet three of five criteria, while QSE’s only have to meet one. “Compliance targets are much lower for small business, making it easier for them to achieve a better score,” notes Tshabangu.

The skills development priority element represents 25 scorecard points. Here again, QSE’s benefit from lower targets and more points. One of the big changes in this element is that skills development has been broadened to accommodate non-employees, encouraging businesses to start building a talent pipeline.

“All this means that while the new B-BBEE codes are simpler for small business to achieve, their clients also reap substantial benefits too,” says Tshabangu. “Companies that use compliant small business suppliers stand to score in three different areas of the scorecard: procurement, enterprise development, and socio-economic development.”

With this in mind, small businesses that are BEE complaint undoubtedly have a competitive edge in South Africa’s market place. Tshabangu adds: “By understanding the new revised B-BBEE codes, small businesses are better able to promote their advantages to clients and potential clients, while also doing the right thing by playing their part in South Africa’s transformation.”