Getting your BB-BEE score right – Part 1

The original concept of Black Economic Empowerment, developed in 1994, was based purely on a company’s level of black ownership. Later, however, this was acknowledged as an ineffective way to measure empowerment. It only benefited a few and therefore, the base was too narrow. Broad Based Black Economic Empowerment aims to broaden the base of black people involved in and benefiting from economic activity.

In October 2013, the DTI amended the BB-BEE codes of good practice. The seven elements of the BB-BEE scorecard have been reduced to five. The DTI collapsed the Management and Employment Equity elements into Management and Control, and Preferential Procurement and Enterprise Development into Enterprise and Supplier Development. The five BB-BEE scorecard elements are now:

  1. Ownership
  2. Management and Control
  3. Skills development
  4. Enterprise and Supplier Development
  5. Socio-Economic Development

The grace period for assessment of companies under the new codes has passed. From now on, everyone will be assessed under the new codes. The demands under the new codes are far more stringent. Just to keep their previous score, companies will have to do approximately 25% better than previously.

According to Trevor Shabango, from Transcend Advisors, who presented at the Community of Experts workshop on BB-BEE, many companies will drop by at least 4 levels, when assessed this year under the new codes.

Given the need for companies to up their procurement score, buyers will want to work only with suppliers whose BB-BEE score will increase their own score. In other words, the BB-BEE score is no longer a compliance exercise but now a competitive advantage.

Unfortunately, many companies have not yet realised that. They often wait until the last minute when their current BB-BEE is about to expire before they start to consider what they are to do for the next audit, which leaves them with only a few options to influence the outcome.

If you are interested in advice on how to avoid a downgrade, click here.

Article – Getting your BB-BEE score right – Part 1

In our last article, we talked about the importance of keeping your BB-BBEE Scorecard up-to-date and avoiding a downgrade. One of the easiest ways for companies to improve their score is Skills Development.

Skills Development is now also one of the priority areas. This means that if a company does not score at least 40% of the available points (i.e. 10 points), its overall score will reduce by one level. But if proper investment in Skills Development occurs, a company that could only score 15 points in the past can now earn 25 points.

The biggest change is that companies now have to spend more than ever before on accredited training. Companies must spend 6% of its payroll expenditures on accredited training, whereas in the past, the figure was only 3% and did not need to be accredited.

Another major change is that a company can include outside training in its calculation. In other words, a company does not only have to train its own staff but can now sponsor the training of people not employed by the company. Supporting NGOs or paying bursaries for students is an attractive option, particularly if we consider the current funding crisis in higher education.

As in the past, 5% of a company’s headcounts need to be enrolled in an internship or apprenticeship. Under the new codes, half of them need to be chosen from amongst the current staff and the other half need to be unemployed candidates.

A company can earn an extra 5 bonus points if 70% of the previously unemployed learners obtain gainful employment. It is important to note that the percentage calculation derives from the number of people who completed the programme and not from the number of learners who started.

Keep in mind that training expenditures only count if the participants are black. The new codes want to make sure that the amount spent on training is representative of the racial and gender demographics of an area where a company operates. For example, let us say that a company is located in the Western Cape, its training spend must be proportional to the distribution of the population in that area. The codes refer to this as the Economically Active Population (EAP).

Establishing how to calculate these proportions is challenging for most companies. Therefore, we have dedicated much time in the workshop on how to calculate these EAP numbers. Realising the complexity of the task, i-Fundi together with Transcend will shortly release an app, similar to a home loan calculator, which will help companies to establish these targets easily for themselves. If you would like to pre-order your own EAP app from i-Fundi and Transcend contact us today.

If you would like us to help you maximise your BB-BEE score through skills development, contact us by filling out the form on our contact us page.