South African companies have been given a one-and-a-half-year transitional period, which started in October, to align themselves with recent amendments to the Broad-Based Black Economic Empowerment (BBBEE) codes.

KPMG BEE sector leader Mathumo Mapaya tells Engineering News that, although it is a relatively short timeline, companies that fully align with the new codes are likely to have a competitive advantage in the longer term.

“The codes of 2007 achieved a measure of success in increasing black ownership and management in companies, in upskilling and employing black people, in developing and procuring from black businesses and, finally, in assisting with socioeconomic development for the greater good of everyone,” he says.

But the previous codes have also been criticised for benefiting a few connected individuals and there were also differing interpretations. Some companies even achieved a high rating (Level 1 or 2) even when no meaningful transformation had actually been achieved.

“Unemployment levels are still unacceptably high. The South Africans skills set and entrepreneurship are low. As a result, the codes did not achieve their intended purpose in full and had to be revised,” he says.

The revised codes were published in the Government Gazette in October last year and Mapaya believes they will enhance the implementation of BBBEE.

He points out that the revised codes provide five elements, as opposed to the seven of the previous codes. The five elements include ownership, management control, skills development, enterprise and supplier development and socioeconomic development. Employment equity is now included under management control, while preferential procurement and enterprise development have been merged into enterprise and supplier development.

Significant changes in the new codes relate to improving the skills of black people and encouraging growth and investment in small black businesses. Black ownership net of debt is encouraged and the new enterprise and supplier development will encourage entrepreneurship and big business to act as mentors for the small business.

“There is also an introduction of priority ele- ments, which brings along minimum thresholds. The three priority elements are ownership, skills development and enterprise and supplier development. Entities need to achieve at least 40% of these targets or else the total score is discounted by one level. Businesses that fail to meet the minimum threshold for any of the three priority elements will [have] their BBBEE score downgraded by one level,” he says.

Currently, an Exempt Micro Enterprise (EME), which is any company with a turnover of less than R5-million, is either a Level 3 company if it is more than 50% black-owned or a Level 4 company.

The new codes have increased the threshold from a turnover of R5-million to R10-million and 100% black-owned EMEs will achieve a Level 1 rating, while the EMEs that are more than 51% black- owned will be given a Level 2 rating, with the rest awarded a Level 4 rating. To address the costs associated with obtaining a BEE certificate, there is no requirement for EMEs to obtain a BBBEE certificate and they can opt for sworn affidavits.

“The threshold for Qualifying Small Enterprises (QSE) was previously a turnover of between R5-million and R35-million, which has been increased from R10-million to R50-million. Unlike the old codes, QSEs will have to comply with all five elements. In terms of priority elements, QSEs have to comply with two of the three elements, with ownership being mandatory,” he says.

The revised codes will be regulated by the Independent Regulatory Body of Auditors, meaning that accreditation of BBBEE verification agencies will include auditors like KPMG.