Minister Rob Davies gazettes notice of clarification
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After months of 'deafening' silence and speculation the Minister of Trade and Industry has, by way of a belated gazetted notice of clarification (see attached Gazette #38764) dated 5 May 2015, set out how the B-BBEE Codes of Good Practice can be applied. The notice states that all B-BBEE verifications conducted using the financial year ending before 30 April 2015 can be verified using the old Codes of Good Practice.

It goes on to state that all B-BBEE verifications conducted using the financial year ending after 1 May 2015 must be verified using the Amended Codes of Good Practice, with the exception of the Sector Codes.

The transition period for the alignment of the Sector Codes has been extended to 31 October 2015. If Sector Codes are not aligned by 1 November 2015 then "a consideration shall be made for them to be repealed".

For the first year of the Amended Codes of Good Practice, all valid B-BBEE certificates issued under the old Codes, as well as the relevant Sector Codes, remain valid and should be treated as empowering suppliers.

Exempted Micro Enterprises and Start-Ups are automatically recognised as Empowering Suppliers.

A further devastating aspect to this notice is the amendment which states that Black participants in Broad-Based Ownership Schemes and Employee Share Ownership Programmes (ESOP) holding rights of Ownership in a Measured Entity must only score the three (3) points under paragraph 2.2.3 under the Ownership scorecard. Watch this space as those that have done ESOP and broad-based ownership schemes expecting the full 25 points only receive 3 points; not in the least the Unions.

The vast majority of B-BBEE verification certificates issued since February 2007 relate to Qualifying Small Enterprises (QSEs) yet there is no mention of a scorecard for QSEs in the gazette. Entities with an annual Total Revenue of between R10 million and R50 million are QSEs in terms of the Amended Codes and a draft scorecard was gazetted in 2014 for comment. If the draft scorecard were to be applied to QSEs the majority will be level 8 or non-compliant.

Under the 'old Codes' a QSE could select any four of the seven Elements for the purposes of measurement under the QSE Scorecard. The overall performance and broad-based BEE status of a QSE was determined using the aggregate of scores of the four best elements selected. The Amended Codes have now rolled the same 7 scorecard elements into 5 elements. An entity is now however scored on all of the elements, and there is no election.  Government was widely criticised when the proposed amendments were released amending the Socio-Economic Development element. They retracted the proposed amendment in late 2012, but have now proceeded to reduce the number of points from 25 points to only 5 for QSEs in the draft QSE scorecard. By reducing Socio-Economic Development by 20 points the impact is equivalent to at least three Contribution levels - the difference between a Level 6 and a Level 3 Contributor.

The 2014 gazette for commentary also addressed the development and gazetting of Sector Charters Code 000 Statement 003; scorecard for Specialised Enterprises Code 000 Statement 004; recognition in the Sale of Assets Code 100 Statement 102 and recognition of Equity Equivalents for Multinationals Code 100 Statement 103, yet these are not addressed in the gazetted clarification notice. There are also a number of technical matters that need to be addressed by government including clarity on the empowering suppliers issue, verification manual as well as the targets, related formula and weighting for determining the different race sub-groups within the definition of black.

It is sad that the government has failed to recognise and respond to the outcry of business that the Amended Codes, as gazetted in 2013, will be hugely detrimental and damaging to doing business in South Africa, and one assumes not considered the unintended consequences, which include reduced contributions to socio-economic development (CSI), as businesses walk away from complying voluntarily with the draconian Amended Codes. The above notice will simply delay the inevitable effects by a further twelve months. It is noteworthy that the largess of business drove the voluntary compliance by businesses with the original Codes, almost five years before the Codes were applied in the government's procurement policies and practice.


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Tony Balshaw
Mazars East London Managing Partner and Head of B-BBEE Services