Recent activity by government to provide clarity on the Amended Codes of Good Practice relating to Broad-Based Black Economic Empowerment has caused much consternation among businesses and potential investors into South Africa.
The controversy began when, after months of ‘deafening’ silence and speculation the Department of Trade and Industry (the dti), issued a clarification, by way of a belated gazetted notice (5 May 2015), setting out how the B-BBEE Codes of Good Practice can be applied. The notice stated 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 went 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 was 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 If Sector Codes are not aligned by 1 November 2015 then “a consideration shall be made for them to be repealed”.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 was the controversial and retrospective notice 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.
On 6 May 2015 the government gazetted the following amendments to the Amended Codes (sic), and on the same day the Minister gazetted certain Codes of Good Practice: Amendments to the Amended Codes (Gazette 38765) The following was addressed in this amendment:
â-  Added a fifth criterion for the empowering supplier â€" at least 85% of labour costs should be paid to South African employees by service industry entities.
â-  Eligibility as an Exempted Micro Enterprise (EME) to include a certificate issued annually by the Companies and Intellectual Property Commission (CIPC).
â-  Discounting principle effect needs to appear on the face of a B-BBEE certificate.
â-  Complex formulas have been introduced for the measurement of senior management, middle management and junior management indicators and the measurement of skills development indicators.
Codes of Good Practice (Gazette 38766)
The following was addressed in these Codes:
â-  Statement 003: Amended guidelines for developing and gazetting of sector codes.
â-  Statement 004: Scorecards for specialised enterprises.
â-  Statement 102: Recognition of the sale of assets, equity instruments, and other businesses.
â-  Statement 103: The recognition of equity equivalents for multinationals where they refer to a “Technical Assistance Guide of the B-BBEE Codes”.
â-  Code series 600: Measurement framework for Qualifying Small Enterprises (QSEs).
These amendments can be described as disastrous, particularly in relation to QSEs. Entities with an annual Total Revenue of between R10 million and R50 million qualify as a Qualifying Small Enterprise. In essence statement Code 600 replaces the previous Code 800 series. Subsequently, sanity has prevailed in relation to government’s stance on the treatment of Broad-Based Ownership Schemes and Employee Share Ownership Programmes (ESOP); where government had previously restricted the number of Ownership elements to just three (3) points under the Ownership scorecard.
In response to the groundswell of criticism, the dti has withdrawn the clarification notice of 5 May 2015 in its entirety, and issued a Revised Notice of Clarification on 15 May 2015 (Gazette 38799) omitting all reference to BroadBased Ownership Schemes and Employee Share Ownership Programmes (ESOP). So it is business as usual in so far as it relates to these ownership structures. It seems, from media statements, that current and future broadbased ownership and ESOPs will receive full Ownership scorecard recognition. In many ways the horse has bolted in relation to the perceptions of confidence
and trust by both the local and international business community. The furore surrounding the retrospective nature of the gazetted notice, the failure to follow due process and the attempt to change legislation through the back-door to favour a few ‘individuals’ was widely reported in local leading and international media. In addition, the recognition of equity equivalents for multinationals has such onerous targets and short investment periods that the majority of multinationals, that we so desperately need to attract and retain, are not considering  the Ownership scorecard element. It is sad that government has failed to recognise and respond to the outcry of business in relation to the Amended Codes as a whole. The effects of which will be hugely detrimental and damaging to doing business in South Africa and, one assumes that government has not considered the unintended consequences. The dti directorgeneral Lionel October is quoted in Business Day on 21 May 2015 as saying “…it was put into the notice but the effect of it was not understood”. Many businesses, including multi-nationals, will walk away from complying voluntarily withthe draconian Amended Codes. Compliance with the ‘old’ Codes
was largely driven by the largess of business in South Africa; this will not be the case with the Amended Codes. Goodwill in relation to the B-BBEE scorecards and Amended Codes is waning rapidly with many businesses losing patience and confidence in the scheme. 

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