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A Social Impact Investors guide to BBBEE for Business Owners in South Africa

How to optimise your BBBEE spend for development impact and growth.

Operating a business in South Africa has its nuances. One of those is the government-implemented Broad-Based Black Economic Empowerment (BBBEE) programme which has the aim of creating an ‘inclusive industrialized economy that is globally competitive’.

As a business owner, it may seem like a difficult task to wrap your head around the various BBBEE (also B-BBEE) requirements and compliance issues. That is what this article is intended to make clear for you.

Let's get started!

What is BBBEE?

BBBEE stands for Broad-Based Black Economic Empowerment. It is also referred to by the acronym B-BBEE.

BBBEE is a programme which the government of South Africa has put in place to promote an equal-opportunity economy. The goal of BBEEE is to empower previously disadvantaged or discriminated against people the ability to regain the lost ground as a result of their discrimination.

It is important to note the overall goal of the BBBEE programme is to create the country’s best possible economy. Naturally, this is only achievable through inclusion where all citizens are contributing in equal measures.

The Objectives of BBBEE

The overarching goal of the BBBEE programme is the upliftment of the South African economy.

It achieves that goal through a number of objectives, including but not limited to:

Creating more black-owned businesses.
Building a robust ecosystem of sustainable black-owned businesses.
Promoting financial assistance and access to products for black-owned businesses.
Promoting interpersonal development of black individuals through access to mentorships and leadership programs.
Ensuring black-owned businesses benefit from government-issued purchase orders.
Improve the inclusion of black women in business and encourage the establishment and growth of women-owned businesses.

How Does it Empower Black-Owned Businesses?

One of the main mechanisms that the BBEEE programme uses to empower and promote black-owned businesses is through preferential procurement guidelines.

Explained simply, the government incentivizes players in the economy to use black-owned businesses as suppliers. These incentives come in the form of:

Preferential contract awarding to BBBEE-compliant businesses;
Tax incentives

BBBEE vs BEE

The difference between BEE and BBBEE is simply a technicality. The two terms are used interchangeably, and there is no practical difference.

BEE is the acronym for Black Economic Empowerment. BBBEE is the government’s implementation of the BEE policy.

Does my Business Need B-BBEE Compliance?

BBEEE affects most companies in South Africa who do any business with:

The government directly, or
Larger enterprises that are BBBEE compliant.

First, if you want to do any business with a government department, government-owned enterprise, or alike, you will need to be compliant. This is because the government will not work with any non-compliant businesses.

Transactions which you need to be compliant for include:

Applying for licenses or concessions from the government.
Tendering for government-issued work and purchase orders.
Entering into any public-private relationships.
Buying of any state-owned enterprises.

Second, large corporations are incentivized to work with BBBEE-compliant suppliers. Therefore, if you are supplying goods to any large corporation that stands to benefit from BBBEE incentive structures, your business will be looked upon favourably if it is compliant.

BBBEE Exemptions

There are situations where compliance is not required, and you will not be penalized. This is the case if your business is exempt from any of the BBBEE compliance requirements.

The two usual exemptions are explained below.

Exempted Micro Enterprises (EME’s)

EME’s are small businesses with an annual turnover of less than R10 million.

The exemption for EME’s means that they are automatically assigned a BBBEE score of 100% (more on scoring below). This score can not go lower than 100%, but can go as high as 135% if the EME is 100% black-owned.

Qualifying Small Enterprises (QSE’s)

QSE’s are now included in the new full BBBEE scorecard. This means that they are no longer exempt or partially exempt.

Previously QSE’s were defined as any SME with a turnover between R10 million and R50 million annually. This meant that they only had to comply with some BBBEE criteria. This rule no longer applies, and QSE’s are required to comply with all 5 scorecard criteria.

Speaking of scorecard criteria…

How does the BBBEE Scorecard Work?

The BBBEE scorecard is comprised of 5 criteria on which your business is evaluated. This gives you a score, which is then used for any BBBEE dealings that you might have.

Note that as of May 2021, the BBBEE scorecard is made up of 5 criteria, not the previously used 7 criteria.

The 5 BBBEE Criteria

The 5 criteria which are taken into account are listed below, with their respective weightings:

Equity ownership (25% weighting)
Management control (15% weighting, 4% bonus possible)
Skills development (20% weighting, 5% bonus possible)
Enterprise development (40% weighting, 4% bonus possible)
Socio-economic development (5% weighting)

Each of these is explained below.

Equity ownership relates to shareholders and ownership rights. When this is calculated, the following two factors are taken into consideration - Black female ownership % and Ownership % below 35, and above 65.
Management control refers to who has overall decision-making control of the company. This is calculated using voting rights, percentage of senior management held by black individuals, and control of the executive board.
Skills development is the extent to which a company invests in the skill development of its black employees.
Enterprise development is the calculation of how much the company invests in developing smaller black-owned companies.
Socio-economic development is measured by how much a company invests in social upliftment.

How does CSI relate to SED?

In terms of the BBBEE Codes, there is considerable overlap between CSI and SED. The BBBEE Scorecard requires companies to spend 1% of their net profit after tax on SED initiatives that facilitate sustainable economic inclusion for previously disadvantaged beneficiaries, 75% of whom must be black. SED initiatives, as defined in the Codes, clearly fall within the traditional scope of CSI. However, CSI has a broader ambit that includes areas not directly linked to economic inclusion, such as food security, arts and culture, environment, safety, disaster relief and sporting initiatives.

If you would like more specific advice on positioning your organisation for optimised social investment impact across these pillars reach out to us at grow@growza.co.za

Written by Simon P. Business Manager and www.fundinghub.co.za - Thanks Simon!