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Article by listed Attorney Mzo Tshaka

On 11 October 2013 the Minister of Trade and Industry (DTI), Dr Rob Davies, gazetted the revised Broad-Based Black Economic Empowerment (BBBEE) Codes. The new Codes will replace the existing BEE Codes of Good Practice when they come into operation in October 2014.

It is of utmost importance that as businesses go through their beginning of the year Strategy Sessions they should ensure that their strategies speak to, and are aligned to, the new BBBEE Codes.

In the new Codes there are a few notable changes, some of which are summarized below:

The current seven elements have been reduced to five, and these are:

  • Ownership (see more on Ownership Element Advantages
  • Enterprise and Supplier Development (which is a merger between the existing Enterprise Development and Preferential Procurement)
  • Management Control (which incorporates the existing Employment Equity)
  • Skills Development
  • Socio-Economic Development.

With regards to the Exempt Micro-Enterprises (EMEs), the threshold has been increased from R5m annual turnover to R10m turnover. The threshold for Qualifying Small Enterprises (QSEs) has been increased from R35m annual turnover to R50m. A QSE will, however, still have to be verified on all the five elements. Large enterprises will be those that have an annual turnover exceeding R50m. 

Any business that is 100% black owned and has an annual turnover of less than R50m is automatically level 1. If that business is more than 51% black owned and less than 100% it is level 2.

Ownership, Skills Development and Enterprise and Supplier Development have been given priority status and are generally referred to as “Priority Elements”. Large businesses (over R50m turnover) have to achieve a minimum target of 40% in each of the Priority Elements and, if they fail to do so, they will drop their rating by one level. (QSEs) have to meet the minimum target of 40% in at least two of the three Priority Elements (one of which needs to be Ownership) and failure to do so will result in the entity concerned dropping one level.

To illustrate the point about the dropping of levels, if a business which would have obtained a level four rating, but for its failure to meet the minimum threshold, it would now drop to a level five.

The above are just some of the changes that will have to be considered by businesses when they are planning their future growth. It would be prudent to make sure the adopted strategies are aligned with the new Codes to ensure that their businesses are not negatively affected.