Even though the new Black Economic Empowerment (BEE) codes were gazetted and passed into law on 11 October, 2013, there still seems to be much confusion surrounding its understanding and implementation. Our perspective regarding the new BEE codes is purely from the standpoint of a non profit organisation (NPO), in particular the Ownership element and our ability to successfully raise funds under the new codes. After speaking with our own verification agency regarding clarification on the new codes they suggest that since there is a 12 month transitional period before the new codes come into effect we should rather wait for further clarification. However, we feel it might be wise to speculate on what the final outcome might be so that we are better prepared for the changes.
NPOs do not have a share capital and as such cannot distribute their profits. NPOs are not “owned” but managed by a governing body.
Under the old codes the ownership element as it related to NPOs was managed a number of ways:
- Any NPO whose annual turnover was less than R5M was classified as an Exempted Micro Enterprise (EME) and was exempted from measurement in terms of the BEE codes. They were automatically recognised as level 4 contributors and so circumvented the ownership element.
- Any NPO whose annual turnover was between R5M and R35M was classified as a Qualifying Small Enterprise (QSE) and could choose to be measured on any four of the seven elements. Most QSEs simply chose not to be measured on the Ownership element and so avoided the ownership element.
- An NPO whose annual turnover was greater than R35M, or who chose to use the generic scorecard, had the weighting of its scorecard adjusted; they were only measured on six of the seven elements. The 20 Ownership points were doled out to the Management Control, Skills Development and Socio-Economic Development (SED) elements thereby increasing the weighting of these elements.
How then does an NPO measure the Ownership element of its BEE scorecard under the new codes? We can only speculate that the Ownership element under the new BEE codes will be managed much the same as it was under the old codes:
- NPOs whose annual turnover is now under R10M (previously R5M) are classified as EMEs. EMEs are still exempt from being measured in terms of the new BEE codes and so avoid the Ownership element. EMEs automatically qualify as level 4 contributors.
- Under the new BEE codes the annual turnover threshold for QSEs has been raised from R5M – R35M to R10M – R50M. However, all QSEs have to comply with the generic scorecard and this means that they have to be measured on the Ownership element. One concession granted to QSEs is that they have a choice of complying with either the Skills Development or Enterprise and Supplier Development elements. After speaking with a number of verification agencies they suggest that NPOs in the QSE category will be exempt from being measured on the Ownership element but:
- the 25 points for Ownership will be added to a number of the remaining elements thereby increasing the weighting of those elements or;
- the remaining elements are all compulsory (the choice between the Skills Development and Enterprise and Supplier Development elements no longer applies).
- As for NPOs in the Large Enterprise category (annual turnover greater than R50M) they will be measured in the same manner as 5 above.
Enterprise and Supplier and Development
As an NPO we cannot make head or tail of the new Enterprise and Supplier Development element. This element has a total weighting of 40 out of the 105 points available on the new scorecard. Even the experts agree that companies might start outsourcing the procurement side of their businesses to qualified procurement specialists in order to make sure they comply with this element. How then do we as NPOs manage this element? Reading through the criteria and key measurement principles that make up this element one is left wondering how NPOs are going to measure, let alone comply, with this element. So much of this element does not seem to apply to NPOs. Do we adapt our organisation to fit the new codes or do we adapt the new codes to fit our organisation?
It is quite apparent from the new BEE codes that the government is taking black economic empowerment very seriously. We feel the new codes are going to be a lot more difficult to implement and its implementation is going to cost quite a bit of money – money we would rather be spending on the upliftment of our beneficiaries.
Perhaps we are going to be better off to take a wait and see attitude. After all that is exactly what our verification agency advises us. But even this attitude doesn’t make sense. Why pass something into law when even the experts are unsure as to how to implement it?
Please stay tuned to our next blog post in which we share our thoughts about fundraising under the new BEE codes.
EconoBEE – Welcome to the new codes
BusinessReport – Charities to be hard-hit by new codes
BDLive – Codes kick off new phase of empowerment
Polity.org.za – Revised B-BBEE codes have serious implications for business
BEE ENsight – Black Economic Empowerment – Final BEE Codes