BEE codes for small business flex muscle

2014-10-12 15:00

The long-awaited new BEE codes for small companies are far tougher than their 2007 predecessor.

According to Keith Levenstein of consultancy EconoBEE, they could knock a company currently enjoying level 2 status all the way down to level 8 without them doing anything differently, depending on how their BEE score had been constituted.

The new codes of good practice for so-called qualifying small enterprises (QSEs) were gazetted for comment on Friday.

QSEs are companies with an annual turnover of between R10?million and R50?million.

The codes only apply to companies that are majority white-owned.

Any company of that size, which is more than 51% black-owned, automatically becomes a level-2 contributor. If black ownership is 100%, the company gets a level-1 score.

Although the generic BEE codes applying to all larger companies were replaced last year, it has been seven years since the rules for smaller companies were revised.

The hallmark of the proposed revision is tougher targets and less concessions, according to Levenstein.

The period for comments closes on November 14.

One proposed change is that QSEs are chasing points out of a total of only 100. Large companies applying the generic scorecard can theoretically achieve 118 points, meaning there is more room to fail in certain criteria.

One area where the QSEs will have it easier than larger companies is in procurement. The generic codes require 40% of procurement to be from 51% black-owned suppliers.

For QSEs, this will be 15%. Although the target is easier, it also comes with less points.

Big companies can theoretically earn 44 points out of 118 through procurement. QSEs cannot earn more than 30.

Overall, according to Levenstein, the proposed new codes are “dramatically” more difficult for QSEs.

The big change in last year’s new generic scorecard was the introduction of “priority” criteria. These are targets that rate higher than others and companies failing in those are not only disqualified from earning points, they are penalised by losing points earned through other criteria.

There are five BEE criteria. The priority criteria are ownership, skills development and enterprise development. Big companies need to achieve a minimum score in all three to not lose levels. QSEs will have to do the same in the ownership criteria as well as in one of the other two.

As per last year’s codes for bigger companies, the points companies can earn through socioeconomic development have been cut dramatically from 25 to 5.

This is to stop companies achieving high scores on the back of their support for charities without really changing their own businesses.

According to Levenstein, it is entirely possible that a QSE currently with a score of 85, making it a level-2 contributor, could fall to level 8 under the proposed new codes.

This would especially be the case at a wholly white-owned company.

The department of trade and industry aims to implement the new codes by May next year, meaning there will be very little time to adjust, something Levenstein suggests would make compliance unlikely.

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