Johannesburg - The amended B-BBEE Codes of Good Practice will become effective on May 1 2015 and introduce the concept of empowering suppliers.
Companies, therefore, need to get to grips with this concept as well as the technicalities involved to properly prepare for the assessment of a business’ empowering supplier status.
“A major concern in the verification industry is that companies do not know the importance of acquiring this status or the vital significance of it,” cautioned Jenni Lawrence, managing director: verification services at Grant Thornton Johannesburg.
There is a critical difference between the "value-adding supplier" concept and the "empowering supplier" requirement, which now replaces it in the amended codes.
"It is dangerous to underestimate this difference. The critical differentiator is that, if a company does not qualify as an empowering supplier, its certificate cannot be used towards its clients’ procurement score, therefore deeming the certificate to be useless,” explained Lawrence.
She noted that there is still some debate, however, as to whether state-owned enterprises will apply the requirement when selecting suppliers tendering for public sector contracts.
According to the Amended B-BBEE Codes of Good Practice, the definition of an empowering supplier is "a B-BBEE compliant entity, which is a good citizen South African entity, complying with all regulatory requirements of the country".
The definition of "good citizen South African entity" is not clear and this needs to be confirmed by the Department of Trade and Industry (dti), Lawrence pointed out. She said to date the dti has remained silent on the interpretive issues as well as the issuing of the verification manual.
Requirements and criteria
To be an empowering supplier an organisation should meet at least three of the following criteria if it is a large enterprise (turnover exceeding R50m), or at least one if it is a qualifying small enterprise (QSEs) - with a turnover between R10m and R50m:
- At least 25% of the cost of sales excluding labour cost and depreciation must be procured from local producers or local suppliers in SA. For service industry labour, costs are included but capped to 15%.
- Job Creation: 50% of jobs created are for blacks, provided the number of black employees since the immediate prior verified B-BBEE measurement is maintained.
- At least 25% transformation of raw material/beneficiation which includes local manufacturing, production and/or assembly, and/or packaging.
- Skills transfer: At least spend 12 days per annum of productivity deployed in assisting black exempted micro enterprises (EMEs) and QSEs beneficiaries to increase their operation or financial capacity.
It is important to note that EMEs and start-ups are automatically recognised as empowering suppliers.
“There are some questions as to how to validate and calculate some of these criteria, and we await the gazetting of the dti’s verification manual for further details on this,” said Lawrence.
"Grant Thornton has compiled a scorecard based on best practice understanding of the criteria in order to be able to perform a preliminary assessment of companies’ statuses to help them prepare for the upcoming changes."
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