GUIDE 1 – B-BBEE IN SOUTH AFRICA: AN OVERVIEW

GUIDE 1 – B-BBEE IN SOUTH AFRICA: AN OVERVIEW

1

Contents

04 Foreword

06 Part1: AnOverviewofB-BBEEinSouthAfrica

10 Part2: TheMeasurementofB-BBEE:Large

Enterprises

15 Part3:TheMeasurementofB-BBEE:SmallEnterprisesandStart-UpEnterprises

18 Part4:TheMeasurementofB-BBEE:ForeignEntitiesandMultinationalCorporations

20 Part5:AnOverviewofB-BBEEinCertainSectors

24 OurFirm

25 OurFootprintinAfrica

26 KeyContacts

Guide 1 – B-BBEE in South Africa: An Overview

3

BOWMANS

2

Foreword

Broad-based black economic empowerment (B-BBEE) is a central part of the South African Government’s transformation strategy.

Broad-basedblackeconomicempowerment

(B-BBEE)isacentralpartoftheSouth

AfricanGovernment’stransformationstrategy.

B-BBEEcomprisesvariouscomponentsaimedat

increasingthenumbersofBlackpeople(being

SouthAfricancitizenswhohavebeenracially

classifiedasAfrican,IndianorColoured)who

manage,ownandcontrolthecountry’seconomy,

anddecreasingraciallybasedincomeinequalities.

Thereisnopositiveobligationtohaveaparticular

B-BBEEstatuslevel.However,anycompanywishing

todobusinessintheSouthAfricanenvironmentmust

consideranddevelopitsB-BBEEpositionas–in

additiontothepressuresfromGovernment–anentity

thatdoesnothaveagoodB-BBEEratingordoesnot

strivetoimproveitsB-BBEEratingmaybehampered

intheconductofitsday-to-daybusinesswith

Government,organsofstateandtheprivatesector.

Further,acompany’sB-BBEEratingand/orits

localownershipmaybeadeterminingfactor

whenapplyingforastatelicence,permitor

authorisation,dependingonrequirements

imposedbysector-specificlegislation.

Bowmansprovidestrusted,specialistadvicein

allareasofB-BBEE.Ourlawyershaveextensive

experienceadvisingandactingformajorlocal

andinternationalcommercialandindustrial

corporations,mininghouses,banksand

privateequityfundsacrossarangeofindustry

sectors.Wehavealsobeeninvolvedinseveral

ground-breakingB-BBEEtransactions.

WeadvisedIsantiGlassonitsproposedZAR

1.5billionacquisitionofNampakGlass,which

wasnamedBEEDealoftheYearfor2019atthe

DealmakersSouthAfricaAwardseventwhichwas

heldinFebruary2020.IsantiGlassis60%owned

byblack-ownedinvestmentcompanyKwande

Capitaland40%ownedbySABSAHoldings,the

SouthAfricanholdingcompanyofSABreweries.

SABSAisownedbyABInBev,theworld'sbiggest

brewerandoneofthelargestglassmanufacturers.

Weareuptodatewiththemostrecentdevelopments

inB-BBEE,includingtheamendmentstoand

interpretationsandnuancesarisinginthecontext

oftheCodesofGoodPracticeandthevarious

sector-specificcodes.Weregularlyengage–both

independentlyandbehalfofourclients–withthe

B-BBEECommission,theDepartmentofTradeand

IndustryandvariousB-BBEEverificationagencies.

BecauseB-BBEEissuchanimportantconsideration

foranycompanyconductingbusinessinSouth

Africa,wehaveproducedaseriesoffourguidesto

helpourclientsunderstandthecomplexregulatory

frameworkapplicabletoB-BBEEinSouthAfrica.

This,thefirstintheseries,providesageneral

overviewofB-BBEE(Part1)withafocuson

understandingthemeasurementofB-BBEEfor:

• largeenterprises(Part2);

• smalltomedium-sizedenterprises,whichare

referredtoasexemptedmicro-enterprises

(EMEs)andqualifyingsmallenterprises

(QSEs),andstart-upenterprises(Part3);and

• foreigncompaniesandmultinational

corporations(MNCs)(Part4).

Theguidealsoprovidesahigh-leveloverview

ofB-BBEEincertainsectors(Part5).

Weareinauniquepositiontohelpourclientsinthe

developmentandimplementationoflastingand

sustainabletransformation.Pleasecontactusifyou

wouldliketodiscusseitherthecontentofthisguide

inmoredetailoryouruniqueB-BBEEchallenges.

Keycontactsaresetoutattheendofthisguide.

Ashleigh HaleCo-headofCorporate

Thecontentsofthisguideareforreferencepurposesonly

andshouldnotbeconsideredasubstitutefordetailedlegal

advice.ItiscorrectasatOctober2020.

Ifyourequirefurtherinformation,pleasecontactoneofthe

keycontactslistedattheendofthisguide.

BOWMANS Guide 1 – B-BBEE in South Africa: An Overview

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Part 1: An Overview of B-BBEE in South Africa

How is B-BBEE regulated in South Africa?

A high-level overview of the Codes of Good Practice

• TheBEEActistheprincipal legislationforthepromotionandmeasurementofB-BBEEinSouthAfrica.

• TheBEEActalsoestablishestheB-BBEECommission(B-BBEECommission)whichisresponsibleforinvestigatingalleged‘fronting’practicesandreferringthemforprosecution.

• TheBEERegulationsarepublishedundertheBEEAct.

• Amongotherthings,theBEERegulationsregulatethefunctionsoftheB-BBEE Commissionincluding,forexample,thecomplaints processandtheregistration of major B-BBEE

• TheLiquidFuelsCharterispublishedasaScheduleunderthePetroleumProductsAct120of1977andisintendedtoempowerhistoricallydisadvantagedSouthAfricansinthepetroleumandliquidfuelsindustry.

• Theprocessofaligning theLiquidFuelsCharterwiththeB-BBEElegislationisunderway.

• FormoreinformationontheBowmans’OilandGasPractice,click here.

• TheMiningCharter,readtogetherwiththeImplementationGuidelines,ispublishedundertheMineralandPetroleumResourcesDevelopmentAct28of2002andisintendedtofacilitatesustainabletransformation,growthanddevelopmentoftheminingindustry.

• FormoreinformationonBowmans'servicesconcerningtheMiningSector,click here.

• Thevarioussector-specificcodespublishedundertheBEEActdetailthemannerinwhichB-BBEEmustbemeasuredfor businesses operating in particular sectors(althoughsector-specificcodesgenerallyapplythesamebroadprinciplesasthegeneralCodes).

• Sectorcodeshavebeenpublishedforthefollowingsectors:

•Agriculture •Charteredaccountancy(draftversion) •Construction •Defence •Financialservices(includingbanks,

short-terminsurance,reinsuranceandfinancialservicesintermediationandbrokerages)

•Forestry •Informationcommunicationand

technology(ICT) •Marketingadvertisingand

communications(MAC) •Property •Tourism •Transport

• TheCodesarepublishedundertheBEEActanddetailthe manner in which B-BBEE must be measuredinSouthAfrica.

• InassessingB-BBEE,ascorecard(measurement)approachisusedwherebythedifferentaspectsofB-BBEE,includingownership, management control, skills development, enterprise and supplier development(includingpreferentialprocurement),andsocio-economic development,areaccordedpointstoarriveattheB-BBEEscoreofacompany.

• TheCodessetouttheseindicatorstomeasureB-BBEEandtheweightingsattachedtotheseindicators.

The B-BBEE

Act 53 of 2003

(BEE Act)

The Codes of Good Practice

(Codes or general Codes)

The B-BBEE Regulations, 2016

(BEE Regulations)

The Liquid Fuels

Charter, 2003

The Mining

Charter, 2018

The sector-specific

codes

B-BBEE

CODE SERIES STATEMENT TITLE OVERVIEW

CODE SERIES 000 STATEMENT 000 FrameworkformeasuringB-BBEE

Amongotherthings,specifiestheinterpretativeprinciplesofB-BBEE,theapplicationoftheCodesandbasisformeasurementundertheCodes,andtheapplicationoftheCodestoEMEs,QSEsandstart-upenterprises

STATEMENT 003 Amendedguidelinesfordevelopingandgazettingsectorcodes

Amongotherthings,specifiestheprocessfordevelopingandgazettingsectorcodes.

STATEMENT 004 Scorecardsforspecialisedenterprises

Providesguidanceaboutthetreatmentofownershipforspecialisedenterprises(e.g.highereducationinstitutionsandnon-profitcompanies)forB-BBEE,andspecifiesapplicablescorecards.

CODE SERIES 100 STATEMENT 100 Thegeneralprinciplesformeasuringownership

SetsoutthemeasurementoftheeffectiveownershipofentitiesbyBlackpeople.

STATEMENT 102 Recognitionofthesaleofassets,equityinstrumentsandotherbusinesses

Setsouttheconditionswherethesaleofassets,equityinstrumentsandotherbusinesseswillberecognisedandsetsouthowtheownershippointswillbedetermined.

STATEMENT 103 Recognitionofequityequivalentsformultinationals

DefineshowMNCsmayapplyforrecognitionofequityequivalentprogrammesandsetsouthowownershippointswillbedetermined.

CODE SERIES 200 STATEMENT 200 Thegeneralprinciplesformeasuringmanagementcontrol

SetsoutthemeasurementoftheeffectivecontrolofentitiesbyBlackpeople.

CODE SERIES 300 STATEMENT 300 Thegeneralprinciplesformeasuringskillsdevelopment

SetsoutthemeasurementoftheextenttowhichemployerscarryoutinitiativesdesignedtodevelopthecompetenciesofBlackemployeesandBlackpeopleinternallyandexternally.

CODE SERIES 400 STATEMENT 400 Thegeneralprinciplesformeasuringenterpriseandsupplierdevelopment

Setsoutthemeasurementoftheextenttowhich:• entitiesbuygoodsandservicesfrom

EmpoweringSupplierswithstrongB-BBEErecognitionlevels;and

• enterprisescarryoutsupplierdevelopmentandenterprisedevelopmentinitiativesintendedtoassistandaccelerategrowthandsustainabilityofenterprisesownedbyBlackpeople.

CODE SERIES 500 STATEMENT 500 Thegeneralprinciplesformeasuringsocio-economicdevelopment

Setsoutthemeasurementoftheextenttowhichentitiescarryoutinitiativesthatcontributetowardssocio-economicdevelopmentorsector-specificinitiativesthatpromoteaccesstotheeconomyforBlackpeople.

CODE SERIES 600 STATEMENT 600 QualifyingSmallEnterprises(QSE)

SpecifiestheelementsofB-BBEEmeasurableundertheQSEscorecard,aswellastheapplicablemeasurementprinciples.

STATEMENT 601 OwnershipforQSEs

STATEMENT 602 ManagementcontrolforQSEs

STATEMENT 603 SkillsdevelopmentforQSEs

STATEMENT 604 EnterpriseandsupplierdevelopmentforQSEs

STATEMENT 605 Socio-economicdevelopmentforQSEs

SCHEDULE 1 Interpretation and definitions

SetsouttheinterpretationanddefinitionsapplicabletotheCodes.


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https://www.bowmanslaw.com/sector/mining/

Are companies required to achieve specific B-BBEE targets in South Africa?

Ingeneral,no.Otherthanincertainstatelicensing,

permittingandauthorisationprocesses,thereisno

‘hardlaw’requiringthataprivateentityinSouth

AfricamustachieveacertainlevelofB-BBEEor

thatBlackpeoplemustholdacertainpercentageof

equityinabusiness.Therearealsonosanctionsfor

non-compliance.However,incertainsectors,such

asminingandtelecommunications,minimumequity

requirementsareormaybeimposedintermsofthe

sector-specificlegislationgoverningthosesectors.

How important is B-BBEE for government bodies and state-owned enterprises?

IntermsoftheBEEAct,governmentbodiesand

state-ownedenterprises(SOE)arerequiredtotake

private-sectorparties’relativeB-BBEElevelsinto

accountwhenthey:

• procureanygoodsorservices,

• issueanylicenceorotherauthorisation,or

• enterintopartnershipswiththeprivatesector.

Thismeansthatbusinessesthatinteractwith

GovernmentbysellingtoGovernmentorthat

requirelicencestoperformtheirparticularactivities

wouldneedtoconsidertheirlevelsofB-BBEEto

conducttheirbusinessesinthosesectors.

Inalicensingcontext,B-BBEErequirementsare

implementedintheempoweringlegislationforthe

licenceinquestion(e.g.banking,broadcasting,

mining,telecommunications,transportation,

etc.)and,incertaininstances,B-BBEEminimum

thresholdsmaybeset.

ThePreferentialProcurementPolicyFramework

Act5of2000(PPPFA)alsoprovidesthatB-BBEE

mustbeconsideredbyanypublicsectorbodyin

thecontextofitsprocurementpracticesanddetails

themannerinwhichB-BBEEmustbetakeninto

accountbygovernmentdepartmentsandagencies

andSOEs.ThePPPFARegulationsallowB-BBEE

minimumthresholdstobesetforcertaintenders

andineverytenderevaluationprocess:

• tendersforcontractswithavalueofupto

ZAR50millionarescoredonthebasisthat

80%oftheavailablepointsarebasedonprice,

and20%oftheavailablepointsarebasedon

thebidder’sB-BBEErating;and

• tendersforcontractswithavalueaboveZAR

50millionarescoredonthebasisthat90%of

theavailablepointsarebasedonprice,and

10%oftheavailablepointsarebasedonthe

bidder'sB-BBEErating.

FormoreinformationonBowmans’services

concerningtoGovernmentContractingandPublic

Procurement,click here.

How important is B-BBEE for the private sector?

B-BBEEisrelevanteventoprivatesector

businesseswhichdonotrequiregovernment

licencesorsellgoodsorservicestoGovernment.

Mostprivatesectorbusinesseswillhavecustomers

whohavetomeettheirownB-BBEEprocurement

targets.Asaresult,customersarelikelytoconsider

theB-BBEEratingoftheirsuppliers(thiswillbe

afactorindeterminingtheentitieswithwhomto

dobusiness).WherecustomersimposeB-BBEE

requirements,aprospectivesupplier’sB-BBEE

measurementisacompetitiveassessmentofits

B-BBEEstatusrelativetothatofitscompetitors.

Thismeansthat–althoughtherearenoabsolute

requirementsinrelationtoB-BBEE–anycompany

wishingtodobusinessintheSouthAfrican

environmentmustconsideranddevelopitsB-BBEE

positionbecauseanentitythatdoesnothavea

goodB-BBEEratingordoesnotstrivetoimprove

itsB-BBEErating,maybehamperedintheconduct

ofitsday-to-daybusinesswiththeprivatesector

(aswellaswithGovernmentandorgansofstate,as

discussedabove).

Are there offences and/ or penalties for non-compliance with B-BBEE requirements?

Therearenooffencesorpenaltiesunderthe

B-BBEElegislativeframeworkrelatingto

B-BBEEperformance.However,theremay

bepenaltiesincertainsectorswhereB-BBEE

requirementsareimposedforlicensingorother

authorisationpurposes.

Further,undertheB-BBEElegislation,itisa

criminaloffencetoengageinafrontingpractice

ortomakedeliberatemisrepresentationsaboutan

enterprise’strueB-BBEEstatus.Finesforfronting

maybeupto10%ofacompany’sannualturnover.

What is fronting?

TheCodesprovidethat,whenmeasuringB-BBEE

levels,substanceappliesoverlegalform.Thisisan

attempttolimitinstancesoffrontingbyenterprises

whichmakerepresentationsthattheyhaveadopted

particularB-BBEEinitiativestoscorepointswhen,

insubstance,theinitiativeshavenotbeenadopted.

TheBEEActdefinesa‘frontingpractice’as‘a

transaction,arrangementorotheractorconduct

thatdirectlyorindirectlyunderminesorfrustrates

theachievementoftheobjectivesof[theBEEAct]

ortheimplementationofanyoftheprovisionsof

[theBEEAct]’.

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Part 2: The Measurement of B-BBEE: Large

What is considered a large enterprise?

A‘LargeEnterprise’isanyenterprisewithannual total revenueof ZAR 50 million or more.

Theterm‘totalrevenue’isdefinedunderthe

Codesasthetotalincomeofanenterprisefrom

itsoperationsasdeterminedunderSouthAfrican

GenerallyAcceptedAccountingPractice(which

areeffectivelythesameastheInternational

FinancialReportingStandards(IFRS)).

How is B-BBEE measured: the scorecard approach

InassessingB-BBEE,a scorecard approach is

used wherebythedifferentaspectsofB-BBEE

areweightedaccordingtoapointssystemto

determinetheB-BBEEscoreofameasured

entity.Ageneralscorecardisincludedinthe

generalCodes,whilesector-specificscorecards

areincludedinthesectorcodesthatapplyto

particularsectors.

Thescorecardsdetailthevariouselementsand

sub-elementsofB-BBEEonwhichenterprisesare

measuredandstipulatetargetstobeachieved

foreachelementandsub-element.Thecloseran

enterpriseistoreachingaparticulartarget,

themorepointsitwillachieveforthatelement

ofB-BBEE.

What are the elements of B-BBEE and how are they weighted?

UnderthegeneralCodes,theelementsofB-BBEE

onwhichameasuredentity’sB-BBEEscoreis

measuredareasperthegraphicopposite:

Measurementoftheeffective ownershipofentitiesbyBlackpeople

Measurementoftheeffective controlofentitiesbyBlackpeople

Measurementoftheextenttowhichemployerscarryoutinitiativesdesignedtodevelop the competencies of Black employees and Black peopleinternallyandexternally

Measurementoftheextenttowhichentitiescarryoutinitiativesthatcontribute towards socio-economic developmentorsector-specificinitiativesthatpromoteaccesstotheeconomyforBlackpeople

Measurementoftheextenttowhich:• entitiesbuy goods

and services from Empowering SupplierswithstrongB-BBEErecognitionlevels(preferentialprocurement);and

• enterprisescarryoutsupplier development and enterprise development initiatives intendedtoassistandaccelerategrowthandsustainabilityofenterprisesownedbyBlackpeople

Elements under the

General Codes of

Good Practice

Ownership(Code Series 100)

Socio-Economic Development

(Code Series 500)

Management Control

(Code Series 200)

Skills Development

(Code Series 300)

Enterprise and Supplier

Development (Code Series 400)


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B-BBEE

ELEMENT

OVERVIEW PROOF REQUIRED POINTS

AVAILABLE

Ownership Theownership elementconsiderstheextenttowhich:

• ownershipinterests(votingrightsandeconomicinterest)inameasuredentityareheldbyBlackpeople,andbyBlackwomenspecifically;and

• suchownershipinterestsareunencumberedbydebt(referredtoas‘netvalue’).

ProofofownershiprightsinthehandsofBlackpeople(e.g.sharecertificates,shareholdersagreement,etc.).

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Management control

Themanagement control elementreferstothenumberofBlackmembers,andBlackwomeninparticular,whositonthemeasuredentity’sboardofdirectors,aswellasthenumberofBlackpeoplewhoparticipateinalllevelsofmanagement(executive,senior,middleandjuniormanagement).

CompaniesaboveacertainsizealsohaveseparateobligationsintermsoftheEmploymentEquityAct,1998toprepareemploymentequityplansandtosubmitreturnsregardingtheirprogressonemploymentequitytotheDepartmentofLabour.

ProofofBlackpeopleintop,senior,middleandjuniormanagement.Interviewswillbeheldtoconfirmseniority,jobdescription,salary,etc.Submissionofanemploymentequityreportrequired.

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Skills development

Theskills development elementismeasuredbasedontheamountofmoneythatanentityspendsonskillsdevelopmentprogrammesforBlackemployees.

• Employersarerequiredto,bylaw,payanamountequaltoaprescribedpercentageofalltheiremployees’salariestotheNationalSkillsFundintermsoftheSkillsDevelopmentAct,1998andtheSkillsDevelopmentLeviesAct,1999.

• EntitiescanalsoscorepointsforthenumberoflearnershipstheyfacilitateforBlackpeople,BlackwomenandBlackdisabledpersons,theamountofmoneytheyspendonbursaryprogrammes,andtheimplementationofmentorshipprogrammes.

ProofoftrainingspendonBlackemployeesornon-employeesandaccreditedprogrammes(e.g.apprenticeships,learnerships,internships,mentorshipprogrammes).

20 (plus5bonuspoints)

Enterprise and supplier development

Theenterprise and supplier development elementundertheCodeshasthreecomponents:preferentialprocurement,enterprisedevelopmentandsupplierdevelopment:

ProofofpurchasesfromcurrentsuppliersthathaveaB-BBEEratingandareempoweringsuppliersasapercentageoftotalprocurementspend.

ProofofcontributionstodevelopingbusinessownedbyBlackpeople.

ProofofcontributionstoBlack-ownedsuppliers.

40 points in total(plus4bonuspoints)

• Pointsforpreferential procurementarescoreddependingontheextenttowhichmeasuredentitiesprocuregoodsandservicesfromBlack-empoweredsupplierswhocomplywithcertaincriteriatoqualifyasEmpoweringSuppliers.Inessence,acertainpercentageofameasuredentity’sexpenditurewithanEmpoweringSupplierisrecognisedasB-BBEEexpenditure,dependingonthatsupplier’sB-BBEElevel.EntitiescanincreasetheirscoresonthiselementiftheyprocureagreaterpercentageofgoodsandservicesfromsupplierswithhigherB-BBEEratings,fromsmallbusinesses(suchasQSEsandEMEs),fromsuppliersthatareatleast51%Black-owned,andfromsuppliersthatareatleast30%ownedbyBlackwomen.

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• Pointsarescoredforenterprise developmentinrelationtothecontribution(bothmonetaryandnon-monetary)thatanentitymakestodevelopingbusinessesthatareownedbyBlackpeople(e.g.investinginbusinessesownedbyBlackpeople,makingloanstobusinessesownedbyBlackpeople,providingcreditguaranteestobusinessesownedbyBlackpeople,providingpreferentialcredittermstobusinessesownedbyBlackpeople,givingdiscounts,andprovidingtrainingormentoring).Thetargetsthatapplytoenterprisedevelopmentaresetasapercentageofthemeasuredentity’snetprofitaftertax(NPAT).

5

• Supplier development referstotheenterprisedevelopmentcontributionsthatanentitymakestoitsBlack-ownedsuppliersand,inparticular,smallBlack-ownedbusinesseswhoareitssuppliers.Thetargetsthatapplytosupplierdevelopmentarealsosetasapercentageofthemeasuredentity’sNPAT.

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Socio-economic development

Thesocio-economic development (SED)elementisassessedbasedonthecorporatesocialinvestment(CSI)contributionsthatanentitymakes.TargetsforSEDarebasedonapercentageofNPAT.

Proofofcorporatesocialinvestmentcontributions

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TOTAL POINTS ON THE SCORECARD (including bonus points) 118

AmoredetailedoverviewofthevariouselementsofB-BBEEandtheirrespectiveweightingsunderthe

generalCodesisasfollows:

How are the available points obtained?

Ifameasuredentitydoesnotachievethetarget

foraparticularindicatorunderanelement,itwill

scorepointsonaproratabasis.

Example: Ifonly15%oftheeconomicinterestinameasuredentityisheldbyBlackpeople(wherethetargetis25%andthetotalpointsthatcanbeachievedis4points),theentitywouldgetpointsinproportiontoitsachievementofthetarget.

Actual points =(percentageactuallyachieved÷targetpercentage)xtotalpoints

=(15%÷25%)x4= 2.4 points

Ifameasuredentityachievesthetargetfora

particularindicatororifitexceedsthetargetfor

aparticularindicator,itwillachievethefullpoints

forthatindicator.Intheexampleabove,thetotal

pointsthatcouldbescoredwillbe4 points.

What are B-BBEE levels and why do they matter?

Themorepointsameasuredentityachieves

intotalacrosseachoftheindividualelements,

thehigheritsB-BBEEstatuslevelwillbe.Each

B-BBEEleveltranslatesintoaprocurement

recognitionlevel(thepercentagewhicha

companyprocuringcanclaim).

B-BBEE STATUS NUMBER OF WEIGHTING POINTS REQUIRED PROCUREMENT RECOGNITION LEVEL

Level 1 Contributor ≥100points 135%

Level 2 Contributor ≥95points<100points 125%







Non-Compliant Contributor <40points 0%


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How is a business’ B-BBEE level assessed?

Whereabusinesspresentsanyinformation

regardingitsB-BBEEscore–forexample,in

thecontextofatenderresponse–thismustbe

supportedbyacertificateissuedbyanaccredited

verificationorratingagency.Thecertificatesissued

bytheverificationagenciesarevalidfor12months

andcertifyameasuredentity’sB-BBEElevel

basedonaB-BBEEauditofthebusinesswhichis

conductedonanannualbasis.

Abusiness’B-BBEEscorewillbedeterminedonthe

basisofitsactivitiesduringthepreviousfinancial

yearanditsownershipandmanagementstructures

andstaffprofileasatthedateofmeasurement.

What are the priority elements and how does this affect a business’ B-BBEE level?

Therearethreepriorityelements:ownership(net

value),skillsdevelopment,andenterpriseand

supplierdevelopment.Alargeenterpriseisrequired

tocomplywithallthepriorityelements.Sub-

minimumrequirements–40%oftherelevanttargets

–applyinthecontextofthethreepriorityelements.

What does this mean about the points that must be scored on each of the priority elements?

Ownership:40%ofthepointsfornetvalue(8points)=3.2 points

Skillsdevelopment:40%ofthetotalpoints,excludingbonuspoints,forskillsdevelopment(20points)=8 points

Enterpriseandsupplierdevelopment:40%ofthetotalpointsforeachcategoryunderenterpriseandsupplierdevelopment,excludingbonuspoints:

• 40%ofthetotalpointsforpreferentialprocurement(25points)= 10 points

• 40%ofthetotalpointsforsupplierdevelopment(10points)= 4 points

• 40%ofthetotalpointsforenterprisedevelopment(5points)=2 points

Ifanyofthesub-minimumrequirementsarenot

met,ameasuredentitywillbedeemedtodropone

B-BBEElevel.Inotherwords,ifabusinessscores

sufficientpointstobeaLevel3B-BBEEcontributor

butfailstomeetoneofthesub-minimum

requirements,itwillbedeemedtobeaLevel4

B-BBEEcontributor.

Part 3: The Measurement of B-BBEE: Small Enterprises and Start-Up Enterprises

Differentmeasurementcriteriaapplyunderthe

Codestoanexemptedmicro-enterprise(EME),a

qualifyingsmallenterprise(QSE),andastart-up

enterprise.

What is an EME and how is it measured?

UndertheCodes,anyenterprisewithanannual

totalrevenueofZAR 10 million or lessqualifies

asanEME.

AdeemedB-BBEEstatuslevelmeansanEME

doesnotneedtobemeasuredusingthescorecard

approachundertheCodes,anditsB-BBEEstatus

levelwillbedeterminedsolelywithreferenceto

itspercentageofBlackownership.However,EMEs

areallowedtobemeasuredintermsoftheQSE

scorecardshouldtheywishtomaximisetheirpoints

andmovetothenextprocurementrecognitionlevel.

ThemeasurementofanEMEisasfollows:

100% Black-owned

51% Black-owned

Under 51%

ownership by

Black people

will be deemed to have a



Level 1 B-BBEE status



(B-BBEEprocurementrecognitionof100%)

AnnualtotalrevenueofZAR 10 million or less

EME


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What is a QSE and how is it measured?

UndertheCodes,anyenterprisewithanannual

totalrevenueofbetween ZAR 10 million and

ZAR 50 millionqualifiesasaQSE.

ThemeasurementofaQSEisasfollows:

100% Black-owned

51% Black-owned

Under 51%

ownership by

Black people



must be measured



Under the QSE Code

(oneachofthefiveordinaryelementsofB-BBEE)

Annualtotalrevenueofbetween ZAR 10 million and ZAR 50 million

QSE

B-BBEE ELEMENT CODE SERIES 600 POINTS AVAILABLE

Ownership Statement601 25

Management control Statement602 15

Skills development Statement603 25(plus5bonuspoints)

Enterprise and supplier development Statement604 30(plus3bonuspoints)

Socio-economic development Statement605 5

TOTAL (including bonus points) 108

Withregardtothepriorityelements,aQSE

isrequiredtocomplywiththesub-minimum

requirementsforownership(asacompulsory

element)aswellasthesub-minimumrequirements

foreitherskillsdevelopmentorenterpriseand

supplierdevelopment(unlessitiseligiblefora

deemedrating).

What is a start-up enterprise and how is it measured?

Astart-upenterpriseisdefinedundertheCodes

as‘arecentlyformedorincorporatedentitythat

hasbeeninoperationforlessthanoneyear’.

Importantly,astart-upenterprisedoesnotinclude

anynewlyconstitutedenterprisewhichismerelya

continuationofapre-existingenterprise.

UndertheCodes,start-upenterprisesmustbe

measuredasEMEsforthefirstyearfollowingtheir

formationorincorporation(unlessthestart-up

enterprisechoosestobemeasuredontheQSE

scorecardorgenericscorecard).Thisprovision

appliesregardlessoftheexpectedtotalrevenueof

thestart-upenterprise.

If,however,astart-upenterprisetendersonlarge

projects,itmustsubmitascorecard.Thevalue

ofthetenderwilldeterminewhetherastart-up

enterpriseisrequiredtosubmitaQSEscorecard

oragenericCodescorecard.

How is the B-BBEE recognition level of an EME, QSE and a start-up enterprise assessed?

AllEMEs(includingstart-upenterprises)and

certainQSEs(QSEswith51%or100%Black

ownership)willnotneedtobeverifiedbya

verificationagencyandwillonlyneedanaffidavit

(signedbeforeaCommissionerofOaths)or

acertificateissuedbytheCompaniesand

IntellectualPropertyCommission,confirming

thefollowing:

• detailsofthedeponent;

• relianceoneithermanagementaccountsor

financialstatements;

• thefinancialyearofthefinancialinformation;

• totalannualrevenue(eitherZAR10millionor

lessforanEME,orbetweenZAR10millionand

ZAR50millionforaQSE);and

• levelofBlackownership.

ThereisastandardformavailableforEMEs

orQSEswishingtocompleteanaffidavit.The

affidavitmustbecompletedonanannualbasis.

Anymisrepresentationisacriminaloffence.

AQSEwithlessthan51%Blackownershipwill

needtobemeasuredundertheQSECodeon

eachofthefiveordinaryelementsofB-BBEEand

mustobtainacertificateissuedbyanaccredited

verificationorratingagency.

Itisimportanttonotethat,undertheCodes,

initiativeswhichsplit,separateordividea

measuredentityasameansofensuringeligibility

asanEME,aQSEorastart-upenterprisemay

constituteanoffence.Anysuchinitiativesmust

becarefullyconsideredbeforerelyingonsuch

initiativestoobtainaB-BBEErecognitionlevel.

TheQSECodecontainssimplifiedscorecardsfor

eachofthefiveelementsandincludesadjusted

pointsweightingsforskillsdevelopmentand

enterpriseandsupplierdevelopment.Underthe

QSECode,theelementsofB-BBEEonwhichan

enterprise’sB-BBEEscoreismeasuredandtheir

respectiveweightingsare:


16 17

Part 4: The Measurement of B-BBEE: Foreign Entities and Multinational Corporations (MNCs)

Must a foreign entity or MNC comply with B-BBEE requirements in South Africa?

No.Otherthanintermsofcertainsector-specific

legislation(whichmayimposelimitationson

foreignownershipwithinthatsector,such

asbroadcastingandaviation),thereisno

requirementforaforeignentityorMNCtocomply

withB-BBEE.Thismeansthereisnorequirement

foraforeignentityorMNCtosellanyequityto

conductbusinessinSouthAfrica.

However,anentitythatis100%foreign-ownedwill

notgenerallyscoreanypointsforownership,as

Blackpeopledonotholdanyeconomicinterest

orvotingrightsinthatentity.Ascoreofzerofor

ownershipwillimpactnegativelyonabusiness’

overallB-BBEEscorewhichmayaffectitsability

todobusinessinSouthAfrica,particularlywith

Governmentandorgansofstate,aswellascertain

privatesectorentities.

Does that mean a foreign entity or MNC must sell equity to operate effectively in South Africa?

Notnecessarilyandmuchwilldependonthe

sectorandthemarketwithinwhichaforeign

entityorMNCoperates,includingtheroleof

competitors.Someoptionsincludethefollowing:

Option 1: Sale of equity(seealsoourGuide 3 - B-BBEE in South Africa: Ownership and Ownership Structures)

Somepossiblesaleofequityoptionsinclude:

• 10%saleofequity(toavoidapenaltybeing

imposedforfailuretomeettheownershipsub-

minimumrequirements)

• 25%+1saleofequity(toscoreallavailable

pointsontheownershipscorecard,underthe

generalCodes)

• 30%Blackwoman-owned(whichhas

certainadvantagesfromtheperspective

ofpreferentialprocurement)

• 51%Black-owned(whichhascertain

advantagesfromtheperspectiveof

preferentialprocurement)

Option 2: Participation in an Equity Equivalent

Investment Programme

TheCodesrecognisethatsomeMNCs–definedas

ameasuredentitywithabusinessinSouthAfrica

andelsewherewhichmaintainsitsinternational

headquartersoutsideSouthAfrica–have global

practicespreventingthemfromcomplyingwith

theownershipelementofB-BBEEthroughthe

traditionalsaleofsharestoBlackSouthAfricans.

Aglobal practiceisdefinedintheCodesas‘agloballyanduniformlyappliedpracticeofamultinational,restrictingalienationofequityinorthesaleofbusinessesinitsregionaloperations’.

TMPSincludes,amongotherthings,costofsales,operationalexpenditure,capitalexpenditure,importsandthird-partyprocurements.

Providedtheglobalpracticeexistedbefore2003,

theCodesmakeprovisionfortherecognitionof

contributionsinlieuofadirectsaleofequity.Such

contributionsarereferredtoasequityequivalent

(EE)contributions.EEcontributionscounttowards

theownershipelementofB-BBEEmadebyMNCs.

ThisisdiscussedfurtherinourGuide 3 - B-BBEE in South Africa: Ownership and Ownership Structures.

Option 3: Exclusions from Total Measured

Procurement Spend

Mostprivatesectorbusinessestowhichservices

arerenderedorgoodsaresoldwillthemselves

havetomeetB-BBEEprocurementtargets.

Underthepreferentialprocurementelement,the

totalspendofameasuredentitywithsuppliers

ismeasuredagainstthetotalprocurement

expenditureortotal measured procurement

spend (TMPS).Measuredentitiescanincrease

theirscoresonthepreferentialprocurement

elementiftheyprocureagreaterpercentage

ofgoodsandservicesfromsupplierswithhigher

B-BBEEratings.

However,theCodesalsoprovideforcertain

permissibleexclusionsfromTMPS,including:

• importedcapitalgoodsorcomponentsfor

value-addedproductioninSouthAfrica

providedthereisnoexistinglocalproduction

ofsuchcapitalgoodsorcomponentsand

thosecapitalgoodsorcomponentspromote

furthervalue-addedproductioninSouth

Africa;and

• otherimportedgoodsandservicesifthereis

nolocalproductionofthosegoodsorservices

including,butnotlimitedto,importedgoods

orservicesthatcarryadifferentbrandtothe

locallyproducedgoodsorservices;orhave

differenttechnicalspecificationstothelocally

producedgoodsorservices.

Understandingwhethergoodsandservicescan

beexcludedfromcustomers’procurementspend

mayformanintegralpartofaforeignentityor

MNC’sB-BBEEstrategy.


18 19



Part 5: An Overview of B-BBEE in Certain Sectors TheMinisterofTradeandIndustryhaspublished

varioussector-specificcodeswhichdetailthe

mannerinwhichB-BBEEmustbemeasuredfor

businessesoperatinginparticularsectors.

Whereasector-specificcodehasbeenissued,

businessesinthatsectorarerequiredtoapplythe

relevantsectorcoderatherthanthegeneralCodes.

ThegeneralCodesapplyonlywherethereisno

sector-specificcodealthoughthegeneralCodes

andthesector-specificcodesshouldgenerally

applythesamebroadprinciples.Allsector

codesarerequiredtobealignedwiththe

generalCodes.

Thetablebelowprovidesahigh-leveloverview

ofthesectorcodesthathavebeenpublishedin

varioussectorstodate.

Sector Effective

Date

Application Ownership

Targets

Notable Aspects

General Codes 1May2015 Generalapplication Blackpeople:25%Blackwomen:10%

Tourism 20November2015

AllenterpriseswithintheTourismSectorandallpartsofvaluechain,including:

• Accommodation• Hospitalityandrelated

services• Travelandrelatedservices

Blackpeople:30%Blackwomen:15%

Thresholds:

EME:enterprisewithannualtotalrevenuelessthanZAR5million.

QSE:enterprisewithannualtotalrevenuebetweenZAR5millionandZAR45million.

Note: AdraftamendedTourismSectorCodewaspublishedforpubliccommenton27September2019toensurealignmentwiththeamendedgeneralCodes.

MAC 1April2016 • Advertisingcompany• Publicrelationscompany• Communicationcompany


Thresholds:

DifferentthresholdsforEMEs,QSEsandlargeenterprisesforeachsub-sector.

Additional points:

• Increaseinpointsavailableundermanagementcontrol(27points,asopposedto19pointsunderthegeneralCodes)

• Increaseintheabsorptionpointsto10undertheskillsdevelopmentelement(higherthan5pointsinthegeneralCodes).

Additional element:

Responsible Social Marketing and Communications (5 points)–measuringcontributionsmadetowardsthepromotionsofresponsiblesocialmarketing.

Sector Effective

Date

Application Ownership

Targets

Notable Aspects

ICT 7November2016

Allpersons,organisationsandentitiesoperatingintheICTsectorinSouthAfrica.


Additional points:

Additionalpointsavailableunderenterpriseandsupplierdevelopment(50points,asopposedto40pointsunderthegeneralCodes)andSED(12points,asopposedto5pointsunderthegeneralCodes).

B-BBEErecognitionlevels:

PointsapplicabletotheB-BBEEcontributorlevelsdiffersundertheICTSectorCodecomparedtogeneralCodes.

Forestry 21April2017 Allenterprisesinvolvedwithcommercialforestryandfirst-levelprocessingofwoodproducts,includingthefollowingsub-sectors:commercialprimarygrowth,fibreproduction,contracting,sawmilling,poleandcharcoal.

Non-timberforestproductenterprisesfalloutsidetheambitoftheForestSectorCode.


Ownership element:

Upto12bonuspointsgivenasanincentiveforenterprisestoachievevarioushigherownershiptargets.

Property 9June2017 Allprivatelyownedandpublicenterprisesinthepropertysector,includingthefollowingindustries:

• Residentialpropertyindustry• Commercialpropertyindustry• Otherpropertyvaluechainareas

Property owning companies

Thresholds:

DifferentthresholdsforEMEs,QSEsandLargeEnterprisesforcertainpropertysegments.

Ownership element:

• 4additionalpointsavailableforachievingfinancialsupporttargetsundertheownershipscorecards.

• 3bonuspointsavailablefor35%disposalofassetstoBlack-ownedandcontrolledcompanywithatleast51%Blackownership,asapercentageoftotalassetdisposal.

Additional element:

Economic Development (5 points) – economicdevelopmentinvestmentinunder-resourcedareasandcontributiontowardsaneconomicdevelopmentprogramme.


All other companies

Blackpeople:25%Blackwomen: 10%

Construction 1December2017

Allentitiesfallingwithintheconstructionsector,including:

• Contractors(enterprisesconductingconstructionprojectactivities,includingcivilengineering,electricalengineering,powertransmission,generalbuildingandspecialistconstructionworks);and

• Builtenvironmentprofessionals(BEP)(enterprisesthatconductactivitiessuchasplanning,designandcostingofconstructionprojectsinthebuiltenvironment).

For both contractors and BEPs

Thresholds:

DifferentthresholdsforBEPswhichareEMEsandQSEs;alsodifferentdeemedB-BBEElevelsbasedonpercentagesofBlackownership.

Scorecards:

Differentscorecards(andpoints)forcontractorsandBEPs.

Ownership:


Years1-3

Blackpeople:32.5%Blackwomen:10%

Year4


Overview of B-BBEe sector nodes continued


20 21

Sector Effective

Date

Application Ownership Targets Notable Aspects

Financial 1December2017

AnynaturalorjuristicpersonconductingbusinessintheSouthAfricanfinancialsector,including;banking,long-termandshort-terminsurance,re-insurance,retirementfundadministration,managementofcollectiveinvestmentschemeassets,financialservicesintermediationandbrokerageandprivateequity.

Blackpeople:25%

Blackwomen: 10%

(unlessexemptedfromownership)

Scorecards:

Differentscorecards(andpoints)for(1)banksandlifeoffices,(2)short-terminsurers,(3)stockexchangesandstockexchangemembers,and(4)otherinstitutions.

Additionalelement:

Access to financial servicesaimedatfacilitatingaccesstofinanceforBlackpeopleandBlack-ownedenterprises.

Agriculture 8December2017

Enterpriseswhichderivemorethan50%ofturnoverfrom:

• primaryproductionofagriculturalproducts;

• provisionofinputsandservicestoenterprisesengagedinproductionofagriculturalproducts;

• beneficiationofagriculturalproductsofprimaryorsemi-beneficiatedform;and

• storage,distributionand/ortradingandalliedactivitiesrelatedtonon-beneficiatedagriculturalproducts.


Ownership:

Targetforlandownershipwhereapplicableis30%.

Socio-economic development:

Upto15pointsavailableundersocio-economicdevelopment(comparedtoonly5pointsunderthegeneralCodes).

Defence 12April2019 AllentitiesintheSouthAfricandefenceindustry,includingprivateenterprisesprovidingdefencematerialorothersupplies,productsandservicestotheDepartmentofDefence.

Year 1 Thresholds:

EME:enterprisewithannualtotalrevenuelessthanZAR5million.

QSE:enterprisewithannualtotalrevenuebetweenZAR5millionandZAR50million.

Additional element:

Localisation (10 points)–measuresextenttowhichentitiesprocuredefencematerialfromlocalenterprisesthatcontributetothedevelopmentofmanufacturingandnewlocallydevelopedtechnology.


Year 2


Year 3


Transport 21August2009

Compriseseightsub-sectors:

• Buscommuterandcoachservices

• Taxiindustry• Roadfreight• Publicsector–transport• Maritimetransportand

servicesindustry• Forwardingandclearing• Railsector• Domesticaviation

Differentownershiptargetssetforeachofthesub-sectors.

ThedraftamendedTransportSectorCodesasalignedwiththegeneralCodeswerepublishedforpubliccommenton26February2016.Thisprocesshasnotyetbeenfinalised.

Chartered accountancy

Draftsectorcodeonly

Thecharteredaccountancyprofessionandsector.

BlackCAs:20%Blackpeople:32.5%BlackwomenCAs:6.5%Blackwomen: 13%

Ownership:


Overview of B-BBEE sector nodes continued

23

BOWMANS

22

GUIDE - An overview of B-BBEE in South Africa

Our Firm Our Footprint in Africa

Mozambique

Kenya

Tanzania

South Africa

Nigeria

Uganda

Mauritius

Best friends

Bowmans offices

Significant transaction or advisory experience

Alliance firms

Ethiopia

Ourtrackrecordofprovidingspecialist

legalservicesinthefieldsofcorporate

law,bankingandfinancelawanddispute

resolution,spansoveracentury.

WithnineofficesinsevenAfricancountries

andover400specialistlawyers,wedrawon

ouruniqueknowledgeofthebusinessand

socio-politicalenvironmenttoadviseclients

onawiderangeoflegalissues.

Everywherewework,weofferclientsa

servicethatuniquelyblendsexpertiseinthe

law,knowledgeofthelocalmarket,andan

understandingoftheirbusinesses.Ouraim

istoassistthemtoachievetheirobjectives

assmoothlyandefficientlyaspossiblewhile

minimisingthelegalandregulatoryrisks.

Ourclientsincludecorporates,multinationals

andstate-ownedenterprisesacrossarangeof

industrysectorsaswellasfinancialinstitutions

andgovernments.

Ourexpertiseisfrequentlyrecognisedby

independentresearchorganisations.Most

recently,attheinauguralIFLR1000Awards

forSub-SaharanAfrica(2020),wereceived

10awardsacrossfourjurisdictionsconfirming

ourleadershipwhenitcomestoadvisingon

multijurisdictionalmergersandacquisitionsin

Africa.AttheAfricanLegalAwards(2020),

wewonawardsinthreecategoriesandwere

highlycommendedinafurtherfourcategories

includingAfricanLawFirmoftheYear–Large

Practice.Wereceivedawardsinthreeoutof

fourcategoriesattheDealmakersEastAfrica

Awards(2019):toplegaladviserintheM&A

Categoryforbothdealflowanddealvalue

andadvisedontheDealoftheYear.Inthe

DealmakersSouthAfricaAwards(2019),we

wereplacedthirdfordealvalueintheM&A

CategoryandadvisedonboththeDealofthe

YearandtheBEEDealoftheYear.

Wearepresentinsevencountries

inAfrica:Kenya(Nairobi),Malawi

(Lilongwe),Mauritius(Moka),SouthAfrica

(CapeTown,Durban,Johannesburg),

Tanzania(DaresSalaam),Uganda(Kampala)

andZambia(Lusaka).

Weworkcloselywithouralliancefirmsin

Ethiopia(AmanAssefa&AssociatesLaw

Office)andNigeria(UdoUdoma&Belo-

Osagie).Thesearetwooftheleading

corporateandcommerciallawfirmsintheir

jurisdictions.

Wehavedevelopedabestfriendrelationship

withoneofMozambique’sstrongestlaw

firms(TacianaPeãoLopes&Advogados

Associados)andregularlyworkwithleading

lawfirmsinothercountriessuchasAngola,

Botswana,Ghana,IvoryCoast,Namibia,

Rwanda,SouthSudanandZimbabwe.

Wehaveacomprehensivedatabaseofallthe

lawfirmsweworkwithintherestofAfrica

coveringsuchcountriesasAlgeria,Egypt,

MoroccoandFrench-speakingWestAfrica.

WearerepresentativesofLexMundi,aglobal

associationwithmorethan160independent

lawfirmsinallthemajorcentresacross

theglobe.LexMundigivesustheabilityto

connectourclientswiththebestlawfirmsin

eachofthecountriesrepresented.

We help our clients overcome legal complexity and unlock opportunity in Africa.

Malawi

Zambia

24 25

BOWMANS GUIDE - An overview of B-BBEE in South Africa

BOWMANS

Key Contacts

27

ASHLEIGH HALECo-HeadofCorporate

Johannesburg,SouthAfrica

T:+27116699342

E: [email protected]

CLAIRE TUCKER HeadofPublicLawandRegulatory


T: +27116699402

E:[email protected]

LIVIA DYERPartner


T: +27116699334

E:[email protected]

Guide 1 – B-BBEE in South Africa: An Overview

272726

GUIDE - An overview of B-BBEE in South Africa

28

Cape Town, South AfricaT:+27214807800


Dar es Salaam, TanzaniaT: +255768988640


Durban, South AfricaT: +27311091150


Johannesburg, South AfricaT: +27116699000

E:[email protected]

Kampala, UgandaT: +256414254540


Lilongwe, MalawiT: +265990318152


Lusaka, ZambiaT: +260962275329


Moka, MauritiusT: +23052980100

E:[email protected]

Nairobi, KenyaT: +254202899000

E:[email protected]

Follow us on Twitter:@Bowmans_Law

www.bowmanslaw.com

Alliance Firms:

Aman Assefa & Associates Law Office, Addis Ababa, EthiopiaT: +251114702868

E:[email protected]

Udo Udoma & Belo-Osagie, Lagos, NigeriaT: +23412774920-2,+23412719811-3

E:[email protected]

Documents

GUIDE 1 – B-BBEE IN SOUTH AFRICA: AN OVERVIEW