Amendments to B-BBEE Codes may prejudice smaller businesses

The proposed amendments to the B-BBEE Codes of Good Practice could make it difficult for smaller businesses to achieve an acceptable scorecard and compete for contracts with government and state-owned enterprises.  This is according to Tony Balshaw, Managing Partner of Mazars East London.

The current Codes allow qualifying small enterprises (QSEs) to choose four of the seven scorecard elements to comply with; but this will no longer be the case.  The proposed amendments have reduced the elements from seven to five. They are however silent on how QSEs will be scored but include the application of so-called priority elements.

“This will be very difficult for many businesses.  Achieving the ownership targets, in particular for the new enterprise and supplier development element, will be very challenging,” Balshaw says.

If the amendments are passed into law, the majority of points – 53 out of 100 – will be attributable directly to black ownership.  “This appears to contradict Government’s stated intention to pursue Broad-Based BEE, in contrast to the excessive focus on ownership that existed before the current Codes were promulgated.”

Balshaw says a backlash from business could occur if the amendments are passed, similar to the backlash from non-profit organisations that has already resulted in the Department of Trade and Industry withdrawing proposed changes to the socio-economic development element, whereby companies would only receive points towards their scorecards if they funded NPOs with 100% black beneficiaries.

Balshaw believes amending the Codes at this point appears premature as Government’s Preferential Procurement Policy Framework Act (PPPFA) was only effective from December 2011.  Further, the minister gave state-owned enterprises a year’s grace before they had to apply the Codes, a period which only expires on the 7th of December this year.

“The current Codes haven’t been operational long enough to make any meaningful assessment as to their success or failure,” Balshaw says. “Empirical studies should be conducted and the effectiveness of the Codes assessed only after a few years of application of the current Codes by organs of state and SOEs.”

He says there is anecdotal evidence that significant progress has been made over the years by business in support of government’s drive to promote economic transformation, and particularly within the past year as the revised PPPFA was implemented.   However, he fears that if the amendments go through, the goodwill that business has shown towards BEE will be eroded.

“There is an overwhelming sense that the proposed amendments are too draconian and punitive. The net result could be to further polarise business and government, and create negative consequences for the South African economy.”

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