BBBEE Compliance in Multinationals

by | Jan 25, 2019 | Broad Based Black Economic Empowerment Advice and Planning, Publications

Introduction

In April 2015, the revised Broad-Based Black Economic Empowerment (“Generic BBBEE Codes” or “Codes”) Codes came into operation (“new codes”) thereby replacing the existing BBBEE Codes of Good Practice (“old codes”). Since the change, compliance has become particularly challenging for most local operations. Even more so, in the case of foreign operations, who have a very limited perspective on the regulations themselves.

Background

Compliance with BBBEE is a turnover- based consideration. Businesses are categorised into 3 levels for this purpose, namely: Exempt Micro Enterprises (“EME”), Qualifying Small Enterprises (“QSE”) and Generic Enterprises (“GENERIC”). EME’s compliance is much more lenient than the other levels. QSE’s on the other hand, have relieved compliance in terms of the scorecard while generic businesses require full scorecard compliance (without any relief).

Entities are measured on turnover as set out below:
EME

Annual Turnover ≤ R10 million
QSE

Annual Turnover of R10-50 Million
GENERIC

Annual Turnover > 50 Million
The scorecard elements are: Ownership, Skills development, Enterprise and Supplier Development, Socio Economic Development and Management Control.
Priority items

The new codes list three priority elements:

  • Ownership;
  • Skills Development and
  • Enterprise and Supplier Development.

A QSE must achieve 40% of the points for two of the three priority elements, with Ownership being a compulsory one. Non-compliance with the thresholds for the above priority elements will result in a penalty by one level on the QSE scorecard.

What about Multinationals?

The Codes recognise that compliance with BBBEE is a challenge for Multinationals and have made provision for the equity equivalent programme (EEP). In order for the Multinational to apply for any EEP, they would need to prove that they have not concluded an ownership transaction elsewhere in the world, as it is global policy not to do so, and they believe they may be prejudiced by doing so.
EEP contributions count towards the ownership element of BBBEE made by Multinationals.

According to the DTI:

“The value of these EE contributions may be measured against 25% of the value of the Multinational’s South African operations or may be measured against 4% of the Total Revenue from its South African operations annually over the period of continued measurement.”[1]
EEP would entail a public programme/scheme and/or private programme/scheme designed to fulfil the requirements of BBBEE ownership.[2] It may also entail a programme targeting investment or any other programme that promotes Socio-Economic advancement/ development within the South African Economy.
It needs to be approved by the Minister of Trade and Industry in order to qualify for ownership points on the scorecard.

Applications are submitted to the Equity Equivalent Secretariat , who is responsible for:[3]

  • Analysing valuation methodologies and business plans from multinational companies;
  • Managing and processing applications for exemptions from multinational companies;
  • Assisting with developing strategies for implementing specific elements of the scorecard within the Employment Equity Programme;
  • Handling all queries and concerns from all relevant stakeholders (public, private, external and local);
  • Collating and disseminating information to all relevant stakeholders with respect to the Equity Equivalent Programme;
  • Providing secretariat support to the Equity Equivalent Committee;
  • Analysing multinational company structures and vetting (scrutinising) Equity Equivalent proposals to determine commercial viability and sustainability against the set criteria;
  • Developing and conducting presentations to foreign offices, embassies, high commissions, chambers and international clients; and
  • Assisting in the monitoring and evaluation of implemented programmes.

Conclusion

It is important that Companies that must comply with these Codes are properly advised from planning to implementation. For Multinationals compliance can be a daunting task, we therefore recommend reaching out to an expert at SchoemanLaw.
[1] https://www.thedti.gov.za/economic_empowerment/equity.jsp : accessed 20 January 2019.
[2] Codes of Good Practice, Code 100: Statement 103
[3] https://www.thedti.gov.za/economic_empowerment/equity.jsp : accessed 20 January 2019.