Major changes to BEE on the cards for South Africa

The Minister of Trade, Industry and Competition, Parks Tau, has published draft changes to the Broad-Based Black Economic Empowerment (B-BBEE) laws, which accompany his plans to establish a widely disputed “transformation fund.”

Defending his plans to make changes to B-BBEE laws, Tau recently told Parliament that the latest report on B-BBEE in South Africa showed critically low levels of spending on enterprise and supplier development and high levels of non-compliance. 

“Measured entities are shown to be merely ticking the box with limited impact on the desired transformation and empowerment of the historically disadvantaged segments of society,” he said. 

The Transformation Fund is aimed at correcting this by having the state control B-BBEE contributions to assign them to small and medium Black-controlled businesses. 

Currently, the spending targets for businesses for B-BBEE points is 3% of the company’s net profit after tax, which must be given to black-owned enterprises and suppliers that must be identified by the business itself. 

The new regulations would require businesses to contribute the same 3% amount instead to a centralised fund, which will then deploy the money to beneficiaries identified by the state. 

Businesses will still be able to gain BEE points through the previous method of choosing their own beneficiaries, but this will count for fewer points. 

Businesses will be able to score 53 points by contributing to the fund, including bonus points, over the previous 46 points. 

Businesses that would prefer to choose their own beneficiaries will have to prepare an annual monitoring and evaluation report of their contributions in order to keep their B-BBEE verification.

Multinational businesses with South African operations will also be able to contribute to the fund, instead of establishing their own Equity Equivalent Investment Programmes (EEIPs).

‘A recipe for political interference and corruption’

The idea to establish the new fund has been criticised by two parties in the Government of National Unity, the Democratic Alliance (DA) and the Freedom Front Plus (VF+).

“The Fund is a classic case of putting the cart before the horse. What is required is a full review of BEE and its impact on investment, innovation, job creation, economic inclusion, small businesses and growth,” said DA spokesperson on Trade, Industry and Competition Toby Chance. 

“Until we have that data, it makes no sense to create yet another state-run fund whose very foundations are built on the discredited BEE framework.”

The party added that Minister Tau has not explained how he will protect and manage the billions he plans to collect, or how the fund will reach its goal of R20 billion in its first year of operation.

The VF+’s Jaco Mulder added that the board to manage the fund will be appointed by the minister, a plan it calls a “recipe for political interference and corruption.”

Mulder added that the Department has been exposed for large-scale corruption and maladministration in managing the national Lotteries Commission, and is wholly to blame for the illegal cigarette trade dominating legitimate markets.

In addition to the transformation fund, Tau has further gazetted changes to the preferential procurement measurements. 

New procurement rules

Under the current laws, businesses are incentivised to buy from 51% black-owned suppliers, as this category gives the business the most BEE points. 

The new regulations would give businesses a new target: to have 15% of the business’s total supplier spend be with 100% black-owned small enterprises, with a revenue of between R10 and R50 million. 

Additionally, businesses are given another new target, with another 15% of their total supplier spend allocated to 100% black owned micro-enterprises, with annual revenues below R10 million. 

Those purchasing from 51% black-owned businesses will no longer get 11 points, but only 3. Business will get 7 points for meeting the new targets, and 3 points for using 12% of the business’s total supplier spend on 100% black women-owned suppliers. 

While the DA is pushing for a complete overhaul of BEE laws, in favor of a needs-based system, the VF+ advocates for a removal of BEE in favour of free-market policies. 

However, the DTIC, under the African National Congress (ANC) Minister is pushing for these stricter guidelines to save the transformation agenda. 

Tau acknowledged that there is a need to review B-BBEE with the aim of addressing challenges that have inhibited success in its implementation. 

“Some of the biggest problems identified so far include, non-compliance with empowerment laws by some companies who decide they haven’t bought into the idea of creating equity and non-racialism in South Africa,” Tau said. 

“The other is fronting, where companies seeking to benefit from B-BBEE procurement and other processes exploit vulnerable black people by putting them as faces to companies that they don’t have ownership in.”