revised BEE codes offer relief to small business
Posted 8 December 2006 

BLACK economic empowerment (BEE) requirements for companies are finally ready to become law after the second phase of government’s codes of good practice was given the thumbs up by a cabinet meeting this week.

Deputy director-general in the trade and industry department Lionel October yesterday also confirmed that the endorsed codes included a string of concessions which will see small businesses exempt from compliance with empowerment requirements while medium-sized companies have received greater leniency.

The approval of the codes by cabinet clears the way for Trade and Industry Minister Mandisi Mpahlwa to gazette them, as well as sector charters of industries that have applied for their scorecards to be legally binding.

October said he expected the codes to be gazetted before the end of January.  While the department will only release details of the content of the codes next week, October confirmed that the codes had been simplified.   A number of suggested changes to the original drafts had also been incorporated, which will give firms more breathing space.

These include a principle of “once-empowered, always-empowered”, that will see companies retain their empowerment credentials, even after their black investors have sold their shares.

The burden on small businesses in particular has been alleviated, with the threshold in terms of turnover size for companies that have to comply having been raised considerably.

In the version of the codes approved by cabinet, companies with annual revenues of R5m and less do not have to comply with any of the envisaged BEE requirements.  Medium-sized companies have also received some relief. Companies with a turnover of between R5m and R35m a year may choose four from the seven components with which they wish to comply.   The threshold for medium-sized companies was previously set at R25m in annual turnover.

Furthermore, multinational companies with a global policy on sole ownership of their subsidiaries in other countries will be exempted from the equity component of the scorecard, but will have to make up for the allowance with alternative measures.  Germien du Plessis, an equity partner at debt and equity specialists Bravura, welcomed the simplification of the codes.

“The very detailed and complex requirements included in the original codes created uncertainty as to the compliance requirements, and resulted in an enormous administrative burden and resultant cost impact to doing business in SA,” Du Plessis said.

However, it is understood that the department has suggested that a limitation be placed on the extent to which deals with employee trusts would be recognised as BEE ownership transactions as such transactions exclude new entrants.  Du Plessis said the limitation would be unfortunate.   “To penalise companies for empowering their black employees and effectively forcing them to enter into deals with the usual suspects does not appear to be in line with the objectives of broad-based empowerment,” she said.

Meanwhile, the department is conducting a comprehensive review of progress made in empowerment so far and its effect on the economy