Page 19 - Q&A

Have the BEE Priority Elements had the desired
impact on transformation BEE

August 2020
“I’m the procurement manager for our company. We have a strong focus on BEE
in our business and take great care in our procurement and the BEE position
of our suppliers. Accordingly, I have noticed from the BEE certificates of many of
our suppliers that they do quite poorly with their priority elements. This is strange,
given the risk of dropping levels for non-compliance with these elements.
Maybe the priority elements have not had the desired impact envisaged by
their introduction?”

The Broad-Based Black Economic Empowerment Act 53 of 2003 (“BEE Act”)
and Codes of Good Practice issued by the Minister of Trade and Industry
(“Codes”) provide the legislative framework for Broad-Based Black Economic
Empowerment (“BEE”).

The priority elements under the Codes, being Ownership, Skills Development
and Enterprise and Supplier Development were identified by government as
the key elements to be addressed to ensure the advancement of economic
transformation and the economic participation of Black people in the
economy. The threat of being discounted an entire level for failure to meet
certain targets set under the respective priority elements were established to
place pressure on compliance with these specific elements.

So, with this threat of being discounted, why are suppliers not meeting the
requirements for these priority elements?

It appears government has had the same question, and the most recent
annual report (“Report”) by the BEE Commission on the National Status and
Trends on B-BBEE may shed some light on your question.

The BEE Commission found that there has been a general decline in all but the
Ownership element, where there has been a substantial increase. It appears
that companies are increasing their black ownership to try and qualify for
automatic levels and so avoid full scorecard compliance.

Compared to Ownership, Enterprise and Supplier Development contributions
are down with 10% with concern expressed for the practice which allows the
use of intermediaries to implement Enterprise and Supplier Development
initiatives as a “substantial part” of the measured entity’s expenditure on these
initiatives. The Report notes that this aspect of the Codes is not facilitating value
chain transformation as originally intended and while black entities may have
access to the market, their capacity to develop into sustainable entities over the
medium to long term is not being improved.

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