Documents: BEE Codes are out

BEE Codes are outThe BEE Codes have finally been published by the department of trade and industry (dti). If your company wants to secure government contracts, the more points it has, the more likely it is to secure a contract. (maximum number of points is 100)If your company is a small enterprise with an annual turnover of between R5m and R35m then it is classified as a small enterprise. This means that it can choose four of the seven elements described under the “Pillar” column. Each of these four elements then counts for 25 points.

In the tables below the Code is summarised and explains what points are awarded in each category (see column “Generic Targets”.) Under “Charter Targets” you will find a draft of what Numsa is still discussing for the engineering, auto and tyre sectors. Companies organised by Numsa would then have to aim to reach the targets set in this Charter.


Generic Targets

Engineering, auto and tyre Charter Targets

Ownership (20 points)Code 100

Evaluates the effective ownership of enterprises by black people.
target is black ownership of 25% equity and 25% +1 vote

Multinationals have various options open to them when considering addressing the equity element of B-BBEE. They may:

Sell equity in their SA operations to meet the targets
Undertake sales of assets in or with those operations
Also, if they meet specified requirements, perform equity equivalents (or replacement offerings as defined in the draft healthcare sector charter)
Sell equity in offshore holding entities.

Equity equivalent targets: For investments the target is either 25% of the value of the South African operation (either through a once off contribution or over a ten year period) or 4% of total turnover of the South African operations


10% black ownership by 2007
At least 25% black ownership by 2009
Workers ownership in SA firms should not be less than 10% in large firms and up to 25% in small to mid-cap companies
Adequate minority protections for workers in shareholder agreements
No unduly onerous financing provisions for ESOPs
Multinationals to comply with a minimum of equity equivalents or sale of asset transactions to workers if they don’t sell equity

AUTO AND TYRE (because multinationals (MNCs))

Multinationals to comply with equity equivalents or sale of asset transactions to workers
Full equity offset points, through sale of non core assets to workers, need to be implemented
Adequate minority protections for workers in shareholders agreements
Donations, gifted shares and substantial empowerment discounts that are financed by MNCs need to be secured for workers ESOPs

Management (10 points)Code 200

measures the effective control of enterprises by black people.

The targets are somewhere between 40% and 50% depending on the specific category

There is a distinction between voting rights, board participation (with respect to executive board members) and executive management participation, as well as a distinction between senior executive management and other executive management.

Executive board members are those persons serving on the board who are also ordinary employees of the measured company.

A gender adjustment factor is applied for the presence of Black Women representation within a specified formula. This provides for a recognition of black people on the board if a percentage of black people are black women.

A bonus point is awarded for black independent non-executive board members (as they are defined by the King II Report on Corporate Governance). This means, for example, that if a black shareholder nominates a black person to be a non-executive director in the company, and representing its interest on the board, this bonus point will not be attracted as the person is independent.

(Sector averages of top management: resources = 25.33%, manufacturing = 0.00%, general industries = 21.67%, basic industries = 10.0%)

As all affected industries are way below code’s targets currently, a concerted effort needs to be made to improve achievements thus far.

Focused efforts to train and fast track black management needs to be given
Targets of black management in companies are:
25% by 2008
50% by 2010
75% by 2012

(current averages of top management are 0% in manufacturing)

Employment Equity (15 points)Code 300

Measures and awards points for the black senior, middle and junior management levels within the enterprise, with points also being granted for the employment of black disabled employees.These definitions of senior, middle and junior management are based upon the occupational levels in the EE Act.There are stepped targets ie for the first 5 years the targets are high, and for the second 5 years the targets are even higher. This is on the basis that it takes time to sustainably transform a workforce, but if development of skills does not take place, then it will be impossible to achieve the second round of targets.

(Comparison of representation of black people in management levels 2005 (across all industries):Senior = 27.3%Middle = 27.6%Junior = 38.7%Women:Senior = 7.5%Middle = 12.9%Junior = 26.5%)

The basic achievements of each of the levels of management should be improved on by 5% per annum. Eg senior: 32% by 2008, 37% by 2009 etc until the code’s targets are met.
Skills development spend must be aligned with these targets and employees must be groomed for management
Due to the difficulties of employing women and attracting them into this sector, the proposed gender adjustment factor (whereby a company can only attain all the points it is entitled to if a minimum of 50% of employment and skills development interventions are aimed at women) should be 35%.

Skills development and training (15 points)Code 400

As the level of skills development of black people is the focus of Code 400, it would be a challenge to successfully implement skills development programmes unless there is already successful employment equity compliance in place.

The targets set are based on the amount of the payroll of the company.

companies have to employ a certain amount of learners, ie 5% of the number of employees in the company
black disabled employees should be trained as well.
a company can only get the full points in each category if 50% of the training was spent on black women.

The code encourages the adoption of In-service learnership programmes, which are defined as:

a certified learning programme where the company has independent written certification for the programme, or an independent enrolment certificate confirming that the learner is enrolled for a programme, or
an uncertified learning programme, which includes work based informal programmes

(Sector averages of skills development spend (as % of payroll): resources = 4.54%, manufacturing = 1.0%, general industries = 1.27%,basic industries = 1.99%)

skills spend should be targeted at core skills and managerial skills for black employees

learnerships should be encouraged in companies. These learnerships should include training around core technical and artisanal skills in the sector

there needs to be a concerted effort to train and upskill disabled employees

Preferential procurement (20 points)Code 500

requires enterprises to measure the BEE status of their suppliers using the broad-based approach and applies multipliers to that spend based on the B-BBEE status level of each supplier, to arrive at preferential procurement spend as a proportion of total measured procurement.

The definition of total measured procurement in the Code allows enterprises to exclude certain purchases from the total amount thereby making it easier to calculate higher BEE spend. For example, included in permitted exclusions are imports where there is no existing local production of such goods and the importation of such goods facilitates further value-added production within South Africa.

There is enhanced recognition for purchasing from companies which are over 50% black owned or over 30% black women owned, especially of they are small and micro enterprises

Customers should not neglect local manufacturers in favour of imports. Companies should have to procure a minimum 75% of goods from local companies.

Companies should also be encouraged to purchase goods and services from small black owned or women owned enterprises ie those who have a turnover of under R25 million per annum. This spend should be 25% of the total procurement spend

Larger companies should educate their suppliers through supplier development forums about B-BBEE and assist smaller companies in becoming BEE compliant

Enterprise Development (15 points)Code 600

This code provides for a calculation of spend by an enterprise on enterprise development contributions. The total spend is used to calculate a score for the company against a target of 3% of net profit after tax revenue of the preceding year.

The Codes provide for enterprises to choose an inception date from which to measure their contributions which are compared to NPAT over the same period and then measured against the target. The inception date may go back as far as five years prior to the date of commencement of the Code. Once an inception date has been chosen it must remain in force for the duration of the Code (10 years).

The full value of Enterprise Development Contributions multiplied by a number of different factors (depending on who the enterprise development beneficiaries are) is recognised. A benefit factor is also applicable whereby grants may be counted at 100% whereas loans which are recoverable contributions only 70% of the value may be counted.

Companies in the sector should commit to assist smaller black owned or black women owned companies that they procure goods from

These interventions include paying suppliers early, negotiating long term contracts, providing guarantees if required or assisting in other ways.

Companies should recognize that they can make a difference to the long term sustainability of the manufacturing sector through their assistance to small black owned companies, to not only procure from them (although that is necessary), but to also assist them to reach financial and operational stability

Companies that are local manufacturers should be preferred over distributors or agents

Corporate Social investment (5 points)Code 700

Social development encompasses projects that are external to the business or outward looking; projects undertaken for the purpose of uplifting communities in general and those which have a strong developmental approach. It also includes projects with a focus on social, developmental or community aspects where the investment is not primarily driven as a marketing initiative.

Contributions should benefit communities, natural persons and/or groups where at least 75% of the value of the benefits accrues to natural persons who are black people. Contributions may be either monetary or non-monetary provided they can be quantified. The objective of Social Development Contributions is the promotion of access to the economy for the beneficiaries.

The target is 1% of Net Profit After Tax of the enterprise per annum

Worker communities from each company and other affected communities should be the first recipients of corporate social investment spend (as opposed to remote projects that have nothing to do with the company and its employees). We recommend that initiatives or donations are contributed to projects that are needed in communities eg clinics, schools, education centres, sports centres, HIV/AIDS programmes in worker communities

Each company in this sector should commit to a viable HIV/AIDS programme, including the provision of antiretrovirals, if needed