Government’s drive to achieve black ownership and control, but at what expense?
B-BBEE is a policy of the South African government which is aimed at increasing participation by previously disadvantaged South Africans in economic activities. The Broad-Based Black Economic Empowerment Act, 2003, as amended (the “B-BBEE Act”), the B-BBEE Codes, as well as various sector-specific codes are the primary legislation through which this B-BBEE policy is implemented.
The B-BBEE Codes set out the details of how B-BBEE scores are measured, namely:
In an effort to promote start-ups and new businesses in South Africa, the B-BBEE Codes were always forgiving of such businesses by prescribing less onerous B-BBEE requirements to be complied with. In this regard, start-ups and small businesses with an annual turnover of ZAR10-million or less (referred to as an “Exempted Micro Enterprises” or “EMEs”) would automatically qualify for a Level 4 B-BBEE rating (with a B-BBEE recognition level of 100%). Furthermore, EMEs and businesses with an annual turnover of between ZAR10-million and ZAR50-million (referred to a “Qualifying Small Enterprises” or “QSEs”) have the benefit of enhanced B-BBEE recognition levels to the extent they are black-owned and controlled. In this regard, an EME or a QSE that is at least 51% black-owned would automatically qualify for a Level 2 B-BBEE rating (with a B-BBEE recognition level of 125%) and an EME or a QSE that is 100% black-owned would automatically qualify for a Level 1 B-BBEE rating (with a B-BBEE recognition level of 135%).
Notably, generic enterprises would not qualify for enhanced B-BBEE recognition levels if they utilise or recognise any one or more of the following in their black ownership calculation:
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