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

11 September 2020 346
“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.

The BEE Commission further recognises skills development as an absolute essential element but worryingly note that the Skills Development element is not creating the pipeline of new black executives due to black executives rotating from one measured entity to another. The Report continues to indicate that job absorption and advancement into senior management roles remain challenging given the low correlation between black ownership percentage and management control within many companies. 

Accordingly, the BEE Commission recommends that the pace of transformation be improved through strict adherence to the BEE Act and Codes and enforcement by them of all sanctioning sections contained therein. Seeing as organs of state and public entities have fallen drastically short of the required standards in the BEE Act and Codes, the BEE Commission has proposed that Preferential Procurement as sub-element of the Enterprise and Supplier Development element, should be made a standing deliverable on their annual performance plans and that they should be reported on more regularly to their portfolio committees. 

The BEE Commission stresses the fact that measured entities, when considering Enterprise and Supplier Development initiatives, should implement their initiatives on an informed basis and with a view to building sustainable black-owned entities. In respect of Skills Development, the BEE Commission advocates for an improvement in quality and transparency with emphasis on the nature and quality of training and not just quantity. 

From this Report, your suspicions are confirmed and shared by the BEE Commission, which acknowledges that transformation so far has been too static and that the priority elements have not had the intended impact. What can therefore be taken from the Report is that although the priority elements have not yet had the desired impact, government continues to support its focus on these elements, and will focus more on their enforcement and implementation to achieve the intended impact, which in turn should be a warning for all suppliers that have not actively focused on these priority elements in their BEE planning.