GUIDE 1 - AN OVERVIEW OF B-BBEE IN SOUTH AFRICA - Bowmans
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GUIDE 1 - AN OVERVIEW OF B-BBEE IN SOUTH AFRICA
BOWMANS Guide 1 - An Overview of B-BBEE in South Africa
Contents
04 Foreword
06 Part 1: An Overview of B-BBEE in South Africa
10 Part 2: The Measurement of B-BBEE: Large
Enterprises
15 Part 3: The Measurement of B-BBEE: Small
Enterprises and Start-Up Enterprises
18 Part 4: The Measurement of B-BBEE: Foreign
Entities and Multinational Corporations
20 Part 5: An Overview of B-BBEE in Certain Sectors
24 Our Firm
25 Our Footprint in Africa
26 Key Contacts
2 3
BOWMANS Guide 1 - An Overview of B-BBEE in South Africa
Foreword
Broad-based black economic empowerment (B-BBEE)
is a central part of the South African Government’s
transformation strategy.
B road-based black economic empowerment
(B-BBEE) is a central part of the South
African Government’s transformation strategy.
We are up to date with the most recent developments
in B-BBEE, including the amendments to and
interpretations and nuances arising in the context
of the Codes of Good Practice and the various
B-BBEE comprises various components aimed at sector-specific codes. We regularly engage – both
increasing the numbers of Black people (being independently and behalf of our clients – with the
South African citizens who have been racially B-BBEE Commission, the Department of Trade and
classified as African, Indian or Coloured) who Industry and various B-BBEE verification agencies.
manage, own and control the country’s economy,
and decreasing racially based income inequalities. Because B-BBEE is such an important consideration
for any company conducting business in South Africa,
There is no positive obligation to have a particular we have produced a series of four guides to help our
B-BBEE status level. However, any company wishing clients understand the complex regulatory framework
to do business in the South African environment must applicable to B-BBEE in South Africa.
consider and develop its B-BBEE position as – in
addition to the pressures from Government – an entity This, the first in the series, provides a general
that does not have a good B-BBEE rating or does not overview of B-BBEE (Part 1) with a focus on
strive to improve its B-BBEE rating may be hampered understanding the measurement of B-BBEE for:
in the conduct of its day-to-day business with • large enterprises (Part 2);
Government, organs of state and the private sector. • small to medium-sized enterprises, which are
referred to as exempted micro-enterprises (EMEs)
Further, a company’s B-BBEE rating and/ or its and qualifying small enterprises (QSEs), and start-
local ownership may be a determining factor when up enterprises (Part 3); and
applying for a state licence, permit or authorisation, • foreign companies and multinational corporations
depending on requirements imposed by sector- (MNCs) (Part 4).
specific legislation.
The guide also provides a high-level overview
Bowmans provides trusted, specialist advice in of B-BBEE in certain sectors (Part 5).
all areas of B-BBEE. Our lawyers have extensive
experience advising and acting for major local We are in a unique position to help our clients in
and international commercial and industrial the development and implementation of lasting and
corporations, mining houses, banks and sustainable transformation. Please contact us if you
private equity funds across a range of industry would like to discuss either the content of this guide
sectors. We have also been involved in several in more detail or your unique B-BBEE challenges.
ground-breaking B-BBEE transactions.
We advised Isanti Glass on its proposed ZAR Key contacts are set out at the end of this guide.
1.5 billion acquisition of Nampak Glass, which Ashleigh Hale
was named BEE Deal of the Year for 2019 at the Co-head of Corporate
Dealmakers South Africa Awards event which was
held in February 2020. Isanti Glass is 60% owned The contents of this guide are for reference purposes only
by black-owned investment company Kwande and should not be considered a substitute for detailed
Capital and 40% owned by SABSA Holdings, the legal advice. It is correct as at October 2020.
South African holding company of SA Breweries. If you require further information, please contact one of
SABSA is owned by AB InBev, the world's biggest the key contacts listed at the end of this guide.
brewer and one of the largest glass manufacturers.
4 5
CONTENTS PAGE CONTENTS PAGE
BOWMANS Guide 1 - An Overview of B-BBEE in South Africa
Part 1: An Overview of
B-BBEE in South Africa
How is B-BBEE regulated in South Africa? A high-level overview of the Codes of Good Practice
CODE SERIES STATEMENT TITLE OVERVIEW
CODE SERIES 000 STATEMENT 000 Framework for Among other things, specifies the interpretative
measuring B-BBEE principles of B-BBEE, the application of the
• T he BEE Act is the principal legislation for the • T he Codes are published under the Codes and basis for measurement under the
promotion and measurement of B-BBEE in South Africa. BEE Act and detail the manner in Codes, and the application of the Codes to EMEs,
• The BEE Act also establishes the B-BBEE Commission which B-BBEE must be measured in QSEs and start-up enterprises
(B-BBEE Commission) which is responsible for South Africa.
investigating alleged ‘fronting’ practices and referring • In assessing B-BBEE, a scorecard STATEMENT 003 Amended guidelines Among other things, specifies the process for
them for prosecution. (measurement) approach is used for developing and developing and gazetting sector codes.
whereby the different aspects of gazetting sector
B-BBEE, including ownership, codes
management control, skills STATEMENT 004 Scorecards Provides guidance about the treatment of
development, enterprise and for specialised ownership for specialised enterprises (e.g. higher
• T he BEE Regulations are
supplier development (including enterprises education institutions and non-profit companies)
published under the BEE Act.
preferential procurement), and for B-BBEE, and specifies applicable scorecards
• Among other things, the
BEE Regulations regulate socio-economic development, are CODE SERIES 100 STATEMENT 100 The general Sets out the measurement of the effective
the functions of the B-BBEE accorded points to arrive at the principles for ownership of entities by Black people.
The B-BBEE B-BBEE score of a company. measuring ownership
Commission including, for
Act 53 of 2003 • The Codes set out these indicators to
example, the complaints STATEMENT 102 Recognition of the Sets out the conditions where the sale of assets,
(BEE Act) measure B-BBEE and the weightings
process and the registration sale of assets, equity equity instruments and other businesses will
of major B-BBEE attached to these indicators. instruments and be recognised and sets out how the ownership
other businesses points will be determined.
STATEMENT 103 Recognition of equity Defines how MNCs may apply for recognition of
equivalents for equity equivalent programmes and sets out how
The B-BBEE Regulations, 2016 The Codes of Good Practice
(BEE Regulations) B-BBEE (Codes or general Codes) CODE SERIES 200 STATEMENT 200
multinationals
The general
ownership points will be determined.
Sets out the measurement of the effective control
principles for of entities by Black people.
measuring
management control
The Liquid Fuels The Mining The sector-specific
Charter, 2003 Charter, 2018 codes CODE SERIES 300 STATEMENT 300 The general Sets out the measurement of the extent to
principles for which employers carry out initiatives designed to
measuring skills develop the competencies of Black employees
development and Black people internally and externally.
• T he Liquid Fuels Charter is • T he Mining Charter, • T he various sector-specific codes CODE SERIES 400 STATEMENT 400 The general Sets out the measurement of the extent to which:
published as a Schedule under read together with published under the BEE Act detail principles for • entities buy goods and services from
the Petroleum Products Act the Implementation the manner in which B-BBEE must be measuring enterprise Empowering Suppliers with strong B-BBEE
120 of 1977 and is intended Guidelines, is measured for businesses operating in and supplier recognition levels; and
to empower historically published under particular sectors (although sector- development • enterprises carry out supplier development and
disadvantaged South Africans the Mineral and specific codes generally apply the same enterprise development initiatives intended to
in the petroleum and liquid Petroleum Resources broad principles as the general Codes). assist and accelerate growth and sustainability
fuels industry. Development Act • Sector codes have been published for of enterprises owned by Black people.
• The process of aligning the 28 of 2002 and the following sectors:
Liquid Fuels Charter with the is intended to • Agriculture CODE SERIES 500 STATEMENT 500 The general Sets out the measurement of the extent to
B-BBEE legislation is underway. facilitate sustainable • Chartered accountancy (draft version) principles for which entities carry out initiatives that contribute
• For more information on the transformation, • Construction measuring towards socio-economic development or sector-
Bowmans’ Oil and Gas Practice, growth and • Defence socio-economic specific initiatives that promote access to the
click here. development of the • Financial services (including banks, development economy for Black people.
mining industry. • short-term insurance, reinsurance and
• For more information financial services intermediation and CODE SERIES 600 STATEMENT 600 Qualifying Small Specifies the elements of B-BBEE measurable
on Bowmans' services brokerages) Enterprises (QSE) under the QSE scorecard, as well as the
concerning the Mining • Forestry applicable measurement principles.
Sector, click here. • Information communication and STATEMENT 601 Ownership for QSEs
• technology (ICT) STATEMENT 602 Management control for QSEs
• Marketing advertising and STATEMENT 603 Skills development for QSEs
communications (MAC) STATEMENT 604 Enterprise and supplier development for QSEs
• Property
• Tourism STATEMENT 605 Socio-economic development for QSEs
• Transport SCHEDULE 1 Interpretation and Sets out the interpretation and definitions
definitions applicable to the Codes.
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CONTENTS PAGE CONTENTS PAGE
BOWMANS Guide 1 - An Overview of B-BBEE in South Africa
Are companies required to achieve specific B-BBEE The PPPFA Regulations allow B-BBEE minimum Are there offences and/ or penalties for
targets in South Africa? thresholds to be set for certain tenders and in every non-compliance with B-BBEE requirements?
tender evaluation process:
In general, no. Other than in certain state licensing, • tenders for contracts with a value of up to ZAR There are no offences or penalties under the
permitting and authorisation processes, there is no 50 million are scored on the basis that 80% of the B-BBEE legislative framework relating to
‘hard law’ requiring that a private entity in South available points are based on price, and 20% of the B-BBEE performance. However, there may
Africa must achieve a certain level of B-BBEE or that available points are based on the bidder’s B-BBEE be penalties in certain sectors where B-BBEE
Black people must hold a certain percentage of equity rating; and requirements are imposed for licensing or other
in a business. There are also no sanctions for non- • tenders for contracts with a value above ZAR 50 authorisation purposes.
compliance. However, in certain sectors, such as mining million are scored on the basis that 90% of the
and telecommunications, minimum equity requirements available points are based on price, and 10% of the Further, under the B-BBEE legislation, it is a criminal
are or may be imposed in terms of the sector-specific available points are based on the bidder's B-BBEE offence to engage in a fronting practice or to make
legislation governing those sectors. rating. deliberate misrepresentations about an enterprise’s
true B-BBEE status. Fines for fronting may be up to
How important is B-BBEE for government bodies and For more information on Bowmans’ services concerning 10% of a company’s annual turnover.
state-owned enterprises? Government Contracting and Public Procurement,
click here. What is fronting?
In terms of the BEE Act, government bodies and state-
owned enterprises (SOE) are required to take private- How important is B-BBEE for the The Codes provide that, when measuring B-BBEE
sector parties’ relative B-BBEE levels into account when private sector? levels, substance applies over legal form. This is an
they: attempt to limit instances of fronting by enterprises
B-BBEE is relevant even to private sector businesses which make representations that they have adopted
• procure any goods or services, which do not require government licences or sell particular B-BBEE initiatives to score points when,
• issue any licence or other authorisation, or goods or services to Government. Most private sector in substance, the initiatives have not been adopted.
• enter into partnerships with the private sector. businesses will have customers who have to meet
their own B-BBEE procurement targets. As a result, The BEE Act defines a ‘fronting practice’ as ‘a
This means that businesses that interact with customers are likely to consider the B-BBEE rating of transaction, arrangement or other act or conduct
Government by selling to Government or that require their suppliers (this will be a factor in determining the that directly or indirectly undermines or frustrates
licences to perform their particular activities would entities with whom to do business). Where customers the achievement of the objectives of [the BEE Act]
need to consider their levels of B-BBEE to conduct their impose B-BBEE requirements, a prospective supplier’s or the implementation of any of the provisions of
businesses in those sectors. B-BBEE measurement is a competitive assessment of [the BEE Act]’.
its B-BBEE status relative to that of its competitors.
In a licensing context, B-BBEE requirements are
implemented in the empowering legislation for the This means that – although there are no absolute
licence in question (e.g. banking, broadcasting, mining, requirements in relation to B-BBEE – any company
telecommunications, transportation, etc.) and, in certain wishing to do business in the South African
instances, B-BBEE minimum thresholds may be set. environment must consider and develop its B-BBEE
position because an entity that does not have a good
The Preferential Procurement Policy Framework Act 5 B-BBEE rating or does not strive to improve its B-BBEE
of 2000 (PPPFA) also provides that B-BBEE must be rating, may be hampered in the conduct of its day-to-
considered by any public sector body in the context day business with the private sector (as well as with
of its procurement practices and details the manner Government and organs of state, as discussed above).
in which B-BBEE must be taken into account by
government departments and agencies and SOEs.
8 9
CONTENTS PAGE CONTENTS PAGE
BOWMANS Guide 1 - An Overview of B-BBEE in South Africa
Part 2: The Measurement of B-BBEE:
Large Enterprises
What is considered a large enterprise? What are the elements of B-BBEE
and how are they weighted? Measurement of the extent
A ‘Large Enterprise’ is any enterprise with annual total to which entities carry out
initiatives that contribute Measurement of the effective
revenue of ZAR 50 million or more. Under the general Codes, the elements of B-BBEE on towards socio-economic ownership of entities by Black people
which a measured entity’s B-BBEE score is measured development or sector-
The term ‘total revenue’ is defined under the Codes as are as per the graphic opposite: specific initiatives that
the total income of an enterprise from its operations as promote access to the
determined under South African Generally Accepted economy for Black people Ownership Measurement
Accounting Practice (which are effectively the same as (Code Series 100) of the effective
control of
the International Financial Reporting Standards (IFRS)).
entities by
Black people
How is B-BBEE measured:
the scorecard approach
In assessing B-BBEE, a scorecard approach is used Socio-Economic Management
whereby the different aspects of B-BBEE are weighted Development Control
according to a points system to determine the B-BBEE (Code Series 500) (Code Series 200)
score of a measured entity. A general scorecard is Elements under the
included in the general Codes, while sector-specific General Codes of
scorecards are included in the sector codes that apply Good Practice
to particular sectors.
The scorecards detail the various elements and sub-
elements of B-BBEE on which enterprises are measured
and stipulate targets to be achieved for each element
and sub-element. The closer an enterprise is to reaching Enterprise and Skills
a particular target, the more points it will achieve for Supplier Development
that element of B-BBEE. Development (Code Series 300)
(Code Series 400)
Measurement of the Measurement of
extent to which: the extent to which
• entities buy goods employers carry out
and services from initiatives designed
Empowering to develop the
Suppliers with strong competencies of
B-BBEE recognition Black employees
levels (preferential and Black people
procurement); and internally and
• enterprises carry out externally
supplier development
and enterprise
development
initiatives intended
to assist and
accelerate growth
and sustainability of
enterprises owned by
Black people
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CONTENTS PAGE CONTENTS PAGE
BOWMANS Guide 1 - An Overview of B-BBEE in South Africa
A more detailed overview of the various elements of B-BBEE and
their respective weightings under the general Codes is as follows:
B-BBEE OVERVIEW PROOF REQUIRED POINTS B-BBEE OVERVIEW PROOF REQUIRED POINTS
ELEMENT AVAILABLE ELEMENT AVAILABLE
Ownership The ownership element considers the extent to which: Proof of ownership 25 Enterprise • P oints are scored for enterprise development in relation to the
Proof of purchases 5
rights in the hands and supplier from current
contribution (both monetary and non-monetary) that an entity
of Black people (e.g. development suppliers that have
makes to developing businesses that are owned by Black people
• o wnership interests (voting rights and economic interest)
share certificates, (e.g. investing in businesses owned by Black people, makinga B-BBEE rating and
in a measured entity are held by Black people, and by Black
shareholders loans to businesses owned by Black people, providing creditare empowering
women specifically; and
agreement, etc.). guarantees to businesses owned by Black people, providing suppliers as a
• such ownership interests are unencumbered by debt (referred
percentage of total
preferential credit terms to businesses owned by Black people,
to as ‘net value’).
giving discounts, and providing training or mentoring). Theprocurement spend.
Management The management control element refers to the number of Proof of Black 19 targets that apply to enterprise development are set as a Proof of
control Black members, and Black women in particular, who sit on the people in top, contributions to
percentage of the measured entity’s net profit after tax (NPAT).
measured entity’s board of directors, as well as the number senior, middle and developing business
• Supplier development refers to the enterprise development 10
of Black people who participate in all levels of management junior management. owned by Black
contributions that an entity makes to its Black-owned suppliers
(executive, senior, middle and junior management). Interviews will be people.
and, in particular, small Black-owned businesses who are its
held to confirm Proof of
suppliers. The targets that apply to supplier development are
seniority, job contributions
Companies above a certain size also have separate obligations also set as a percentage of the measured entity’s NPAT.
description, salary, to Black-owned
in terms of the Employment Equity Act, 1998 to prepare
etc. Submission of an suppliers.
employment equity plans and to submit returns regarding their
employment equity
progress on employment equity to the Department of Labour. Socio- The socio-economic development (SED) element is assessed Proof of corporate 5
report required.
economic based on the corporate social investment (CSI) contributions that social investment
Skills The skills development element is measured based on the Proof of training 20 development an entity makes. Targets for SED are based on a percentage of contributions
development amount of money that an entity spends on skills development spend on Black (plus 5 NPAT.
programmes for Black employees. employees or bonus
non-employees points) TOTAL POINTS ON THE SCORECARD (including bonus points) 118
• E mployers are required to, by law, pay an amount equal to a and accredited
prescribed percentage of all their employees’ salaries to the programmes (e.g.
National Skills Fund in terms of the Skills Development Act, apprenticeships,
1998 and the Skills Development Levies Act, 1999. learnerships, If a measured entity achieves the target for a particular indicator or if it exceeds the target for a particular indicator, it
• Entities can also score points for the number of learnerships internships, will achieve the full points for that indicator. In the example above, the total points that could be scored will be 4 points.
they facilitate for Black people, Black women and Black mentorship
disabled persons, the amount of money they spend on programmes).
What are B-BBEE levels and why do they
bursary programmes, and the implementation of mentorship
matter?
programmes.
Enterprise The enterprise and supplier development element under the Proof of purchases 40 points Example: If only 15% of the economic interest in a measured
and supplier Codes has three components: preferential procurement, enterprise from current in total entity is held by Black people (where the target is 25% and the The more points a measured entity achieves
development development and supplier development: suppliers that have (plus 4 total points that can be achieved is 4 points), the entity would in total across each of the individual elements,
a B-BBEE rating and bonus get points in proportion to its achievement of the target. the higher its B-BBEE status level will be. Each
are empowering points) B-BBEE level translates into a procurement
suppliers as a recognition level (the percentage which a
• Points for preferential procurement are scored depending 25 Actual points = (percentage actually achieved target
percentage of total company procuring can claim).
on the extent to which measured entities procure goods and percentage) x total points
services from Black-empowered suppliers who comply with procurement spend.
certain criteria to qualify as Empowering Suppliers. In essence, Proof of How are the available points obtained?
contributions to = (15%/25%) x 4
a certain percentage of a measured entity’s expenditure with
= 2.4 points
an Empowering Supplier is recognised as B-BBEE expenditure, developing business If a measured entity does not achieve the target
depending on that supplier’s B-BBEE level. Entities can owned by Black for a particular indicator under an element, it will
increase their scores on this element if they procure a greater people. score points on a pro rata basis.
percentage of goods and services from suppliers with higher Proof of
B-BBEE ratings, from small businesses (such as QSEs and contributions
EMEs), from suppliers that are at least 51% Black-owned, and to Black-owned
B-BBEE STATUS NUMBER OF WEIGHTING POINTS REQUIRED PROCUREMENT RECOGNITION LEVEL
from suppliers that are at least 30% owned by Black women. suppliers.
Level 1 Contributor ≥ 100 points 135%
Level 2 Contributor ≥ 95 points < 100 points 125%
Level 3 Contributor ≥ 90 points < 95 points 110%
Level 4 Contributor ≥ 80 points < 90 points 100%
Level 5 Contributor ≥ 75 points < 80 points 80%
Level 6 Contributor ≥ 70 points < 75 points 60%
Level 7 Contributor ≥ 55 points < 70 points 50%
Level 8 Contributor ≥ 40 points < 55 points 10%
Non-Compliant Contributor < 40 points 0%
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CONTENTS PAGE CONTENTS PAGE
BOWMANS Guide 1 - An Overview of B-BBEE in South Africa
Part 3: The Measurement of
B-BBEE: Small Enterprises
and Start-Up Enterprises
How is a business’ B-BBEE level assessed? If any of the sub-minimum requirements are not met, a Different measurement criteria apply under the Codes
measured entity will be deemed to drop one B-BBEE to an exempted micro-enterprise (EME), a qualifying
Where a business presents any information regarding level. In other words, if a business scores sufficient small enterprise (QSE), and a start-up enterprise.
its B-BBEE score – for example, in the context of points to be a Level 3 B-BBEE contributor but fails to
a tender response – this must be supported by a meet one of the sub-minimum requirements, it will be
deemed to be a Level 4 B-BBEE contributor. What is an EME and how is it measured?
certificate issued by an accredited verification or rating
agency. The certificates issued by the verification
agencies are valid for 12 months and certify a Under the Codes, any enterprise with an annual
measured entity’s B-BBEE level based on a B-BBEE total revenue of ZAR 10 million or less qualifies
audit of the business which is conducted on an annual as an EME.
basis.
A deemed B-BBEE status level means an EME does not
A business’ B-BBEE score will be determined on the need to be measured using the scorecard approach
basis of its activities during the previous financial year under the Codes, and its B-BBEE status level will be
and its ownership and management structures and determined solely with reference to its percentage of
staff profile as at the date of measurement. Black ownership. However, EMEs are allowed to be
measured in terms of the QSE scorecard should they
wish to maximise their points and move to the next
procurement recognition level.
What are the priority elements and how does this
affect a business’ B-BBEE level?
The measurement of an EME is as follows:
There are three priority elements: ownership (net
value), skills development, and enterprise and supplier will be
development. A large enterprise is required to 100% Black-owned deemed Level 1 B-BBEE status
comply with all the priority elements. Sub-minimum to have a
requirements – 40% of the relevant targets – apply in
the context of the three priority elements.
What does this mean about the points that
must be scored on each of the priority
EME 51% Black-owned
will be
deemed Level 2 B-BBEE status
to have a
elements?
Annual total revenue
Ownership: 40% of the points for net value of ZAR 10 million
(8 points) = 3.2 points or less
Under 51% will be Level 4 B-BBEE status
ownership by deemed (B-BBEE procurement
Skills development: 40% of the total points, Black people to have a recognition of 100%)
excluding bonus points, for skills development
(20 points) = 8 points
Enterprise and supplier development: 40%
of the total points for each category under
enterprise and supplier development,
excluding bonus points:
• 4 0% of the total points for preferential
procurement (25 points) = 10 points
• 40% of the total points for supplier
development (10 points) = 4 points
• 40% of the total points for enterprise
development (5 points) = 2 points
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BOWMANS Guide 1 - An Overview of B-BBEE in South Africa
With regard to the priority elements, a QSE is required There is a standard form available for EMEs or QSEs
What is a QSE and how is it measured?
to comply with the sub-minimum requirements wishing to complete an affidavit. The affidavit must be
for ownership (as a compulsory element) as well completed on an annual basis. Any misrepresentation
Under the Codes, any enterprise with an annual as the sub-minimum requirements for either skills is a criminal offence.
total revenue of between ZAR 10 million and ZAR 50 development or enterprise and supplier development
million qualifies as a QSE. (unless it is eligible for a deemed rating). A QSE with less than 51% Black ownership will need
to be measured under the QSE Code on each of the
The measurement of a QSE is as follows: What is a start-up enterprise and five ordinary elements of B-BBEE and must obtain a
certificate issued by an accredited verification or rating
how is it measured?
agency.
will be A start-up enterprise is defined under the Codes as ‘a
100% Black-owned deemed Level 1 B-BBEE status It is important to note that, under the Codes, initiatives
recently formed or incorporated entity that has been in
to have a which split, separate or divide a measured entity
operation for less than one year’. Importantly, a start-
as a means of ensuring eligibility as an EME, a QSE
up enterprise does not include any newly constituted
or a start-up enterprise may constitute an offence.
enterprise which is merely a continuation of a pre-
QSE
Any such initiatives must be carefully considered
existing enterprise.
before relying on such initiatives to obtain a B-BBEE
will be recognition level.
51% Black-owned deemed Level 2 B-BBEE status Under the Codes, start-up enterprises must be
to have a measured as EMEs for the first year following their
formation or incorporation (unless the start-up
Annual total revenue enterprise chooses to be measured on the QSE
of ZAR 10 million scorecard or generic scorecard). This provision applies
and ZAR 50 million regardless of the expected total revenue of the start-
Under 51% Under the QSE Code
must be up enterprise.
ownership by (B-BBEE procurement
measured
Black people recognition of 100%)
If, however, a start-up enterprise tenders on large
projects, it must submit a scorecard. The value of the
tender will determine whether a start-up enterprise is
required to submit a QSE scorecard or a generic Code
scorecard.
The QSE Code contains simplified scorecards for each
of the five elements and includes adjusted points
weightings for skills development and enterprise How is the B-BBEE recognition level of an EME, QSE
and supplier development. Under the QSE Code, the and a start-up enterprise assessed?
elements of B-BBEE on which an enterprise’s B-BBEE
score is measured and their respective weightings are:
All EMEs (including start-up enterprises) and certain
QSEs (QSEs with 51% or 100% Black ownership)
will not need to be verified by a verification agency
B-BBEE ELEMENT CODE SERIES 600 POINTS AVAILABLE and will only need an affidavit (signed before a
Commissioner of Oaths) or a certificate issued by the
Ownership Statement 601 25
Companies and Intellectual Property Commission,
Management control Statement 602 15 confirming the following:
Skills development Statement 603 25 (plus 5 bonus points)
Enterprise and supplier development Statement 604 30 (plus 3 bonus points) • details of the deponent;
Socio-economic development Statement 605 5 • reliance on either management accounts or financial
statements;
TOTAL (including bonus points) 108 • the financial year of the financial information;
• total annual revenue (either ZAR 10 million or less
for an EME, or between ZAR 10 million and ZAR 50
million for a QSE); and
• level of Black ownership.
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CONTENTS PAGE CONTENTS PAGEBOWMANS Guide 1 - An Overview of B-BBEE in South Africa
Part 4: The Measurement of B-BBEE:
Foreign Entities and Multinational
Corporations (MNCs)
Option 2: Participation in an Equity Equivalent However, the Codes also provide for certain
Must a foreign entity or MNC comply with B-BBEE
Investment Programme permissible exclusions from TMPS, including:
requirements in South Africa?
The Codes recognise that some MNCs – defined as • imported capital goods or components for value-
No. Other than in terms of certain sector-specific a measured entity with a business in South Africa added production in South Africa provided there is
legislation (which may impose limitations on foreign and elsewhere which maintains its international no existing local production of such capital goods or
ownership within that sector, such as broadcasting and headquarters outside South Africa – have global components and those capital goods or components
aviation), there is no requirement for a foreign entity practices preventing them from complying with the promote further value-added production in South
or MNC to comply with B-BBEE. This means there is ownership element of B-BBEE through the traditional Africa; and
no requirement for a foreign entity or MNC to sell any sale of shares to Black South Africans.
equity to conduct business in South Africa. • o
ther imported goods and services if there is no local
production of those goods or services including, but
However, an entity that is 100% foreign-owned will A global practice is defined in the Codes as ‘a globally not limited to, imported goods or services that carry
not generally score any points for ownership, as Black and uniformly applied practice of a multinational, a different brand to the locally produced goods or
people do not hold any economic interest or voting restricting alienation of equity in or the sale of services; or have different technical specifications to
rights in that entity. A score of zero for ownership will businesses in its regional operations’. the locally produced goods or services.
impact negatively on a business’ overall B-BBEE score
which may affect its ability to do business in South
Africa, particularly with Government and organs of Understanding whether goods and services can be
state, as well as certain private sector entities. excluded from customers’ procurement spend may
Provided the global practice existed before 2003,
form an integral part of a foreign entity or MNC’s
the Codes make provision for the recognition of
B-BBEE strategy.
contributions in lieu of a direct sale of equity. Such
Does that mean a foreign entity or contributions are referred to as equity equivalent (EE)
MNC must sell equity to operate effectively contributions. EE contributions count towards the
ownership element of B-BBEE made by MNCs. This
in South Africa?
is discussed further in our Guide 3 - B-BBEE in South
Africa: Ownership and Ownership Structures.
Not necessarily and much will depend on the sector
and the market within which a foreign entity or MNC Option 3: Exclusions from Total Measured
operates, including the role of competitors. Some Procurement Spend
options include the following:
Most private sector businesses to which services
Option 1: Sale of equity (see also our Guide 3 - are rendered or goods are sold will themselves have
B-BBEE in South Africa: Ownership and Ownership to meet B-BBEE procurement targets. Under the
Structures) preferential procurement element, the total spend of
a measured entity with suppliers is measured against
Some possible sale of equity options include: the total procurement expenditure or total measured
procurement spend (TMPS). Measured entities can
• 10% sale of equity (to avoid a penalty being imposed increase their scores on the preferential procurement
for failure to meet the ownership sub-minimum element if they procure a greater percentage
requirements) of goods and services from suppliers with higher
• 25% + 1 sale of equity (to score all available points on B-BBEE ratings.
the ownership scorecard, under the general Codes)
• 30% Black woman-owned (which has
• certain advantages from the perspective
• of preferential procurement) TMPS includes, among other things, cost of sales,
• 51% Black-owned (which has certain advantages operational expenditure, capital expenditure, imports
from the perspective of and third-party procurements.
• preferential procurement)
18 18 19
CONTENTS PAGE CONTENTS PAGEBOWMANS Guide 1 - An Overview of B-BBEE in South Africa
Sector Effective Application Ownership Notable Aspects
Date Targets
ICT 7 November All persons, organisations and Black people: 30% Additional points:
Part 5: An Overview of B-BBEE
2016 entities operating in the ICT Black women: 10%
sector in South Africa. Additional points available under
enterprise and supplier development
in Certain Sectors
(50 points, as opposed to 40 points
under the general Codes) and SED
(12 points, as opposed to 5 points
under the general Codes).
B-BBEE recognition levels:
The Minister of Trade and Industry has published sector-specific codes should generally apply the same
various sector-specific codes which detail the manner broad principles. All sector codes are required to be Points applicable to the B-BBEE
in which B-BBEE must be measured for businesses aligned with the general Codes. contributor levels differs under
operating in particular sectors. the ICT Sector Code compared to
The table below provides a high-level overview of general Codes.
Where a sector-specific code has been issued, the sector codes that have been published in various Forestry 21 April 2017 All enterprises involved Black people: 25% Ownership element:
businesses in that sector are required to apply the sectors to date. with commercial forestry Black women: 10%
relevant sector code rather than the general Codes. and first-level processing of Up to 12 bonus points given as an
The general Codes apply only where there is no sector- wood products, including incentive for enterprises to achieve
specific code although the general Codes and the the following sub-sectors: various higher ownership targets.
commercial primary growth,
fibre production, contracting,
Sector Effective Application Ownership Targets Notable Aspects sawmilling, pole and charcoal.
Date
General 1 May 2015 General application Black people: 25% Non-timber forest product
Codes Black women: 10% enterprises fall outside the
ambit of the Forest Sector
Tourism 20 All enterprises within Black people: 30% Thresholds: Code.
November the Tourism Sector and Black women: 15%
2015 all parts of value chain, Property 9 June 2017 All privately owned and public Property owning Thresholds:
EME: enterprise with annual total enterprises in the property companies Different thresholds for EMEs, QSEs
including: revenue less than ZAR 5 million. sector, including the following and Large Enterprises for certain
industries: property segments.
• Accommodation
• Hospitality and related QSE: enterprise with annual total
services revenue between ZAR 5 million and • R esidential property Black people: 27% Ownership element:
ZAR 45 million. industry Black women: 10%
• Travel and related • Commercial property • 4 additional points available for
services industry achieving financial support targets
Note: A draft amended Tourism • Other property value chain under the ownership scorecards.
Sector Code was published for public areas • 3 bonus points available for 35%
comment on 27 September 2019 to All other disposal of assets to Black-owned
ensure alignment with the amended companies and controlled company with at
general Codes. least 51% Black ownership, as a
MAC 1 April 2016 • Advertising company Black people: 45% Thresholds: percentage of total asset disposal.
• Public relations Black women: 30%
company Black people: 25% Additional element:
Different thresholds for EMEs, QSEs
• Communication Black women: 10%
and large enterprises for each sub- Economic Development (5 points)
company sector. – economic development investment
in under-resourced areas and
Additional points: contribution towards an economic
development programme.
• Increase in points available under Construction 1 December All entities falling within the For both Thresholds:
management control (27 points, 2017 construction sector, including: contractors
as opposed to 19 points under the and BEPs Different thresholds for BEPs which
general Codes) • C ontractors (enterprises Years 1-3 are EMEs and QSEs; also different
• Increase in the absorption points conducting construction deemed B-BBEE levels based on
to 10 under the skills development project activities, including percentages of Black ownership.
element (higher than 5 points in the civil engineering, electrical Black people:
general Codes). engineering, power 32.5% Scorecards:
transmission, general Black women: 10%
building and specialist Different scorecards (and points) for
Additional element: construction works); and Year 4 contractors and BEPs.
• Built environment
Responsible Social Marketing professionals (BEP) Ownership:
(enterprises that conduct Black people: 35%
and Communications (5 points) –
activities such as planning, Black women: 14% Up to 4 bonus points given as an
measuring contributions made towards
the promotions of responsible social design and costing of incentive for enterprises to achieve
marketing. construction projects in the various higher ownership targets.
built environment).
20 21
CONTENTS PAGE CONTENTS PAGEBOWMANS Guide 1 - An Overview of B-BBEE in South Africa
Overview of B-BBEE sector nodes continued
Sector Effective Application Ownership Notable Aspects Sector Effective Application Ownership Notable Aspects
Date Targets Date Targets
Financial 1 December Any natural or juristic person Black people: 25% Scorecards: Transport 21 August Comprises eight sub-sectors: Different The draft amended Transport Sector
2017 conducting business in the 2009 ownership Codes as aligned with the general
South African financial sector, Black women: 10% Different scorecards (and points) for targets set for Codes were published for public
• Bus commuter and coach
including; banking, long-term (1) banks and life offices, (2) short- each of comment on 26 February 2016. This
• services
and short-term insurance, the sub-sectors. process has not yet been finalised.
(unless exempted term insurers, (3) stock exchanges • Taxi industry
re-insurance, retirement fund from ownership) and stock exchange members, and • Road freight
administration, management (4) other institutions. • Public sector – transport
of collective investment
• Maritime transport and
scheme assets, financial
Additional element: • services industry
services intermediation and
• Forwarding and clearing
brokerage and private equity.
• Rail sector
Access to financial services aimed • Domestic aviation
at facilitating access to finance for Chartered Draft sector The chartered accountancy Black CAs: 20% Ownership:
Black people and Black-owned accountancy code only profession and sector. Black people:
enterprises. 32.5% Up to 3 bonus points given as an
Agriculture 21 April 2017 Enterprises which derive more Black people: 25% Ownership: Black women CAs:
Black women: 10% incentive for enterprises to achieve
than 50% of turnover from: 6.5% various higher ownership targets.
Target for land ownership where Black women: 13%
• primary production of applicable is 30%.
• agricultural products;
• provision of inputs and Socio-economic development:
• services to enterprises
• engaged in production of Up to 15 points available under
• agricultural products; socioeconomic development
• beneficiation of agricultural (compared to only 5 points under
• products of primary or the general Codes).
semibeneficiated
• form; and
• storage, distribution and / or
• trading and allied activities
• related to non-beneficiated
• agricultural products.
Defence 12 April 2019 All entities in the South Year 1 Thresholds:
African defence industry,
including private enterprises EME: enterprise with annual total
providing defence material or Black people: 25% revenue less than ZAR 5 million.
other supplies, products and Black women: 10%
services to the Department of
Defence. Year 2 QSE: enterprise with annual total
revenue between ZAR 5 million and
ZAR 50 million.
Black people: 30%
Additional element:
Black women: 15%
Localisation (10 points) – measures
Year 3 extent to which entities procure
defence material from local
enterprises that contribute to the
Black people: 35% development of manufacturing and
Black women: 15% new locally developed technology.
22 23
CONTENTS PAGE CONTENTS PAGEBOWMANS Guide 1 - An Overview of B-BBEE in South Africa
Our Firm Our Footprint
in Africa
We help our clients overcome legal complexity
and unlock opportunity in Africa.
W e are present in six countries in
Africa: Kenya (Nairobi), Mauritius
(Moka), South Africa (Cape Town, Durban,
Johannesburg), Tanzania (Dar es Salaam),
Uganda (Kampala) and Zambia (Lusaka).
O ur track record of providing specialist legal
services in the fields of corporate law, banking
and finance law and dispute resolution, spans over
At the inaugural IFLR1000 Awards for Sub-
Saharan Africa (2020), we received 10 awards
across four jurisdictions confirming our leadership
We work closely with our alliance firms in
Ethiopia (Aman Assefa & Associates Law
Office) and Nigeria (Udo Udoma & Belo- Uganda
a century. when it comes to advising on multijurisdictional Osagie). These are two of the leading
Ethiopia
mergers and acquisitions in Africa. At the African corporate and commercial law firms in their
With eight offices in six African countries and over Legal Awards (2020), we won awards in three jurisdictions.
400 specialist lawyers, we draw on our unique categories and were highly commended in a
knowledge of the business and socio-political further four categories including African Law Firm We have developed best friends relationships
environment to advise clients on a wide range of of the Year – Large Practice. with PFI Partnerships in Malawi and Taciana
legal issues. Peão Lopes & Advogados Associados in Nigeria Kenya
We received awards in three out of four categories Mozambique, and regularly work with leading
Everywhere we work, we offer clients a at the Dealmakers East Africa Awards (2019): top law firms in other countries such as Angola, Tanzania
service that uniquely blends expertise in the legal adviser in the M&A Category for both deal Botswana, Ghana, Ivory Coast, Namibia,
Malawi
law, knowledge of the local market, and an flow and deal value and advised on the Deal of Rwanda, South Sudan and Zimbabwe.
Zambia
understanding of their businesses. Our aim the Year. In the Dealmakers South Africa Awards
is to assist them to achieve their objectives (2020), we were placed third for both transaction We have a comprehensive database of all the
as smoothly and efficiently as possible while value and transaction volume in the General law firms we work with in the rest of Africa
minimising the legal and regulatory risks. Corporate Finance Category and fourth for both covering such countries as Algeria, Egypt,
Mauritius
deal value and deal volume in the M&A Category. Morocco and French-speaking West Africa. South Africa
Our clients include corporates, multinationals
Mozambique
and state-owned enterprises across a range of We are representatives of Lex Mundi, a global
industry sectors as well as financial institutions association with more than 160 independent
and governments. law firms in all the major centres across
the globe. Lex Mundi gives us the ability to
Our expertise is frequently recognised by connect our clients with the best law firms in
Bowmans offices
independent research organisations. Most recently, each of the countries represented.
Mergermarket identified us as the number one
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deals in 2020. Alliance firms
Best friends
Significant transaction
or advisory experience
24 25
CONTENTS PAGE CONTENTS PAGEGuide 1 - An Overview of B-BBEE in South Africa
Key Contacts
ASHLEIGH HALE
Co-Head of Corporate
Johannesburg, South Africa
T: +27 11 669 9342
E: ashleigh.hale@bowmanslaw.com
CLAIRE TUCKER
Head of Public Law and Regulatory
Johannesburg, South Africa
T: +27 11 669 9402
E: claire.tucker@bowmanslaw.com
LIVIA DYER
Partner
Johannesburg, South Africa
T: +27 11 669 9334
E: livia.dyer@bowmanslaw.com
To view profiles of our lawyers,
please visit www.bowmanslaw.com
26
CONTENTS PAGECape Town, South Africa
T: +27 21 480 7800
E: info-cpt@bowmanslaw.com
Dar es Salaam, Tanzania
T: +255 76 898 8640
E: info-tz@bowmanslaw.com
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T: +27 31 109 1150
E: info-dbn@bowmanslaw.com
Johannesburg, South Africa
T: +27 11 669 9000
E: info-jhb@bowmanslaw.com
Kampala, Uganda
T: +256 41 425 4540
E: info-ug@bowmanslaw.com
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T: +260 96 227 5329
E: info-zb@bowmanslaw.com
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T: +230 52 98 01 00
E: info-ma@bowmanslaw.com
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T: +254 20 289 9000
E: info-ke@bowmanslaw.com
Follow us on Twitter:
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Alliance Firms:
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T: +251 11 470 2868
E: info@aaclo.com
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T: +234 1 2774920-2, +234 1 2719811-3
E: uubo@uubo.org
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