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Will revised BEE codes deliver a better outcome?

Most businesses surveyed expect decrease in BEE level – KPMG.

JOHANNESBURG – More than 90% of companies that participated in a recent survey believe the implementation of revised broad-based black economic empowerment (B-BBEE) codes will have a detrimental effect on their current rating level.

The revised codes were published for comment in October this year and could be gazetted next month.

According to KPMG’s 2012 BEE Survey called Shifting the BEE landscape, more than half of the respondents surveyed don’t believe the revised codes will enhance compliance with B-BBEE. More than 40% indicated that it would have a negative effect on their ability to create jobs, while 32% said it would have a positive impact. In addition, 24% expected no impact.

The Department of Trade and Industry (dti) expects the revised codes to “enhance the implementation of B-BBEE in a meaningful and sustainable manner.”

Bonolo Sinobolo, senior manager, KPMG BEE Advisory Services, says the revised codes will bring about a lot of changes – one of the main modifications is that the seven elements of the current scorecard will be downsized to five.

She explains that ‘management control’ has been combined with ‘employment equity’ while ‘enterprise development’ and ‘preferential procurement’ has also been united to create a new element called ‘enterprise and supplier development.’

Sinobolo says the other significant change to the revised codes is the introduction of a discounting factor. If implemented, it could see companies that do not comply with the minimum thresholds of the priority elements – ownership, enterprise and supplier development and skills development – get discounted to a ‘lower’ BEE level, for instance from 4 to 5.

The difficulty is that the elements of the scorecard that respondents find difficult to implement – ownership, employment equity and skills development – are almost precisely what the proposed new codes will be focusing on, should it be implemented in its current form, says Pop Motsisi,

partner: government advisory services at KPMG.

According to the survey 23% of respondents indicated that employment equity was challenging to implement, followed by ownership and management control (both 21%) and skills development (15%).

Sinobolo says the revised codes aim to facilitate a move away from a “narrow based BEE,” where a group of individuals are benefitting from a system where larger groups of people will benefit by looking at employee and community ownership schemes for example.

The challenge is that companies are not measuring the impact of BEE, says Sinobolo.

“I think what we are seeing is a negative perception – ‘the revised codes will not achieve those objectives’ – but then we need to look back first to say in the first five years what did BEE achieve?”

She says only time will tell if the revised codes will achieve its objectives.

The dti has indicated that it will consider the comments submitted during the comment period and where there are unrealistic or unintended consequences of the revised codes, it will relook at those provisions, she says.

She expects that while there may be some changes to the current format, a large portion of what has been seen in the revised codes will be gazetted in its current form.

The KPMG BEE online survey was conducted in January and February this year. It was sent to roughly 2 000 respondents in a variety of sectors including finance, real estate and business services, manufacturing, wholesale, retail, motor trade and accommodation and mining. The response rate was 59.3%.

Companies included listed businesses, large unlisted entities, non-profit organisations, small to medium entities and state-owned entities. The majority of companies had a turnover of more than R50 million per annum. In most cases, respondents were from executive, senior and middle management levels.

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