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Amended BEE codes – it’s beyond a crisis

Until all other documents are gazetted the codes remain incomplete and impossible to implement.

The amended Broad-Based Black Economic-Empowerment Codes of Good Practice come into effect on May 1 2015.

The codes are not one document. Instead there are various codes for different types of businesses: large businesses that follow the generic codes, specialised enterprises, smaller ones using the qualifying small enterprises (QSE) codes, exempt micro enterprises (EME) and companies falling into one of the nine sectors that have their own codes: transport, construction, tourism, ICT, forestry, finance, property, accountancy and agriculture.

In addition to the codes, there are other documents that must be issued including the verification manual which is a document that agencies use to guide them when verifying an entity and SASAE 3502, used by auditors for verification. SANAS also needs to go through the process of re-accreditation for 52 agencies before they will be allowed to verify using the amended codes.

A bit of history

In October 2012 the Minister of Trade & Industry issued a draft of the amended codes, but only for generic enterprises and EMEs for public comment. In October 2013 the minister issued the final amended codes for generics and EMEs. Since 2012 the dti has promised to issue QSE codes and sector codes.

In October 2014 the minister issued draft codes for QSEs and specialised enterprises. The B-BBEE Act 53 of 2003 states that the minister must give the public a 60-day commentary period for all drafts. He originally allowed only 37 days, but after complaints extended this to 60 days. Thereafter additional consultation must take place and a final code issued. To date the QSE codes have not been finalised. Critical comments were submitted by many, including business associations.

The sector codes have not yet even been issued as a draft. Sector codes cover a large proportion of the economy and it makes no sense to launch generic codes without sector codes also being aligned. Even if the sector codes were issued today (February 20 2015) as a draft, the compulsory 60-day commentary period would expire on April 21 2015. The dti minister can and often does send drafts back for re-drafting if they do not meet the requirements of the act. In the past this process has typically taken more than 12 months.

Assuming the minister consults very quickly, and every industry is in broad agreement with every sector code, it is a physical impossibility for the minister to sign all the final sector codes and have them gazetted and published in the Government Gazette by April 30 2015.

Until all other documents are written, approved and gazette, the amended codes remain incomplete and impossible to implement. Having codes without a verification agency able to issue a certificate is useless. Having generic codes without QSE or sector codes is a contradiction.

What is going to happen?

We see three possible scenarios:

1) The minister will delay the codes for another year. This will be welcomed, but politically it will mean egg on his face. Also companies that were early adopters of the news codes will feel outraged that their extra efforts to comply with the more difficult amended codes will not be fairly rewarded with better BEE scores than competitors.

2) The minister will do nothing: It implies the easier sector codes will remain in force. We’ll then have the ridiculous situation that some companies use the harsher amended codes while others use the easier sector codes. The amended codes will drop companies by two and often more BEE levels. Those companies following the current sector codes will automatically have a higher level than companies following the amended generic codes. We believe this is the most likely scenario.

3) The minister will temporarily suspend the sector codes and require companies in those sectors to follow the amended codes. This will cause unhappiness for some companies who have made the effort to comply with a sector code – eg construction which has a higher ownership requirement. The whole point of a sector code is that it has different rules. If it is cancelled (which we would welcome) those companies that have made efforts to comply with those different rules will be unfairly disadvantaged. There were rumours last year that this is what the dti would choose.

If the QSE and Specialised codes are also unavailable it will cause an even bigger problem.

In addition the final gazetted codes themselves still contain errors and there is confusion that the dti had promised to address a year ago.

We have been calling on the minister to clarify the situation since 2012: the dti has had since 2012 to plan for the Amended Codes.

Strategy going forward:

Companies that need to be compliant are in a difficult situation. They have to continue planning as if the amended codes will come into effect on May 1, until they hear otherwise. Our recommendation is to get verified early, before end April 2015. However if there is a delay, then they would at least have a valid certificate. Companies in sectors with codes don’t even know what the sector code is going to say so it is impossible to implement the right BEE activities. Our recommendation is to broadly follow the amended codes because the sector codes will be similar to the amended codes.

QSEs have their own issues. The draft QSE scorecard is so onerous that the average QSE is likely to drop up to 6 levels. We do expect the final QSE scorecard to be eased slightly. QSEs should get to know and understand the draft QSE codes, so they can plan and adjust as fast as possible when the codes are finalised.

It should be recognised that any verification, even one taking place on May 2 2015 will award points using the codes based on past performance, usually the most recent financial year so planning is crucial to a company’s BEE success.

There is no reason why the minister could not have foreseen this problem last year and issued a statement as to how it will be handled. Whatever he says now is too late. This is no longer a crisis – it is beyond a crisis.

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