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SA firms scrambling to comply with stricker B-BBEE rules: Deloitte

Source: INET BFA

Most South African companies have been scrambling to ensure they comply with stricter empowerment rules prior to the deadline on Friday, 1 May, Deloitte says, warning of punitive measures for non-compliance.

The amended codes of good practice for broad-based black economic empowerment (B-BBEE) come into effect on 1 May.

The previous codes were less stringent and some businesses saw loopholes for fronting, and that hindered the transformation process, Deloitte says.

“The amended codes now look into ensuring that companies develop their own people and local supplier base,” Deloitte says, noting that the new codes can stimulate competition and innovation in the economy due to their focus on supplier and enterprise development.

Deloitte cautions that companies which do not have an effective long-term empowerment strategy in place could fall behind their competitors that have proactively embraced the codes, by at least one to three years.

Lerato Sithole, director of supply chain management at Deloitte, says businesses need to see the changes as an opportunity to broaden their economic base rather than a hindrance to growth and an unnecessary layer of red tape.

“While there is an assumption that the codes will have a negative impact, there are competitive advantages to having a more empowered workforce. Long-term benefits are about growing your slice of the pie and increasing the company’s competitive edge, therefore companies should not only focus on the short term drivers,” Sithole says.

“Once you have an empowered workforce that is equipped and capable then you become a stronger and a more competitive company,” says Khutso Sekgota, senior manager-supply chain management at Deloitte.

If the codes are implemented correctly they will result in more business which are B-BBEE Compliant EMEs (i.e. enterprises with annual revenue of less than R10m) and QSEs (enterprises with Revenue between R10m and R50m). This will in turn increase the number of players in the market and result in companies becoming more innovative.

“There will also be benefits from a price point of view in the long term, as an increase in the number of alternative suppliers will result in increased competition and value for money. Due to limited options in some strategic sectors (such as energy, manufacturing, professional services and business process outsourcing) it is difficult to bring prices down and facilitate competitiveness for local industries,” says Sekgota.

“The amended codes strongly incentivises doing business with EME and QSEs, and this is expected to be a vehicle that grows and stimulates the economy,” Sekgota says.

The enterprise development component provides enough flexibility for businesses to use an incubation approach with potential suppliers, before signing them up for longer periods.

The punitive measures will be hard-hitting for those companies that do not comply with the codes. Non-compliant companies that bid for public procurement, private-public partnerships, sale of state-owned assets will in most instances need to drastically reduce their prices under the PPPFA framework in order to ensure they can compete with competitors of higher B-BBEE ratings.

Companies that require compliance to the B-BBEE codes as part of their licencing conditions will also be hard pressed to ensure that they are not deemed non-complaint, as this may hamper their prospects of licences renewal or obtaining such new licences. Companies that are license-based and which fail to meet their sector code or the generic code could jeopardise the renewal of their licenses.

Those companies doing business with private sector will also find that their customers are increasingly demanding favourable B-BBEE ratings from their suppliers in order to boost their own contribution to the “enterprise and supplier development” points and ultimately their overall B-BBEE rating.