Does my company really need to be B-BBEE compliant

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“Does my company really need to be B-BBEE compliant?” is a question asked by many business owners irrespective of the size of their company or the industry in which they operate and remains a valid question to this day.

Though being B-BBEE compliant has its benefits in being able to apply for government tenders and giving you a leg up on your competitors, one cannot ignore the fact that during the past few years there has been a major shift in focus regarding transformation whereby B-BBEE compliance is becoming a prerequisite for all businesses irrespective of their dealings with the South African government. As such for the following sectors, B-BBEE compliance is a prerequisite to obtain or maintain their trading or operating licenses:

1. The Finance Sector: Each entity conducting business in the South African financial sector is required to report annually to the Financial Sector Transformation Council (FSTC) on its progress made in implementing the provisions of the 2017 Amended Financial Services Sector Code. Non-submission with this reporting requirement, results in the entity being deemed Non-compliant and impacts the outcome of their next B-BBEE Verification whereby their overall B-BBEE Level will automatically be discounted with one level.

2. The Gambling Sector: As the National Gambling Board is involved in the process of ensuring that the entire gambling industry achieves at least a Level 2 B-BBEE status as per the 2013 General Amended Codes, the Provincial Gambling Boards are also requiring some form of B-BBEE compliance from licensees in order to maintain or renew their licenses. These prerequisites unfortunately though implemented with good intentions, have a negative impact on new or international companies who are finding it difficult to enter the local South African Gambling market

3. The Alcohol Sector: Entities operating within this sector who are applying for a new trade license, liquor distribution license or a renewal of a current liquor license must ensure that they are B-BBEE Compliant. Currently there are no specific requirements on having Black Ownership and as such, even a Non-compliant Certificate is deemed sufficient.

4. The ICT Sector: ICASA’s “Regulations on the limitations of Control and Equity ownership by Historically Disadvantaged Groups and the application of the ICT Sector Code” issued on 31 March 2021 specifically refer to Individual & Class Licenses as defined in the 2005 Electronic Communications Act. For Class Licenses, Licensees will need to have a Level 4 B-BBEE status whereas for Individual Licenses, Licensees will need to comply with the following:

  • Obtain or maintain a Level 4 B-BBEE Status with 30% Black Ownership using the flow-through principle and
  • If in a 24-month period, there are any changes which will decrease Black shareholding or Ownership with 5% or more OR which will decrease Black People’s Voting Rights, the Individual Licensee needs to notify ICASA.

5. The Agri Sector: Based on the Government Gazette No. 43910 issued 18 November 2020, the issuing of export permits for exporting to the European Union will be subject to compliance with the 2017 Amended AgriBEE Sector Codes. This Sector Code is applicable to any entity which derives more than 50% of its turnover from the following activities:

  • The primary production of agricultural products;
  • The provision of inputs and services to enterprises engaged in the production of agricultural products,
  • The beneficiation of agricultural products whether of a primary or semi-beneficiation form, and
  • The storage, distribution, and/or trading and allied activities related to non-beneficiated agricultural products.

6. The Property Sector: The 2019 Property Practitioners Act is applicable to Property Practitioners (PPs), which are defined in section 1 of the Act and include all entities within the real estate sector. Section 2 of the Act stipulates that the Act will apply to all activities pertaining to property such as marketing, promotion, managing, sale, letting, financing and purchasing of immovable property, and to any rights, obligations, interests, duties or powers associated with or relevant to such property.  As per Section 50(a)(x) of the Act “(a) any person who is not in possession of a valid BEE certificate” is disqualified as a PP and cannot be issued with a Fidelity Fund Certificate”.  Currently there is no specific B-BBEE level or percentage Black ownership required and though the Act may be vague, this should also apply to EME’s and QSE’s using the DTIC or CIPC affidavits.

7. The Automotive Investment Scheme (AIS): The DTIC has issued the Automotive Investment Scheme (AIS) Guidelines effective from 1 July 2021, for which the following entities qualify:

  • Original Equipment Manufacturers (OEMs) with at least 5000 units per annum per plant production volume. This must be achieved within 24 months and maintained throughout the claim cycle (20% grant),
  • New Energy (NE) Vehicle and component manufacturers (30% grant),
  • Energy Efficient (EE) Vehicle and component manufacturers (30% grant),
  • Component Manufacturers (CMs) awarded contract to provide to OEMs and OEM supply chain turnover of at least 25% of total entity turnover / R10mill in OEM supply chain invoicing per annum OR a contract has been awarded above R2 mill by an entity with a turnover of at least R50 mill for the manufacture of components to supply directly into an automotive investment project (25% grant), and
  • Automotive Tooling Manufacturers under CM requirements (25% grant).

To qualify for the above AIS grant, the following mandatory B-BBEE requirements need to be adhered to:                                                                                                                                                                                                 

  • Original Equipment Manufacturers (OEMs) B-BBEE Requirements:
    –  Level 6 by 1 July 2021, and
    –  Level 4 by 31 December 2022.
  • Component Manufacturers (CMs):
    –  Level 8 by 1 July 2021,
    –  Level 6 by 31 December 2022, and
    –  Level 4 by 31 December 2023.
  • New Manufacturing Entities:
    –  Level 8 in the initial 36 months after incorporation, and
    –  Level 4 after the initial 36 months.

8. The Private Security Sector: The 2012 Private Security Industry Regulation Amendment Bill proposes that at least 51% of the ownership of both existing and new security services providers must be held by South African citizens. This bill has however been pending since 2012 and has yet to be signed into law by the president.

The above elevated focus on transformation is further supported by the Employment Equity Amendment Bill which, once gazetted, will empower the Minister of Labour to regulate and set different sector specific numerical targets for different occupational levels, sub-sectors or regions.

The above shift in focus is a clear indication of how B-BBEE requirements are changing and more importantly, that being B-BBEE compliant is critical in order to receive or renew one’s trade or operating licences.

Should you need assistance in becoming compliant with B-BBEE legislation, kindly contact LabourNet.

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Regardless of whether your company is a Start-up Enterprise, a Private Company, or a Close Corporation, Listed or Unlisted, operating in South Africa has changed drastically in the past years