B-BBEE: What counts? Ownership or status level?

When the Amended Codes were initially gazetted in 2007, the target for black representation under Ownership was set at 25,01%. This translates to 25% black Shareholding plus one vote in the hands of black People. In this instance, black People are defined as Black, Coloured or Indian South Africans meeting the definition laid out in the Amended Codes. Based on achieving this, an organisation is awarded points on a pro-rata basis, depending on the percentage of the target achieved.

The targets set for Ownership in some Sector Codes may differ, as they indicate higher Ownership targets. For example, the Amended Tourism Sector Code and the Information Communication and Technology Sector Code targets are set at 30% for Ownership. Please see page XX for a full overview of Sector Codes.

How is Ownership measured?

For organisations measured on the Amended Codes, black Shareholding is measured on the following three criteria:

1. Voting rights - % of shareholding held by black People
2. Economic interest - % rights to participate financially
3. Net value - the value of the shares after taking into account any acquisition debt

What is a sub-minimum requirement?

In 2013, the Amended Codes introduced three Priority Elements, which set sub-minimum requirements to achieve set targets. Failure to meet the Ownership, Skills Development or Enterprise and Supplier Development sub-minimum requirements, will result in discounting by one status level. However, the maximum discounting penalty is one drop in status level, regardless of whether one or all three Priority Elements are not being met.

The sub-minimum requirement for Ownership relates to ‘Net Value’. The criteria to achieve the sub-minimum requirement is black shareholding meeting at least 40% of the target. This equates to an unencumbered or debt-free black shareholding of 10%. Achieving this will avoid discounting of one status level.

If you implemented 10% ownership in order to meet the sub-minimum, your ownership scorecard would look something like this:

How are ownership percentages broken down?

The implications of 10%, 25%, 30% or 51% black shareholding must be fully understood to optimise the ownership scorecard, as well as attract and retain customers. The percentage of black ownership held by an organisation determines their ultimate value. For example:

• Less than 10% black ownership results in an organisation being discounted by one status level.
• 10% black ownership meets the sub-minimum requirement, therefore discounting of one status level is avoided.
• 25% black ownership optimises the ownership scorecard which meets scorecard set targets.

What are the benefits of 30% or 51% black ownership?

Elevated black ownership feeds another priority element, namely Enterprise and Supplier Development (ESD). Preferential procurement is a critical aspect of this element and vital to any organisation meeting their overall ESD targets. In other words, 30% black woman ownership or at least 51% black ownership enhances the Preferential Procurement score of an organisation’s customer.

What impact does ownership have on procurement decisions?

Ownership is an important factor when an organisation makes purchasing decisions. Buying from an organisation with enhanced ownership improves the preferential procurement score of the customer.

The procurement scorecard has been designed in this way, in order to incentivise companies to obtain the best possible B-BBEE score and ownership level so that they can attract customers. Significant points are awarded for procuring from companies that have at least 30% black women ownership, or at least 51% black ownership. The Preferential Procurement Scorecard allocates 9 points for spending 40% of Total Measured Procurement Spend (TMPS) with organisations that are at least 51% black- owned and 4 points for 12% spend with organisations that are at least 30% black women-owned. Furthermore, the scorecard incentivises procurement from Exempt Micro Enterprises and Qualifying Small Enterprises.

What happens if an organisation has to purchase from a core or dominant supplier?

Due to the nature of their business or contractual obligations, many larger or multinational organisations are not able to choose which suppliers they procure from. An example of this is the downstream steel industry, where the bulk of their procurement spend is on steel. The government has placed a safeguard tariff on certain steel imports, so importing is not an option. There is only one supplier that the downstream steel industry can purchase steel from in South Africa. This core or dominant supplier does not have 51% black ownership. Therefore, a bulk of their procurement spend is not in line with the Preferential Procurement criteria. Consequently, the downstream steel industry is unable to score favourably on their Preferential Procurement. This is a negative impact of their procurement value to their customers when gaining or retaining new business. There are many other industries similarly affected by core or dominant suppliers.

In an effort to make what they can count, many organisations obligated to purchase from a non-compliant core or dominant suppliers target their non-core suppliers, such as stationery, security or transport suppliers in order to secure procurement points. Such non-core suppliers that have either little or no black ownership, are eliminated in favour of suppliers that are 51% black-owned or 30% black women-owned. This is irrelevant to the B-BBEE status level reflected on a B-BBEE certificate.

The Preferential Procurement scorecard reflects as follows:

In summary, it is evident in terms of B-BBEE that an elevated ownership, more than a B-BBEE status level, secures business. Therefore, in terms of Preferential Procurement, the ownership structure of suppliers must be analysed, as an organisation with a level 3 status may be more valuable in terms of Preferential Procurement than an organisation with a level 2 status.

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