Companies need to get to grips with the concept of ‘empowering suppliers’, introduced in the new B-BEE legislation, as well as the technicalities involved to properly prepare for the assessment of a business’ empowering supplier status.
“The amended B-BBEE Codes of Good Practice become effective on 1 May 2015 and the new codes introduce the concept of empowering suppliers,” says Jenni Lawrence, managing director: Verification Services at Grant Thornton Johannesburg. “A major concern in the verification industry is that companies do not know the importance of acquiring this status or the vital significance of it.”
“There is a critical difference between the ‘value-adding supplier’ concept and the ‘empowering supplier’ requirement which replaces the previous ‘value-adding’ supplier in the amended codes and it is dangerous to underestimate this difference,” she says. “The critical differentiator is that if a company does not qualify as an empowering supplier, its certificate cannot be used towards its clients’ procurement score, therefore deeming the certificate to be useless.”
Lawrence adds that there is still some debate, however, as to whether state-owned enterprises will apply the requirement when selecting suppliers tendering for public sector contracts.
According to the Amended B-BBEE Codes of Good Practice, the definition of an empowering supplier is ‘a B-BBEE compliant entity, which is a good citizen South African Entity, complying with all regulatory requirements of the country’.
“The definition of ‘good citizen South African entity’ is not clear and this really needs to be confirmed by the dti which – to date – has remained silent on the speculative and interpretive issues – as well as the issuing of the hotly anticipated Verification manual. These are key issues which have been raised by many in the industry,” says Lawrence.
The criteria for becoming an Empowering Supplier are that ‘an organisation should meet at least three of the following criteria if it is a large enterprise (turnover exceeding R50 million), or at least one if it is a Qualifying Small Enterprise (QSE) – (with a turnover between R10 million – R50 million):
a) At least 25% of the cost of sales excluding labour cost and depreciation must be procured from local producers or local suppliers in SA. For service industry labour, costs are included but capped to 15%.
b) Job Creation – 50% of jobs created are for black people provided that the number of black employees since the immediate prior verified B-BBEE measurement is maintained.
c) At least 25% transformation of raw material/beneficiation which includes local manufacturing, production and/or assembly, and/or packaging.
d) Skills transfer – at least spend 12 days per annum of productivity deployed in assisting black Exempted Micro Enterprises (EMEs) and QSEs beneficiaries to increase their operation or financial capacity.
It is important to note that EMEs and start-ups are automatically recognised as empowering suppliers.
“There are some questions as to how to validate and calculate some of these criteria, and we await the gazetting of the dti’s verification manual for further details on this,” says Lawrence.
Understanding that its clients will need assistance with the additional constraint, Grant Thornton has compiled a scorecard based on best practice understanding of the criteria and can perform a preliminary assessment of companies’ statuses to help them prepare for the upcoming changes.