Why is Enterprise and Supplier Development the priority element under the B-B BEE Codes?
Enterprise & Supplier Development (“E&SD) is a global movement that has proven its ability to stimulate economies, diversify supplier chains and create jobs and has was introduced in the BEE Codes as of 1 May 2015.
What is the expected result? The growing of small and medium sized businesses through the provision of finance and support. This support will help these businesses to overcome obstacles, and increase their competitiveness in the market, with the end result being job creation and poverty alleviation.
E&SD is a Priority Element: This means that at least 40% of each target of Ownership, Skills and E&SD must be achieved. If ANY ONE of the targets are not achieved, the Measured Entity's overall BEE compliance level will be discounted by 1 level.
To qualify as an empowering supplier an entity needs to comply with all regulatory requirements and meet at least three of the 4 rules if it a generic enterprise or one if it is a qualifying small enterprise.
What is an Empowering supplier? – Which is a good citizen South African entity, comply with all regulatory requirements of the country and should meet at least three if it is a large enterprise or one if it is a QSE of the following criteria:
At least 25% of cost of sales excluding labour cost and depreciation must be procured from local producers or local supplier in SA, for service industry labour cost are included but capped to 15%.
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.
At least 25% transformation of raw material/beneficiation which include local manufacturing, production and/or assembly, and/or packaging.
Skills transfer - at least spend 12 days per annum of productivity deployed in assisting Black EMEs and QSEs beneficiaries to increase their operation or financial capacity.
Note "Value Adding Suppliers" has fallen away and we now measure BEE spend on "Empowering Suppliers" ONLY.
What is Enterprise Development (ED)? – ED is the growing of small to medium enterprises (EME’s and QSE’s to create wealth and improve quality of life for the poor.
How do the Codes define Enterprise Development?
The new codes group Enterprise Development, Supplier Development and Procurement into one section, amounting to 40 points out of a total 105 points.
25 points are allocated to Procurement
15 points to Enterprise and supplier development.
Measured Entities are required to provide Supplier Development contributions equivalent to 2% of the entities’ Net Profit After Tax (NPAT) and 1% of NPAT for Enterprise Development (investments made on businesses outside of their supply chain) in order to earn the full 15 S&ED points on their B-BBEE scorecard.
Points are awarded pro-rata relative to this target.
In order for a contribution to qualify for Enterprise Development points on the scorecard it needs to be:
1. Made to a Qualifying Enterprise
2. Defined as an Enterprise & Supplier Development contribution by the Benefit Matrix
What is a Qualifying Enterprise?
EME’s ,QSE’s or Generic companies which are at least 51% Black owned or 51% Black woman owned utilising direct shareholding NOTE generics had to have first received assistance from the Measured Entity when they were an EME or Qse to qualify.
Contributions made by the Measured Entity to the Qualifying Enterprise can be made in a number of forms, and be either financial or non-financial, recoverable or non-recoverable.
The following diagram illustrates the different types of contributions that qualify for ED points. The percentage of the contribution that qualifies as ED spend is based on the benefit matrix (See Code 400 page 74 of the BEE Gazette)
Provide financial and non-financial support to EME’s and Qse’s who are 50% black owned with an annual TO of less than R 35 mill or 25% or more black owned with any annual turnover.
What is the difference between Enterprise & Supplier Development?
Supplier Development is a global term, but as per the B-BBEE Codes, Supplier Development in South Africa is defined as Enterprise Development that happens specifically in the supply chain of the Measured Entity.
The Measured Entity has the ability to substantially increase the revenue stream to the ED beneficiary through the provision of new or extended contracts. Supplier Development has the potential to alleviate one of the most critical constraints faced by small business – market access. Guaranteed contracts are often a key requirement for funding; being part of a supplier development program often unlocks funding opportunities for the beneficiaries.
The B-BBEE codes further incentivise the measured entity by providing bonus points for graduating EME’s and Qse’s from an ED programme into the supply chain.
To summarize the element:
Supplier Development (10 Points) and Enterprise Development (5 Points):
Beneficiaries of Supplier Development (SD) and Enterprise Development (ED) can only be EME’s or QSE’s that are at least 51% black owned.
Enhanced recognition for Category A beneficiaries is no longer in place
Cumulative contributions are still recognised.
Measured entities are encouraged to develop and implement a supplier development plan
Enterprise Development contributions in the form of shorter payment period limited to a maximum of 15% of the invoice amount and 1.5 of the 10 points
2 Bonus points are available for migrating an ED to a SD beneficiary and for creating jobs through ED/SD initiatives.
This element is also a “priority element”, requiring companies to score at least 40% of the points in each sub-element to avoid dropping a BEE level.