Is there an obligation on BLACK-OWNED BUSINESSES to transform

Posted by Transcend
Wednesday, 6 November 2013  |  Comments

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Olga Meshoe, Transformation Facilitator and Manager, Transcend Corporate Advisors

The newly gazetted revised Broad-based Black Economic Empowerment Code of Good Practice (the “RCoGP”) have, amongst other things, highlighted government’s desire to see more small black businesses gaining access to economic opportunity through supplier development. This is in line with various government policies to grow sustainable small businesses and create new jobs.

In the current broad-based black economic empowerment (“B-BBEE”) regime, qualifying small enterprises (enterprises with an annual turnover equal to or greater than R5 million but less than R35 million) (“QSEs”) are required to go through the verification process but need only comply with any four of the seven elements of the QSE scorecard.

In terms of the RCoGP, black-owned QSEs (redefined as enterprises with an annual turnover equal to or greater than R10 million but less than R50 million) are no longer required to go through the verification process. The RCoGP now provide for such enterprises to obtain a sworn affidavit on an annual basis (i) confirming that their annual total revenue is R50 million or less and (ii) confirming their level of black ownership. QSEs that are at least 51% black-owned automatically qualify for a level two B-BBEE recognition level and QSEs that are 100% black-owned automatically qualify for a level one B-BBEE recognition level.

The immediate impact of the above mentioned provisions is that black-owned QSEs no longer need to spend any significant amounts of money or go through the administrative schlep that accompanies the verification process. Although the RCoGP are silent on this aspect, one may assume that a B-BBEE certificate evidencing their recognition level will still be required and so a nominal fee may be incurred in obtaining such a certificate. Is this a positive change for small-black businesses as they can now channel more energy and finances into growing their businesses? Absolutely!

However, on further reflection, these provisions seem to create the reality that there is no obligation on medium sized black-owned businesses to play a role in the transformation of South African society. If black-owned QSEs just need an affidavit stating that they are“black” and in so doing automatically achieve level a one or level two status, what incentive is there on such enterprises to do anything with regards to Management Control, Skills Development, Enterprise and Supplier Development or Socio-economic Development? (Whether any proof will be required in support of these affidavits and how the Department of Trade and Industry (the “DTI”) will police the fraudulent activities that this may give rise to, are scary thoughts not to be entertained today).

By just being “black”, these enterprises don’t need to ensure that they have representation of black people across their management levels that maps the economically active population; nor do they need to ensure that they contribute to building the pool of skilled people in South Africa by training black people (whether their employees or not); nor do they need to assist and accelerate the growth and sustainability of fellow black business; nor do they need to invest in initiatives that enable all black people access to the economy. I would like to believe that this not what the DTI intended.

For black-owned QSEs to see these provisions of the RCoGP for more than what they are aimed to do (make it easier for the “smaller guys” to grow and play a more significant player in the formal South African economy) but to instead exonerate themselves from the responsibility of transforming South Africa, will be short-sighted, disappointing and frankly hypocritical.

Just as government, white-owned businesses and black-owned business over the R50 million annual turnover thresholds have an express obligation to contribute to the achievement of the country’s economic growth and social development goals that will enrich the creation of decent work and sustainable livelihoods, so to do black-owned QSEs albeit not expressly in terms of B-BBEE legislation.

In the words of former president Nelson Mandela, “Ubuntu does not mean that people should enrich themselves. The question therefore is: ‘Are you going to do so in order to enable the community around you to be able to improve?’”

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