BEE Partner, South Africa Economy Watch

Targets

As mentioned above, the target is calculated on the same basis as that of enterprise development. The calculation is not clearly articulated in the Codes and is a technical computation. To avoid repetition, the following constitutes a brief summary of what was communicated under enterprise development.

The target for socio-economic development is 1% of net profit after tax (NPAT). NPAT is easily manipulated through accounting entries, so the Codes use an anti-circumvention approach, outlined below.

Where a business has an NPAT that is a loss (actually a net loss after tax), the calculation is based on the average NPAT over the previous five years. Where the latter also represents a loss, then a turnover-based target is used. Although not specified, the Codes are attempting to create a tiered approach.

• The target is 1% of annual average NPAT.
• Where the average annual NPAT is not a profit then the target becomes 1% of the entity’s average NPAT over the preceding five years.
• Where this amount does not reflect a profit then the target becomes turnover based as per a formula provided below.
• Regardless of the above, where net profit margin or average net profit margin is less than a quarter of the industry norm, then NPAT may no longer be used and the target becomes turnover based.

The calculation of the NPAT target is self-explanatory. It is 1% of the business’s net profit after tax at the date of measurement.

The calculation of the turnover-based target is slightly more complicated. The formula provided is given as: target = 1% x indicative profit margin x turnover

The indicative profit margin is NPAT divided by turnover. The NPAT must be taken from the last year where the entity’s profit margin was greater than a quarter of the industry average. Although not stated, it appears as though the turnover for calculating the indicative profit margin refers to the turnover from the same period when the NPAT is taken.

Average annual value

As with enterprise development, contributions to socio-economic development are measured cumulatively. The contributions since the commencement date are added together and divided by the annual targets for the same period added together. The percentage result is applied against the 25 points to obtain the points for the year.

The measurement is taken from the commencement date of the Codes or inception date as appropriate. The commencement date is 9 February 2007. The inception date is a date prior to this that was chosen by the measured business. The choice would be made where a significant contribution was made to socio-economic development prior to the commencement date.

If the inception date is chosen for the enterprise development element, it does not have to be used for socio-economic development. The commencement date may still be used for the latter.

Where a contribution is not made in one year, the target for the next year becomes the sum of the target for two years. On the other hand, where a substantial contribution is made in year one, the value of the contribution carries forward to the next year and is applied against that cumulative target.

Beneficiaries

The objective is to benefit Black people outside the mainstream economy, such as people living in rural areas, people with disabilities, participants in education programmes at primary, secondary and tertiary levels and unemployed people.

Many businesses tend to make socio-economic development contributions in favour of their employees. While this is not the strict intention of the Codes, they do not prevent it. Businesses making contributions in favour of their employees need to consider the fringe benefit consequences for tax purposes.

The verification agency will scrutinise the substance of the contributions made in favour of employees. For example, a business allocating grants to an employee in lieu of a salary will not receive social development recognition. Where a business does allocate social development contributions in favour of employees, it should disclose the particulars of the contribution in its annual financial statements and BEE report.

Giving a bursary to an employee’s child is considered a social development contribution. In contrast, providing a loan to an employee who uses that money to pay for a child’s education is not seen as a social development contribution. The line between beneficiary and employee can be blurred so contributions to employees should be used with caution.

Socio-economic development contributions should benefit Black individuals or organisations representing a minimum of 75% Black people. Where the contribution is in favour of an organisation representing 75% or more Black people, then 100% of the contribution will be recognised. Where the benefit goes to an organisation representing less than 75% Black people, the points are allocated on a pro-rata basis. The 75% does not represent a sub-minimum. For example, where the contribution was in favour of an organisation representing 60% Black people, 60% of the contribution is recognisable as socio-economic development contribution.

The allowance for including 25% non-Black people provides for instances such as an HIV/Aids home for children. If the home’s beneficiaries are representative of the country’s demographics, using a 100% requirement would disadvantage Black people in the home because contributors would look for organisations that provided a service to Black people exclusively.

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