BEE Partner, South Africa Economy Watch

The Practical Application of Preferential Procurement

The practical application of preferential procurement is better discussed in conjunction with the practical application of enterprise development. The two elements should work together. Where a business chooses to contribute to and therefore be measured on the preferential procurement element, it should also choose the enterprise development element. By choosing the elements together it can capitalise on the enhanced recognition offered to purchasing from enterprise development beneficiaries and, more importantly, try to create a stronger BEE strategy. Read the rest of this entry »

Targets

Achievement of the allocated points is based on the measured entity reaching the compliance targets. The compliance targets in this element are fairly ambitious because very few suppliers will have a decent BEE status level, particularly in the early stages of this policy. The Codes accounted for this by splitting the compliance targets from years 0 to 5 with a target of 40% and years 6 to 10 with a target of 50%. The QSE targets are substantially lower than those provided in the generic scorecard. Read the rest of this entry »

All capital expenditure, including fixed property, is included in the total measured procurement spend.

Fixed property was predominantly white owned at the effective date of the Codes. Unless fixed property is part of normal trade, buying a property is going to result in an abnormal total measured procurement spend for that year. The purchase will distort the real procurement intentions of a business, which it may perceive as being unfair. However, because procurement is only measured on an annual basis, it will not have a prolonged impact on the measured entity’s preferential procurement scorecard. Read the rest of this entry »

Targets

The targets are discussed before indicator terminology in this element because they are necessary for understanding some of the indicator terminology. Enterprise development and socio-economic development use the same methodology for calculating the target. The calculation is not clearly articulated in the Codes and is a technical calculation. Read the rest of this entry »

The Codes have introduced new concepts in enterprise development to encourage sustainable contributions.

Statement 600 provides a benefit-factor matrix that classifies the substance of contributions on their ability to enhance the financial and operational capacity of the beneficiary entity. The greater the substance of the contribution, the higher the recognition granted to that contribution. The benefit factor is the percentage recognition given to the actual amount of the contribution. Read the rest of this entry »

Exemption from Category A and B contributions

Where contributions are made to an entity that is not a Category A or B beneficiary it is not measurable unless the contributions were made, in part, for the purpose of helping that recipient become a Category A or B beneficiary. The contributions may only be included in the measurement once the recipient has qualified as a Category A or B beneficiary. Read the rest of this entry »

The Codes use enterprise development as a secondary driver for encouraging BEE contributions. Becoming a beneficiary for enterprise development is attractive to any business because it means other BEE contributors may invest their enterprise development contributions in that qualifying business.

Qualifying contributions are not restricted to Black-owned businesses. By allowing a white-owned business that achieves a substantial BEE score to qualify as an enterprise development beneficiary, it is argued that this would encourage the facilitation of Black ownership in the white businesses through financing mechanisms. Read the rest of this entry »

Interestingly, the sale of assets is not addressed in the enterprise development element. Strictly speaking, by selling a Black person an income-producing asset, an opportunity to produce an enterprise has been created.

A measured enterprise may recognise the sale of assets as enterprise development or ownership. No points will be awarded for enterprise development if the transaction has been recognised and scored in ownership, and vice versa. Read the rest of this entry »

The enterprise development scores are measured with this formula: A = B/C x D

A = the score for enterprise development carried forward to the generic scorecard

B = the value of all qualifying contributions from the date of inception of measurement or the date of this statement

C = the compliance target

D = the weighting points. Read the rest of this entry »

Deciding which entity to develop

In most instances, the business probably has most expertise in its own operational field. Ideally, the business should look to share this knowledge with Black business by contributing to an enterprise development beneficiary in the same field. In many circumstances, it makes no sense to share knowledge and operational capacity with a potential competitor. Before making a judgement on this comment, consider whether the beneficiary is actually a competitor or another business of similar nature servicing a different market. Read the rest of this entry »