BEE Partner, South Africa Economy Watch

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.

This following allows measured entities that have made historical contributions to beneficiaries that only qualify for recognition after the contribution has been made, to receive credit for the contribution.

Qualifying enterprise development contributions

The provisions of this are not difficult so much as lengthy. The Codes go to great lengths to determine what may and may not be recognised as a contribution to enterprise development. In most instances logic prevails. However, some grey areas remain in the Statement.

The substance of contributions

Enterprise Development Contributions consist of monetary or non-monetary, recoverable or non-recoverable contributions actually initiated and implemented in favour of beneficiary entities by a measured entity with the specific objective of assisting or accelerating the development, sustainability and ultimate financial and operational independence of that beneficiary. This is commonly accomplished through the expansion of those beneficiaries’ financial and/or operational capacity.

The contributions may be monetary or non-monetary. Examples of non- monetary contributions are providing management accounting services or training services for the beneficiary. The measured entity may only recognise non-monetary contributions where the costs are quantifiable, meaning the costs must be measurable according to accepted market standards.

A key problem in Black enterprise is the lack of finance. This motivated the inclusion of recoverable contributions. The Statement provides that the measured entity may measure recoverable contributions such as equity investments or loans to the beneficiary, guarantees provided on behalf of the beneficiary and credit facilities made available to the beneficiary. Recoverable investments are likely to come with guidance from the measured entity as it has a direct interest in the continuity of the beneficiary organisation.

The measured entity may also measure non-recoverable contributions such as grants, donations and discount on supplies to the beneficiary.

It includes the words “actually initiated and implemented“, which is further addressed in the Statement by confirming that initiatives may not be included in the measurement unless the expenditure has already been incurred. Future commitments may not be included in the measurement. Funds put aside for initiatives not yet implemented are also not measurable as part of the contribution.

The contribution must be made by the measured entity, meaning that it must hit the measured entity’s bottom line. A group company may not make a contribution on behalf of the measured entity. Where this scenario occurs, the measured entity must repay the group company for the contribution before it can measure it as enterprise development.

Contributions must be made with the specific objective of contributing to the development, sustainability, financial and operational development of the beneficiary. This provision is important. It becomes the litmus test in determining the substance of contributions. If the contribution is not made with this objective it does not qualify for points. The emphasises the quality of the contribution made. A measure of the substance is to determine whether the contribution will further the financial or operational capacity of the beneficiary.

Contributions that do not conform to all of the above will not gain recognition as a qualifying enterprise development contribution.

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