BEE Partner, South Africa Economy Watch

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.

The second introduction is the cumulative measurement of contributions. Essentially, this means that the contributions and the target are carried forward each year and are measured on a cumulative basis. The idea behind cumulative measurement is that it encourages long-term enterprise development strategies. If a business wants to contribute an amount well over the target in year one, non-cumulative measurement would not acknowledge the excess contributed in year two. This would result in businesses contributing no more than the minimum each year and initiatives would be compromised.

The cumulative measurement principle came under scrutiny during the development of the Codes. The primary argument was that where a business falls behind in its contributions, the shortfall is carried forward and greater contributions will be required in the following year to achieve the targeted points. This ultimately creates a hurdle rate too high for the business to consider and thereby discourages that business from ever making the contribution. The end result is less investment in enterprise development.

All the arguments were considered but the end result was that the benefits outweigh the drawbacks.

The logic behind cumulative measurement is as follows:

• It encourages companies to contribute to enterprise development immediately as opposed to shelving it “for next year when we have more disposable income”.
• It encourages the measured entity to make contributions that are substantial to the beneficiary. Annual non-cumulative measurement would prejudice lump-sum investments. Allowing cumulative measurement eases the measured entity’s concern over investing a lump sum, which could constitute the next five years or more of enterprise development.

• If cumulative measurement were not used, some amortisation methodology would have to be developed to recognise long-term investments in enterprise development. This would unnecessarily increase the complexity of the Codes.

The QSE Enterprise Development Scored

Statement 806 does not provide detail on enterprise development apart from the QSE-specific scorecard and modified target. All other detail on the measurement of enterprise development contributions must be taken from the generic Code, Statement 600.

Beneficiary entities

The QSE contributions to enterprise development must be made to qualifying beneficiary entities. The beneficiaries for the QSE Codes are the same as those specified in the generic codes. The beneficiaries are defined by the Statement in terms of qualifying contributions, which will be dealt with under the indicator terminology below.

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