BEE Partner, South Africa Economy Watch

The trickle-down effect of preferential procurement is the only reason that private companies not dealing directly with public entities or organs of state have a reason to contribute to broad-based BEE. To qualify as a supplier to upstream customers, a business requires a high BEE status and, more specifically, a favourable BEE procurement recognition level.

Preferential procurement turns BEE into a competitive policy. Suppliers will be assessed on their BEE procurement recognition level in conjunction with standard drivers such as cost, quality and service. The more a business contributes to BEE, the greater it will be rewarded through customers wishing to buy from them to leverage off the business’s high BEE score.

BEE driving small business

Businesses that obtain a relatively high score early in the BEE process are going to have a competitive advantage over other suppliers. EMEs are automatically granted a Level Four BEE status. This gives them an immediate advantage in terms of BEE because very few businesses will have a Level Four BEE status in the early stages of the policy.

The QSE scorecard is remarkably easier to score highly on than the generic scorecard. A QSE is more likely to score higher than a non-QSE competitor, particularly in the early stages of BEE. Businesses with a strong business necessity to contribute highly to BEE will procure from suppliers with a high BEE preferential procurement rating.

One of the indicators of preferential procurement in the generic scorecard (not the QSE scorecard) requires these businesses to spend 10% of their total measured procurement spend on QSE business. The indicator does not specify Black-owned QSE business, so all QSE businesses, regardless of ownership, stand to benefit. Consider the value of 10% of a company such as Anglo American’s annual procurement. The indicator is actually problematic for the big companies. Their annual procurement is so large that spending 10% on QSE business is a difficult challenge. Once a business such as Anglo American starts dealing with a QSE, the QSE will probably exceed the qualification threshold relatively quickly.

The point is that preferential procurement presents an opportunity for QSE businesses to grow. The opportunity is not restricted to Black- owned business. However, it obviously favours businesses with a high BEE score. A QSE can obtain a high BEE score without Black ownership by focusing on contributions to other elements.

THE QSE PREFERENTIAL PROCUREMENT SCORECARD

The QSE preferential procurement scorecard is notably simpler than that of the generic Codes. However, the terminology and substance of Statement 805 is derived from Statement 500. While the scorecard is easier to understand and easier to score on, the understanding is possibly more complicated because QSE owners have to understand both Statements to understand the intention.

The scorecard has a single indicator and the targets are lower than those of the generic scorecard.

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