The DTI’s announcement on Friday last week to temporarily extend the automatic recognition period for the controversial “Empowering Supplier” status requirement is a welcome relief to many large organisations, which have been battling to meet the requirements due to a variety of challenging circumstances.
The DTI issued a statement on 28 October 2016 under notice 708 of 2016, in which it stated that all valid ‘Empowering Supplier’ certificates issued by 31 April 2016 would be automatically considered to be ‘empowering’, while certificates issued on or after 1 May 2016 would also be automatically recognised as ‘empowering’.
“While this extension is apparently temporary, the announcement comes as great relief for those companies who were not able to qualify,” says Jenni Lawrence, managing director of Grant Thornton Verification Services. “Failure to meet ‘empowering supplier’ status effectively renders these businesses’ BEE scorecard as non-compliant.”
Lawrence adds that some of the largest employers in South Africa import components or products that are not yet locally available and this factor directly affects the organisation’s ‘empowering supplier’ status.
“Many companies have also had to retrench staff in the past year due to the current challenging economic situation,” continues Lawrence. “This announcement gives them a lifeline by providing the employers with some valuable extra time to get their localisation plans in order, while still allowing them to be compliant and competitive.”
Companies which do not qualify as ‘Empowering Suppliers’ will automatically be removed from large organisations’ and state-owned enterprises’ preferential procurement calculations and they will – in the long term – find it much more difficult to conduct their business operations.
“This requirement really does have a true and real ‘knock-on’ effect for companies,” says Lawrence. “Companies will need to ensure that they, too, engage in business practices with companies that meet their own Empowering Supplier criteria in order to protect their own B-BBEE score.”
According to the Amended Codes of Good Practice, the definition of an ‘Empowering Supplier’ is, ‘a B-BBEE compliant entity, which is a good citizen South African Entity, complying with all regulatory requirements of the country’ and meets criteria outlined in the Amended Codes.
An organisation should meet at least three of the following criteria if it is a large enterprise (turnover exceeding R50 million) or one of the following criteria if the company is a QSE (R10 million – R50 million):
- At least 25% of cost of sales excluding labour cost and depreciation must be procured from local producers or local suppliers in SA. It is important to remember here, though, that service industry labour costs are also included but capped to 15%;
- Job Creation – 50% of jobs created are required to be for black people provided that the number of black employees since the immediate prior verified B-BBEE measurement is maintained;
- At least 25% transformation of raw material/beneficiation which includes local manufacturing, production and/or assembly, and/or packaging;
- Skills transfer – at least 12 days per annum of productivity is required to be spent by the deployment to assist black EMEs and QSEs beneficiaries in increasing their operation or financial capacity; and
- At least 85% of a company’s labour costs should be paid to South African employees by relevant service industry entities.Exempt Micro Enterprises (EMEs) and start-ups are automatically recognised as empowering suppliers.
The next steps regarding this requirement have not been defined by the DTI as yet, but Lawrence seems to think that there is a slight indication that the ‘empowering supplier’ requirement will be re-introduced with some amended criteria.
“While the revised requirement has not been published as yet, we expect the changes will include additional criteria that will make it possible for those who have been unable to qualify to date, to apply this requirement in different ways which are much more applicable to their industry,” Lawrence concludes.