Richard Ryding | Head | B-BBEE Division | Global Business Solutions | mail me |
The current COVID-19 pandemic, and the lockdown implemented by the South African government, has had a significantly negative impact on businesses. Some have only recently been able to commence operations with the start of the current alert level 1 status.
This economic impact has led to a significant number of retrenchments and closure of businesses. Companies are hard-pressed to maintain their operations and employment.
Business survival versus B-BBEE
Business has been concentrating on survival and not on Broad-Based Black Economic Empowerment (B-BBEE). This will likely mean a reduction in levels on their BEE certificates.
The reason for this reduction is the following:
- Profitability and cash flow have decreased owing to the reduced level of sales. Companies will have strict controls over cash flow which means that they are less likely to incur Skills Development expenditure, Enterprise and Supplier Development spend as well as Socio-Economic Development spend.
- Skills development spend will reduce owing to the lockdown as staff cannot be trained in the normal manner. Companies have been told by SANAS that they must ignore the Skills Development Levy payment holiday which was declared as part of government’s stimulus programmes when calculating the leviable amount.
This leviable amount forms the base from which to measure Skills Development for B-BBEE purposes. In summary, Skills expenditure is decreasing but the base for calculation remains the same.
Both of these factors will lead to a reduction in B-BBEE levels on companies’ B-BBEE certificates. If these organisations now cannot win tenders because of the reduction in their B-BBEE levels, South Africa will lose even more companies and jobs to closure and/or downsizing.
A workable solution
Maybe what might be appropriate is a deferment and/or extension of the current validity period of 12 months for B-BBEE certificates.
The new period could be:
- A 24-month period instead of the current 12 month, or
- To allow for a nine-month calculation of the current period, or
- Extension of the validity of certificates by a period equivalent to the period of lockdown/State of Emergency.
The validity period of a B-BBEE certificate is governed by Statement 005 to Code Series 000: Framework for measuring Broad-Based Black Economic Empowerment. It was first gazetted in Gazette 34612 dated 23 September 2011.
Gazette 34612 states that ‘A Verification Certificate issued is valid for a period of 12 months from date of issue‘
Any change in the period of validity of B-BBEE certificates will require a change in the B-BBEE Codes of Good Practice.
In brief, this will require:
- Detailed consultation with the Department of Trade, Industry and Competition to motivate and prepare the wording of the proposed change
- Gazetting of the proposed change for a 60-day comment period
- Consideration of comments received and amending the proposed change based upon comments received.
In conclusion
This is a long process and the final gazetting of the change, if it happens, may occur after the current expiry date of most existing B-BBEE certificates. It will thus have limited impact on the current B-BBEE status of most/all companies.
We believe, however, that due to the State of Emergency, the current lockdown and the adverse economic conditions caused by these actions, government must take all steps possible to put the economy of a firm setting.