The amended codes of good practice for broad-based black economic empowerment (BBBEE), coming into effect on May 1, have the potential to stimulate much-needed competition and innovation in the economy owing to their focus on supplier and enterprise development, professional services firm Deloitte has asserted.
Noting that companies had been “scrambling” to secure updated empowerment certificates prior to the deadline, the firm cautioned that companies without an effective long-term empowerment strategy could fall behind competitors that had proactively embraced the codes.
According to Deloitte supply chain management director Lerato Sithole, businesses needed to see the changes as an opportunity to broaden their economic base rather than a hindrance to growth and an unnecessary layer of red tape.
“While there is an assumption that the codes will have a negative impact, there are competitive advantages to having a more empowered workforce.
“Long-term benefits are about growing your slice of the pie and increasing the company’s competitive edge, therefore, companies should not only focus on the short-term drivers. ” she commented.
Sithole believed that the previous codes had enabled some businesses to identify loopholes for fronting, which had hindered the transformation process.
Deloitte asserted further that the new codes would introduce long-term benefits from a price point of view, as an increase in the number of alternative suppliers would result in increased competition and value for money.
“The amended codes strongly incentivise doing business with exempted microenterprises and qualifying small enterprises, and this is expected to be a vehicle that grows and stimulates the economy,” added Deloitte supply chain management senior manager Khutso Sekgota.
She outlined that the enterprise development component provided enough flexibility for businesses to use an incubation approach with potential suppliers before signing them up for longer periods.
“Substantial points will be earned for investing, creating and transferring skills in the pipeline of capable BBBEE-complaint suppliers under the ‘enterprise development’ component of the codes.
“Likewise, more points can be earned through the supplier and preferential procurement component of the codes, when the potential suppliers are qualified and graduated into fully fledged suppliers of the company. The framework is, therefore, streamlined to develop local and transformed suppliers that are integrated into the company’s own supply chain,” said Sekgota.
Deloitte further advised companies to incorporate BBBEE into their long-term business strategy to ensure sustained results, rather than measuring them in retrospect for compliance purposes.
Moreover, the punitive measures would be hard-hitting for those companies that did not comply with the codes, it warned.
Noncompliant companies that bid for public procurement, public–private partnerships and the sale of State-owned assets would, in most instances, need to drastically reduce their prices under the Preferential Procurement Policy Framework Act to ensure they could compete with competitors of higher BBBEE ratings.
Companies that required compliance with the BBBEE codes as part of their licensing conditions would also be hard-pressed to ensure they were not deemed noncomplaint, which could hamper their prospects of licence renewal.
In addition, those businesses doing business with the private sector would also find that their customers were increasingly demanding favourable BBBEE ratings from their suppliers to boost their own contribution to the ‘enterprise and supplier development’ points and, ultimately, their overall BBBEE rating.
“If companies embrace the amended codes, as well as the incentive structures built into it, they will realise favourable results. But if they step back and just say it is not working, then it will definitely not work for them” Sithole concluded.