Trade and Industry Minister Dr Rob Davies has decided to extend the transitional period for the recently revised Broad-Based Black Economic-Empowerment (B-BBEE) codes of good practice to the end of April 2015.

The new-look codes were published on October 11, 2013, and the transitional period was initially scheduled to endure for a year until October 10, 2014.

The extension of around six months would offer companies a longer period to adjust to the new regime, which many believe will be far more difficult to comply with.

Department of Trade and Industry spokesperson Sidwell Medupe has confirmed the extension, noting that the department has received a number of requests for a longer transition period, owing to a low state of readiness.

The schedule change has been communicated in a letter to stakeholders and will also be published in the Government Gazette.

Cliffe Dekker Hofmeyr corporate and commercial practice director Verushca Pillay says that, during the transition period, a measured entity can elect to have its compliance measured either “in terms of the new B-BBEE codes of good practice, or the old B-BBEE codes of good practice of 2007”.

In a note to clients, verification agency EconoBEE indicated that there would probably be no further extension, which means firms would need to follow the codes published in 2013 for any verification after April 2015. “It is therefore still important to begin your planning of how you can comply and reach a good level once the amended codes have kicked in.”

Grant Thornton Verification Services MD Wade van Rooyen notes that, in addition to the extension, all sector charter councils have been advised to align their respective sector codes to new codes by the end of April 2015.

Van Rooyen welcomes the extension as well as the fact that the sector codes have been included in the amended codes, but laments the short timeframe given to the sector charter councils to comply. “If the sector codes must be aligned by April 30, 2015, will they also contain a transitionary period? If not, companies within a sector-code scope will have to be measured immediately against an unknown target which seems very unreasonable.”

He notes that sector codes have been Gazetted for construction, tourism, forestry, transport, information and communication technology, agriculture, property, financial services and chartered accountancy.

The updated codes, which reduce from seven to five the scorecard components, were published on October 11 last year and were followed by the publication of amendments to the Act on January 27, 2014.

The five elements deal with ownership, management control, skills development, enterprise and supplier development and socioeconomic development.

Minimum thresholds were also set for the priority elements, which a firm had to obtain to sustain its rating. A failure to meet the thresholds would result in a lowering of a company’s empowerment status by at least a level, with level one representing the highest achievable status.

“It will generally be more difficult for enterprises to achieve and possibly retain their current B-BBEE contributor status ratings under the revised codes,” Pillay warns.

“For example, an entity that has obtained a level-four contributor status rating under the original codes will have scored between 65 and 75 points. If such a score does not increase prior to its next verification under the revised codes, that measured entity’s contributor status will drop to either level six or level seven,” says Pillay.

In light of the change to the compliance date, EconoBEE advises those planning to delay verification to just before October to consider an earlier verification. “This will allow you to be verified again next year, prior to April 2015, to again benefit from the 2007 codes.”

In a separate, but related development, Davies responded to a Parliamentary question posed by the Freedom Front-Plus’s Anton Alberts as to whether he foresaw an indefinite continuation of the B-BBEE policy.

Davies noted that, in 2013, the department had commissioned a second baseline study to measure the transformation progress, as well as the obstacles to meaningful participation of black people in the economy.

“The findings show that the economy is embracing B-BBEE policy, and its objectives. However, 33% of surveyed large enterprises had zero black ownership and only 9% of enterprises had more than 90% black ownership. This reflects poorly on the level of penetration of black ownership within large enterprises. Therefore, the implementation of B-BBEE in all sectors of the economy is still critical to the overall economic and social development of South Africa.”

He also argued that economic growth, development and empowerment were complementary and related processes. “No economy can grow by excluding any part of its people and an economy that is not growing cannot integrate all of its citizens in a meaningful way. As such, this strategy stresses a BEE process that is associated with growth, development and enterprise development, and not merely the redistribution of existing wealth.”