Government’s new B-BEEE codes that are coming into effect in April next year have been welcomed by the enterprise and supplier development (ESD) sector. The 2015 codes will highlight small and medium enterprise (SME) development, encourage entrepreneurship and counteract the negative effects on the economy. All companies need to be compliant with the new codes by April 2015, and the effect will be to create a much-needed injection into the SA economy in general and the SME market in particular.
In 2007 enterprise and supplier development (ESD) became the buzz word within the business sector, with corporate South Africa rushing to garner a sense of what implications these codes would have on their existing business structures and more importantly, their bottom lines.
“High level of unemployment translates to a very real need for enterprises to create sustainable models for economic development and investment”
The Black Economic Empowerment (BEE) model in South Africa was developed in order to create a level playing field for all South Africans within the business sector and these codes were implemented to facilitate this move.
Since the inception of the codes, various economic changes have occurred, not least the global recession of 2008 and an unemployment rate of 25,5% (April – June 2014, Statistics SA). This high-level of unemployment translates to a very real need for enterprises to create sustainable models for economic development and investment.
One of the major changes seen within the codes is a more stringent focus on active development by corporate South Africa, of organisations who are at least 51% black-owned and who have an annual turnover of up to R50 million. But finding suppliers and enterprises that fit this category, with the right skills and management team is not as easy as opening the phone book.
A change from the ‘arm’s length’ model
Historically, companies would set up ESD programmes that focused on standalone enterprise development, an incubator would be set up for SMEs, with little or no integration with the big businesses value chain and the BEE points would still be allocated. The change in the codes has forced corporates to rethink this ‘arm’s length’ model. A corporate now needs to actively incorporate SMEs into their supply chain in order to receive these points and facilitating access to contracts requires considerable engagement and buy-in from the corporate.
The B-BBEE Codes applicable from April 2015 are as follows: (Amendment Act 2013):
The graduation rate of micro enterprises to SMEs is far lower in Southern Africa than in other developing nations such as Asia, West Africa and Latin America. In those areas the rate of graduation is estimated at 50%, whereas in Southern Africa this rate is 10%. In economically successful countries, as much as 85% of job opportunities are created by SMEs*. The need for ESD is visible through these statistics alone, but when looking at the estimated impact one job has on the living standards of the population, it becomes an economic imperative. The current estimation is that one job improves or impacts the lives on nine people.
With the revised Codes, ESD is no longer a pillar in the scorecard that can either be ignored or kept at arms-length, it is imperative that the entire business engages the opportunity to take ESD beyond compliance and turn it into a competitive advantage.”
Daniel Hatfield is the Managing Director of Edge Growth, an Enterprise and Supplier Development specialist firm.