After a long and detailed process of engagement, drafting and redrafting, the codes were finally gazetted on February 9, bringing to an end uncertainty about the contents of the codes.
We followed the debates preceding finalisation of the codes, and an underlying theme was that companies would not enter into BEE transactions until the codes were gazetted.
A couple of key areas which caused anxiety have been clarified and are worth noting. The codes bring certainty to the treatment of multinationals and how they can contribute to the ownership objective. They give better guidance to multinationals on the kinds of programmes that qualify as equity equivalents.
In December 2005 the department of trade & industry (DTI) called for submissions on how to treat mandated investments or indirect ownership. These are investments by pension funds, provident funds and other post-retirement funding schemes.
They also include private equity funds, assets under management, property unit trusts and all other forms of collective investment not currently dealt with in the codes.
The codes allow for either the exclusion or inclusion of mandated investments or indirect ownership shareholding in companies when determining BEE ownership. If a company opts to include such mandated investments in its BEE shareholding, the black beneficiary base of such investments would have to be determined.
In the December 2005 draft, the concept of a targeted warehousing fund was introduced. The intention was to provide a liquidity platform for black investors who found themselves locked into transactions for long periods. The new codes allow for limited recognition of the sale or loss of shares in an entity subject to certain requirements. The points an entity is allowed to claim are limited to a maximum of 40% of the potential points on the ownership scorecard.
Significant changes have been made to the code on skills development. The original code had 13 indicators, the current code has only three. It has aligned the kinds of skills spend required with those defined in the Skills Development Act in the Learning Programme Matrix, which aligns skills-spend with output.
The original code on preferential procurement emphasis ed that opportunities be given to companies compliant with BEE without regard to ownership status. The final code goes further and encourages procurement from black-owned and black-women-owned entities. It also provides incentives for procurement from small and emerging micro enterprises (EMEs).
Most significant is the thresholds used for EMEs and qualifying small enterprises (QSEs). EMEs are entities that are exempt from broad-based BEE requirements. QSEs are those with an annual turnover of R5m-R35m, and required to comply with only four of the seven scorecard elements.
Polo Radebe is director-general of BEE in the DTI
