‘Empowering supplier’ is a new concept introduced in the amended codes. The B-BBEE certificate will indicate this status, which will have to be independently verified before or as part of the annual verification.
A customer’s spend with a supplier may only be recognised on its preferential procurement scorecard if the supplier qualifies as an empowering supplier.
There are five criteria. During its measurement year, an entity must meet at least three of these criteria if it is a large enterprise (>R50 million turnover) and at least one if it is a qualifying small enterprise (<R50 million turnover). Exempt micro enterprises (<R10 million turnover) are automatically deemed empowering suppliers. These are the criteria:
- At least 25% of purchases (included in the cost of sales), excluding employee costs and depreciation, must have been spent with South African suppliers. In the case of a services entity, one would have to look at total expenditure but with employee costs capped at 15%.
- Fifty per cent of new jobs created since the prior verification date must have been filled by black people on condition that the total number of black employees stayed the same or increased.
- There must have been 25% transformation (beneficiation) of raw material. This can only be applied to entities involved in manufacturing, production, assembly or packaging activities. The general consensus is that this will be measured by confirming a gross margin on the income statement of at least 25%.
- Twelve days per year must have been spent on training majority black-owned EME or QSE businesses to assist them in increasing their operational or financial capacity. In my opinion, this can be outsourced.
- In the case of service entities, at least 85% of employee costs should have been paid to South African citizens. Note that this refers to the amount spent and not the headcount.
It is clear that through these criteria, government has tried to embed some of its main economic policies, namely localisation, job creation, industrialisation, skills transfer and local employment, and has effectively made compliance a prerequisite for participating in B-BBEE.
Author: Anton de Wet CA(SA) is Managing Director of Net Value Holdings