1. PRESENTATION ON
THE AMENDMENTS
TO THE BBBEE ACT
53 OF 2003 AND THE
CODES OF GOOD
PRACTICE ISSUED IN
TERMS OF THE
BBBEE ACT
DATE: 29 JANUARY 2014

2. INTRODUCTION
 The Broad-Based Black Economic Empowerment Act 53 of
2003 (“BBBEE Act”) provides the legislative framework for
broad-based black economic empowerment (“BBBEE”) in
South Africa. The Codes of Good Practice (“Codes”) are
issued under the BBBEE Act.
 Significant amendments to the BBBEE Act have been
proposed and were passed into law on 27 January
2014, however the effective date of the BBBEE
Amendment Act, 2013 has not been fixed.
 Amendments to the Codes were published in the
Government Gazette on 11 October 2013 and will take
effect from 11 October 2014. After 11 October
2014, BBBEE compliance measurement will be in
accordance with the Amended Codes.
 Firms have a transitional period of one year within which to
implement the Amendments to the Codes.
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3. INTRODUCTION (cont’d)
 The Codes do not impose legal obligations on firms to
comply with the BBBEE targets.
 They merely set out the methodology to be used when
measuring a firm’s BBBEE status.
 Fundamental principle for measuring BBBEE – substance
takes precedence over legal form.
 However a firm’s BBBEE rating is an important
consideration to successfully tender for Government or
public entity contracts and sometimes obtain licences.
 BBBEE is accordingly an important factor to be taken
into account by any firm conducting business in South
Africa.
3

4. KEY AMENDMENTS TO THE BBBEE ACT
 Establishes a BBBEE Commission
 Functions of the BBBEE Commission include, inter alia, to:
 oversee and supervise compliance with BBBEE;
 receive and investigate complaints relating to BBBEE, BBBEE
transactions and “fronting practices”;
 apply to court to restrain a breach of the BBBEE Act and/or a “fronting
practice”;
 maintain a register of BBBEE transactions above a certain threshold.
 If the Commission believes that any matter it has investigated involves
the commission of a criminal offence, it is obliged to refer the matter
to the NPA or an appropriate division of SAPS.
 Defines terms: “Knowingly”, “knowing” or “knows”
 When used in the BBBEE Act, such terms mean that the person (a)
had actual knowledge; (b) was in a position in which the person
reasonably ought to have (i) had actual knowledge; or (ii) investigated
the matter or taken other measures that would have provided the
person with actual knowledge.
4

5. KEY AMENDMENTS TO THE BBBEE ACT (cont’d)
 Defines term “Fronting Practice”
 "Fronting Practice" is very widely defined – a transaction, arrangement or
other act or conduct that directly or indirectly undermines or frustrates the
achievement of the objectives of the BBBEE Act or the implementation of
any provision of the BBBEE Act including but not limited to practices in
connection with a B-BBEE initiative –
 in terms of which black persons who are appointed to an enterprise are
discouraged or inhibited from substantially participating in the core activities of
that enterprise;
 in terms of which the economic benefits received as a result of the broad-based
black economic empowerment status of an enterprise do not flow to black people in
the ratio specified in the relevant legal documentation;
 involving the conclusion of a legal relationship with a black person for the purpose
of that enterprise achieving a certain level of broad-based black economic
empowerment compliance without granting that black person the economic
benefits that would reasonably be expected to be associated with the status or
position held by that black person; or
 involving the conclusion of an agreement with another enterprise in order to
achieve or enhance broad-based black economic empowerment status in
circumstances in which –
 there are significant limitations, whether implicit or explicit, on the identity of
suppliers, service providers, clients or customers;
 the maintenance of business operations is reasonably considered to be
improbable, having regard to the resources available;
 the terms and conditions were not negotiated at arm’s length and on a fair and
reasonable basis.
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6. KEY AMENDMENTS TO THE BBBEE ACT (cont’d)
 Introduces various criminal offences and penalties
 Introduce criminal offences for knowingly misrepresenting
or providing false information regarding a firm’s BBBEE
status or engaging in a “fronting practice”.
 A contravention may result in:
a fine and/or up to 10 years’ imprisonment for individuals or
both; and
a firm may be fined up to 10% of its annual turnover;
any person convicted of an offence is banned from contracting
with any organ of state and/or public entity for 10 years.
 Introduces a right to cancel any contract/authorisation
 Introduce a statutory right for government and public
entities to cancel any contract or “authorisation” awarded
due to false information on BBBEE status.
6

7. KEY AMENDMENTS TO THE BBBEE ACT (cont’d)
 Imposes reporting obligations
 Imposes an absolute obligation on government, organs of
state and public entities to:
 take the Codes into account in developing their procurement
policies and criteria for issuing licences and authorisations
(previously they were only obliged to do so “as far as reasonably
possible”);
 develop criteria for entering into partnership with the private
sector;
 report on BBBEE in their audited financial statements and annual
reports required under the PFMA.
 Imposes an obligation on South African listed entities to
provide a report to the BBBEE Commission on their
compliance with BBBEE.
 Only the Minister may exempt an organ of state or public
entity from complying with the above requirements or
deviating therefrom.
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8. SIGNIFICANT
AMENDMENTS TO
THE CODES
8

9. KEY AMENDMENTS TO THE BBBEE CODES
 For entities that are not exempt from the scorecard,
BEE compliance gets tougher:
 Generic scorecard has been consolidated into five
elements.
 Qualifying Small Enterprises (QSE) and Large Enterprises
are measured with regards to all five BBBEE elements.
 Thresholds for Exempted Micro Enterprises (EME) and
QSEs have been adjusted.
 Introduction of “priority elements” – ownership, skills
development and enterprise/ supplier development.
 EMEs and QSEs that are at least 100% black owned will
qualify as Level 1 and 51% black owned will qualify as
Level 2.
9

10. CHANGES TO NUMBER OF BBBEE POINTS
REQUIRED TO ACHIEVE BBBEE LEVELS
 Number of BBBEE points required to achieve a particular
BBBEE level have been increased.
 This change materially affects a firm’s existing BBBEE
rating and potentially results in an automatic
downgrade of its BBBEE status from 11 October 2014
eg. Current BBBEE level 4 (65 points) may become a
new BBBEEE level 7.
 This has major implications for business particularly
those who require a minimum BBBEE level for licences
etc or from suppliers or firms with contractual
obligations to maintain a minimum BBBEE status.
 Firms need to review their current BBBEE status to
assess impact of the changes and take steps to
maintain their BBBEE ratings.
10

11. CHANGES TO NUMBER OF BBBEE POINTS
REQUIRED TO ACHIEVE BBBEE LEVELS (cont’d)
BBBEE Level
Amended Codes
Current Codes
1
> 100 points
> 100
2
> 95 but < 100
points
> 85 but < 100
3
> 90 but < 95 points
> 75 but < 85
4
> 80 but < 90 points
> 65 but < 75
5
> 75 but < 80 points
> 55 but < 65
6
> 70 but < 75 points
> 45 but < 55
7
> 55 but < 70 points
> 40 but < 45
8
> 40 but < 55 points
> 30 but < 40
Non-compliance
< 40 points
< 30
11

12. CHANGES TO NUMBER OF BBBEE ELEMENTS
 Current Codes have 7 elements that are taken into
account when calculating a firm’s BBBEE rating.
 Amendments reduce the number of elements to five by
fusing enterprise development/preferential procurement
and management control/employment equity elements.
The new elements are:
Ownership
Management Control
Skills Development
Enterprise and Supplier Development
Socio Economic Development.
 Changes are set out in the following table.
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13. CHANGES TO NUMBER OF BBBEE ELEMENTS
(cont’d)
Element
Weighting Points
(Amended
Codes)
Weighting Points (Current
Codes)
Ownership
25
20 plus 3 bonus points
Management
control
15 plus 4 bonus
points
Management control - 10 plus
one bonus point
Employment equity – 15 plus
three bonus points
Skills
development
20 plus five bonus
points
Skills development – 15
Enterprise and
supplier
development
40 plus four bonus
points
Preferential procurement – 20
Socio-economic
development
5
5
Total
118
107
Enterprise development – 15
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14. PRIORITY ELEMENTS AND MINIMUM
REQUIREMENTS OF PRIORITY ELEMENTS
 Changes indicate greater emphasis on three “priority
elements” namely: ownership, skills development and
enterprise or supplier development.
 Amendments impose minimum requirements on priority
elements:
 40% of the “net value” targets for the ownership element.
“Net value” measures the “debt free” portion of the BBBEE
ownership of a firm;
 40% of the total weighting points for the skills
development element;
 40% of the targets for the three subcategories of the
enterprise and supplier development element.
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15. EFFECT OF FAILURE TO MEET MINIMUM
REQUIREMENTS OF PRIORITY ELEMENTS
 A Large Enterprise is required to be measured with regards
with all three priority elements.
 Large Enterprises presumably firms with total income
greater than R50m.
 A QSE is required to be measured with regards to
ownership as a compulsory element and either one of skills
development or enterprise and supplier development.
 QSEs are firms with total annual income between R10m
and R50m (previously it was between R5m and 10m).
 If a QSE or a Large Enterprise fails to comply with the 40%
minimum targets of any of the priority elements, their
BBBEE status will automatically be downgraded by 1 level
eg. if its score would have otherwise been a level 4 it will
be downgraded to a level 5.
 Existing BBBEE transactions will have to be reviewed to
assess the likelihood and effect of the downgrade.
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16. MEASUREMENT OF QSEs and EMEs
 Exempted Micro-Enterprises are deemed to have a level
4 rating and start up enterprises are measured as EMEs.
All shelf companies are start ups and have a level 4
rating in the first year of incorporation.
 Ownership changes in relation to EMEs and QSEs:
 Threshold for qualifying as an EME has been increased
from R5m (or less) to R10m or less total annual income;
 Threshold for being a Qualifying Small Enterprise has been
increased to between R10m and R50m total annual income
(from between R5m to R35m under the current Codes);
 EME and QSEs that are 100% black owned will be deemed
to have a level 1 BBBEE status;
 EMEs and QSEs that are 51% black owned will be deemed
to have a level 2 BBBEE status.
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17. CHANGES TO THE CURRENT METHODOLOGY OF
CALCULATING OWNERSHIP
 Current Codes provide for one BBBEE ownership point (and
a 2.5% compliance target to earn that point) for an
economic interest in a frim held by “black-designated
groups”.
 The revised Codes scrap the bonus points but increase the
number of BBBEE economic interest points to 3 with a 3%
target. This provides an incentive for firms to consider
these “broad-based” options.
 Under the revised Codes:
 two BBBEE ownership points (with a 2% compliance target)
have been allocated to the economic interest of “black new
entrants” in the firm;
 the definition of “Black New Entrant” has also been widened to
cover BBBEE owners who have not held equity in another firm
with a total value of R50m (R20m under the current Codes);
 these changes widen the pool of new entrants and incentivise
firms to use new entrants in their BBBEE ownership
transactions.
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18. CHANGES TO THE CURRENT METHODOLOGY OF
CALCULATING OWNERSHIP (cont’d)
 For many firms it may be difficult to maintain their
current rating as ownership will be measured more
strictly.
 The ownership element has been increased in weighting
from 20 to 25 points out of a new total of 118.
 Black ownership comply with the 40% “net value”
targets by black shareholders if a transaction is to
qualify for maximum available ownership points.
 BBBEE shareholders may be prejudiced by being
required to fund transactions using their own resources.
This may have an unintended “chilling effect” on the
funding for BBBEE transactions.
 This may have serious implications for BBBEE ownership
transactions which often involve financing to the BBBEE
shareholder repayable out of dividend flows.
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19. CHANGES TO THE CURRENT METHODOLOGY OF
CALCULATING SKILLS DEVELOPMENT
 The Amendments increase the number of factors to be
considered under the Skills Development element from
three to five. New factors:
 points may be earned for training unemployed black
persons and the number of black people “absorbed” at the
end of learnership programmes;
 the number of points and the compliance target for skills
development expenditure have increased from 6 to 8 and
from 3% to 6% respectively.
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20. CHANGES TO THE CURRENT METHODOLOGY OF
CALCULATING ENTERPRISE/SUPPLIER
DEVELOPMENT
 The revised Codes introduce the concept of an “Empowering
Supplier” under the preferential procurement subcategory of the
enterprise and supplier development element.
 The requirements for an “Empowering Supplier” are unduly
complicated and include:
 being a “BBBEE compliant entity” and a “good citizen”,
 complying with “all regulatory requirements” and meeting at least
three (or for QSEs, one) of certain local procurement, job creation, raw
material transformation/beneficiation and skills transfer requirements.
 No preferential procurement points will be obtained if a supplier
does not comply with the above requirements.
 Ironically these changes will prejudice black-owned and controlled
firms that do not comply with the requirements for “Empowering
Suppliers”
 A firm’s BBBEE status will be automatically downgraded by one
level if it fails to meet the minimum 40% target for supplier and
enterprise development (even if the firm has made genuine
efforts to comply).
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21. THE IMPORTANCE OF SECTOR CODES
 The BBBEE Act allows a sector of the economy to have
its own BBBEE code.
 The current Codes provide that a sector code has equal
status with any other code. This has led to confusion as
to whether a firm’s BBBEE status should be measured
under the sector code or the “generic” Codes.
 The Amendments (as well as the pending amendments
to the BBBEE Act) resolve this by providing that the
BBBEE status of a firm in a sector may only be
measured in accordance with the sector code for that
sector (if any).
 It remains to be seen whether the existing (and future)
sector codes may be less onerous than the amended
Codes and whether Government will take steps to align
the sector codes with the revised generic Codes.
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22. THE IMPORTANCE OF SECTOR CODES (cont’d)
 Reliance on sector codes may (to the extent that they
are less onerous) mitigate the effects of the
Amendments.
 However firms operating in sectors whether there is no
sector code will be measured according to the
Amendments (and may be incentivised to develop a
sector code).
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23. CONCLUSION
 The amendments to the Codes and the BBBEE Act
fundamentally change the current BBBEE framework
and are a powerful expression of the Government’s
intention to promote and implement BBBEE.
 The new Codes are due to take effect from October
2014.
 It is important that firms use the interim period to
review and reassess their BBBEEE strategies to mitigate
(and preferably avoid) any adverse effects resulting
from the changes.
 If an entity has obtained a BBBEE certificate under the
current Codes by 10 October 2014, it will not be
necessary for it to obtain a new BBBEE certificate under
the revised Codes until the date of expiry of such
certificate.
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24. QUESTIONS AND DISCUSSION
ANY QUESTIONS?
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25. THANK YOU
Pieter Steyn and
Nozipho Bhengu
Legal notice: Nothing in this presentation should be construed as formal legal advice
from any lawyer or this firm. Readers are advised to consult professional legal advisors
for guidance on legislation which may affect their businesses.
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