EVOLUTION OF B-BBEEFROM OCGP - RCGOP

F2014/2015 & F2015/2016

The Evolution Of BEE

BEE Act53 of2003

COGP – 9 Feb.2007

BEE Amendment Act of 2013

RCGOP 1 May 2015RCGOP 5 May 2015Gazette Notices

Objective Of BBBEE

B-BBEE strives to ensure that equitableeconomic opportunities are created andoffered to black South Africans in asustainable manner.

Major Amendments To The BBBEE Bill 2013

•Oversight and Advocacy•Investigate complaints

relating to BBBEE•Power To Subpoena

BEECommission

•Misrepresenting and/orproviding false BBBEEinformation

•Failure to report/investigatemisrepresentations

•Engaging in fronting practice

CriminalOffences • Introduction of a

statutory right forgovernment and publicentities to cancel anycontract awarded dueto false BBBEEinformation

ContractTermination

Implications of Amended BBBEE Act of 2013

Offences

GovernmentProcurement

BBBEE Report

1. Individuals: Fineand/or 10 years minimumprison sentence

2. Companies: up to 10%of annual turnover/Banfrom tendering forgovernment business

3. Oblige Governmentand Public entities to takecodes into account inprocurement policies

4. Listed entities will beobliged to provide theBBBEE commission with acompliance report

Classification Of Entities RCGOP

EME

QSE

LargeEnterprise

Exempted Micro- Enterprise(Turnover ≤ R10m)

Turnover > R50m

Qualifying SmallEnterprises(Turnover >R10m≤R50m)

** The Generic Scorecard

Enterprise & SupplierDevelopment

Skills Development

Ownership

ManagementControl

Socio-Economic

Development

Measures the extent to whichentities buy goods and servicesfrom Empowering suppliers andthe extent to which enterprisecarry out enterprise and supplierdevelopment

Measures the extent towhich employers carryout initiatives designedto develop thecompetencies of Blackpeople internally andexternally

Measures the extent to which entities carry out initiatives that contribute towardssocio-economic Development or sector specific initiatives that promote access to theeconomy for Black people

Measures the extent towhich employers carryout initiatives designedto develop thecompetencies of Blackpeople

Measures theeffective control ofentities by Blackpeople

Amended Generic Scorecard

BEE ELEMENTS OLD WEIGHTINGS NEW WEIGHTINGS

OWNERSHIP 20 POINTS **25 POINTS

MANAGEMENT CONTROL

10 POINTS(15) PLUS (4) BONUSPOINTS (19)15 POINTS

SKILLS DEVELOPMENT 15 POINTS **20 PLUS 5 BONUSPOINTS

ENTERPRISE AND SUPPLIERDEVELOPMENT

20 POINTS **40 PLUS FOURBONUS POINTS

15 POINTS

SOCIO ECONOMICDEVELOPMENT

5 POINTS 5 POINTS

BBBEE Levels Of Compliance

BEE Level COGP RCGOP

Level 1 ≥100 points ≥100 points

Level 2 ≥85 but < 100 ≥95 but < 100

Level 3 ≥75 but < 85 ≥90 but < 95

Level 4 ≥65 but < 75 ≥80 but < 90

Level 5 ≥55 but < 65 ≥75 but < 80

Level 6 ≥45 but < 55 ≥70 but < 75

Level 7 ≥40 but < 45 ≥55 but < 70

Level 8 ≥30 but < 40 ≥40 but < 55

Non-Compliant <30 points <40 points

Generics must meet40% subminimumtarget for each ofthese elements,failure to do so willresult in thediscounting of themeasured entity byone level per element

Priority Elements

Enterprise &Supplier

Development

Skills Development

Ownership

WEIGHTING = 90 POINTS out of Possible 114

DTI May 2015 Gazette Notices.

Sector CodesFurther extension is provided to sector codes to align and have their sector codes gazetted undersection 9(1) of the B-BBEE Act by end October 2015. Failure to align by the sector code will result inthe old sector code being repealed.

Empowering Supplier StatusAll current valid BEE certificates will be valid for the next 12 months (1 May 2015 to 30 April 2016)and will be deemed as being Empowering Suppliers. All Exempt Micro Enterprises certificatesissued without Empowering Supplier status will be automatically deemed to be EmpoweringSupplier for the next 12 months.

Ownership SchemesThe DTI also included a paragraph which was not submitted for public commentregarding Broad-Based Ownership Schemes (BBOS) and Employee Ownership Schemes(EOS), indicating that such schemes can only be scored under paragraph 2.2.3 of theownership scorecard (effectively limiting the contribution to ownership points of suchschemes to 3 points out of 25 with a target of 3%).

DTI May 2015 Gazette Notices.

Ownership SchemesThe implication of the amended ownership element of the codes, is significant and givesrise to concern.

It will have several consequences as follows:

5.1.1. Almost all large companies included BBOS, EE schemes and individuals as part oftheir ownership deals; they will in future lose recognition for new transactions for valuecreated in these schemes but they they will not have to restructure their current deals or“top them up” as it only applies to deals done after 1 May 2015.

5.1.2. Employees will no longer be included in future ownership deals for BEE purposes.

5.1.3. Several investment companies, including ANC (Chancellor House) will not qualify asa Black Owned investor as it is structured as a BBOS in future deals.

5.1.4. NGO’s who rely on BBOS as a source of income will in future no longer be able toparticipate and it will limit their available funding.

Empowering Supplier Concept.

Job Creation

Skills Transfer

Beneficiation

Cost Sales(Procurement)

85% Salariespaid to South

Africans(Services)

Empowering Supplier Concept.

All 25 points for procurement require that the suppliers are EmpoweringSuppliers.

For B2B Procurement the B-BBEE Status level of the business will therefore meannothing unless it is also an Empowering Supplier.

Definition: Empowering Supplier

"B-BBEE compliant entity, which is a good citizen South African entity, comply with all regulatory requirements of thecountry and should meet at least three if it is a large enterprise or one if it is a QSE of the following criteria:

(a) At least 25% of cost of sales excluding labour cost and depreciation must be procured from local producers orlocal suppliers in SA, for service industry labour cost are included but capped at 15%.

(b) Job creation – 50% of jobs created are for Black People provided that the number of black employees since theimmediate prior verified B-BBEE Measurement is maintained.

(c) At least 25% transformation of raw material/beneficiation which include local manufacturing, production and/orassembly, and/or packaging.

(d) Skills transfer – at least spend 12 days per annum of productivity deployed in assisting black EMEs and QSEsbeneficiaries to increase their operation or financial capacity.”

All EME's automatically qualify as an Empowering Suppliers.

Economically Active Population Profile

- Management control and Skills Development to align withNational/Provincial EAP Profile

Thank you for your time.A Merck Presentation