“Contrary to what Rob Davies has been saying to what President Zuma has been saying, the details certainly show that what’s been incentivised is narrow-based economic empowerment rather than broad-based black economic empowerment,” Safiyya Patel, partner at Webber Wentzel, told CNBC Africa.
Companies will be granted a one year transitional period to align with and prepare for the implementation of the revised broad-based Black Economic Empowerment (B-BBEE) codes of good practice, which were gazetted last week.
“In the detail of the scorecard, the ownership scorecard in particular, the existing codes provide that 10 per cent of black ownership should go to broad-based ownership schemes to optimise scores under the ownership scorecard,” Patel explained.
“The new codes say that that must be three per cent. Suddenly the incentive becomes much less to include broad-based schemes.”
She added that another significant change is the fact that under the new codes, new black entrants are defined as those that have not concluded Black economic Empowerment (BEE) transactions of more than 50 million rand. The existing codes for this particular category are already set at 20 million rand, which is significantly high nonetheless.
“Suddenly the net for new entrants increases vastly, and people that have already benefitted sufficiently under the existing regime, many now still benefit under the new regime,” said Patel.
She added that elements in the new codes of good practice would begin to greatly limit new players, as well as existing ones that are attempting to grow. Broad-based community schemes will also have a difficult time benefitting as well.
“I don’t think that the broad-based community ownerships schemes are likely to benefit, although those should be the ones that should benefit. I don’t think employee ownership schemes are the beneficiaries of this new scheme. I think it’s back to the usual suspects,” said Patel.
Charities related to BEE policy could also be negatively affected due to its more stringent requirements, which would by certain elements in the new codes of good practice. This is due to more stringent requirements, and administrative costs would subsequently increase.
“Some people may argue that it’s better corporate governance, but certainly it would be higher compliance costs for them. Certain interests had to come through in these new codes and that’s exactly what’s happened. There were certain interests and lobby groups whose interests have come through quite clearly in these new codes,” said Patel.