Broad-based black economic empowerment (B-BBEE) is a policy and legislative framework which seeks to redress the historic economic inequalities created primarily as a result of the implementation of apartheid in South Africa. The principal law governing B-BBEE in South Africa is the Broad-Based Black Economic Empowerment Act, No 53 of 2003 ("B-BBEE Act") and the regulations promulgated thereunder ("B-BBEE Regulations").
The objectives of B-BBEE Act
The principle objectives of the B-BBEE Act are to promote economic transformation and enable meaningful participation of black people in the South African economy, through increased participation in ownership and management structures, increasing the involvement of communities and employees in economic activities and skills training.
The B-BBEE Act defines "black people" as a generic term which means Africans, Coloureds and Indians (i) who are citizens of South Africa by birth or descent; or (ii) who became citizens of South Africa by naturalization before 27 April 1994; or (iii) who became citizens of South Africa by naturalization on or after 27 April 1994 and who would have been entitled to acquire citizenship by naturalization prior to that date.
The requirements of the B-BBEE Act
The B-BBEE Act seeks to increase the participation of black people in the South African economy by:
- Requiring that every organ of state and public entity must apply any relevant code of good practice issued in terms of the B-BBEE Act when, amongst other things, determining the qualification criteria for the issuing of licenses, permits or other authorizations, when determining their procurement policies and when developing criteria for entering into partnerships with the private sector.
- Enabling the Minister of Trade, Industry and Competition to gazette codes of good practice to regulate the measurement of B-BBEE.
The B-BBEE Codes
The B-BBEE Codes define the key terms and concepts relating to B-BBEE, specify the elements against which an enterprise will be measured to determine its B-BBEE compliance rating and the methods for measuring each element.
In addition to the B-BBEE Act and the B-BBEE Codes, there are a number of sector specific codes of good practice, which have been promulgated and find application in specific sectors, such as the Information and Communication Technology (ICT) Sector Codes which finds application in the ICT sector and the Financial Services Sector Codes which applies to the financial services sector.
Impact on the private sector
While neither the B-BBEE Act nor the B-BBEE Codes places a direct legal obligation on private sector participants in South Africa to comply with B-BBEE policy, the effect of placing an obligation on organs of state and public entities to apply the B-BBEE codes of good practice in relation to procurement and the issuing of licenses or authorizations is that the private sector faces indirect legislative, and often times direct commercial, pressure to maintain high levels of B-BBEE compliance.
The extent of B-BBEE compliance is measured in terms of a scoring system set out in the B-BBEE Codes and sector codes. A major factor in ensuring that a measured entity has very good levels of B-BBEE compliance is the extent of its own procurement of goods and services from other B-BBEE-compliant entities.
The result is that private sector businesses that are not directly dependent on the state for business are still likely to face commercial pressure from their private sector customers to have high B-BBEE compliance levels, and will do so in order to remain competitive in the South African market.
Impact on foreign entities
Foreign entities that conduct business in South Africa through a branch office or a subsidiary, are subject to the B-BBEE Act and the requirements of their businesses may result in a need to be B-BBEE compliant. The B-BBEE Codes have also introduced additional ownership structuring options for multinationals.
The B-BBEE Commission
The B-BBEE Commission is the regulatory body tasked with overseeing, supervising and promoting adherence to the B-BBEE Act. The B-BBEE Commission exercises the functions assigned to it in terms of the B-BBEE Act and any other directives issued by the Minister of Trade, Industry and Competition.
Notwithstanding that measured entities obtain their B-BBEE levels through the scoring mechanism discussed in this guidebook, legal input is generally required in relation to B-BBEE ownership structures and general legal compliance and risk management, to ensure compliance with the B-BBEE Act.