In terms of B-BBEE the consolidation of the Preferential Procurement (PP) and Enterprise Development (ED) elements of the scorecard to create a single element called Enterprise Supplier Development (ESD) is a strategic move by government to facilitate and support national development goals. The overall objective is to strengthen the capacity and capabilities of black-owned enterprises in order for them to be integrated into the mainstream supply chain of larger corporates and ensure symbiotic relations. The end result is the creation of more effective black-owned enterprises that strengthen local procurement and a more inclusive and representative South African economy.
The new B-BBEE codes are not a complete shift from Enterprise Development (ED) to Supplier Development (SD), but rather more of redirecting to a new focus to address the apparent challenges. Where ED entailed the signing of monetary contributions usually without any meaningful non-financial support to assist beneficiaries to grow and thrive, ESD intends to help companies focus on their supply chains as an alternative to doing generic ED projects. This will result in streamlining to achieve both core and non-core strategic objectives, as well as promote sustainable businesses that are able to provide more jobs to achieve the 5 million national target by 2020.
The government hopes to encourage collective economic activism to ensure that meaningful black capacity is created using the revised B- BBEE amendment Act and Codes to deepen implementation and enforcement. To ensure tangible results in terms of valued added local manufacturing and the objectives of the B-BBEE strategy, ESD will be calculated and measured as follows on the scorecard…
Preferential Procurement (25 + Bonus Point):
- Value Added Supplier (VAS) has been replaced with “Empowering Supplier” status;
- All suppliers to a measured entity must qualify as an “Empowering Supplier” in order to contribute toward the measured entity’s Preferential Procurement score;
- Exempt Micro Enterprises (EMEs) and Start-Up Enterprises automatically qualify as “Empowering Suppliers”;
- Separate categories and points for spending with Black-owned and Black women owned “Empowering Suppliers” have been introduced;
- Enhanced recognition for spending with First Time Suppliers and Black QSE/EME’s or Supplier Development beneficiaries that are tied in with a 3 year contract;
- Number of imports that can be excluded has been limited, but provision is still made for some that meet a set certain criteria;
- Bonus points are available for spend with suppliers that are 51% owned by black designated groups;
- No mentioned is made of Black Professional Service Providers (I hope this was an oversight and it will be returned in phase 2 of the codes).
Supplier Development and Enterprise Development (15 Points + Bonus Points):
- Beneficiaries of Supplier Development (SD) and Enterprise Development (ED) can only be EME’s or QSE’s that are at least 51% black or black-female owned;
- Enhanced recognition for Category A beneficiaries is not mentioned (hopefully another oversight that will be addressed in Phase 2);
- Cumulative contributions are still recognised, but limited to 3 years;
- Measured entities are encouraged to develop and implement a supplier development plan that includes clear objectives, priority interventions, key performance indicators and a concise implementation plan with clearly articulated milestones;
- Enterprise Development contributions in the form of shorter payment period is limited to a maximum of 15% of the invoice amount and 1.5 of the 10 points;
- 2 Bonus points are available for migrating an ED to a SD beneficiary and for creating jobs through ED/SD initiatives;
- Qualifying ESD contributions of any measured entity are recognised on an annual basis.
- For ESD contributions programmes or initiatives that span over multiple years, the total contribution amount must be divided by the number of years and the average per year is then to be utilised for the annual contribution.
It is important to note that ESD is a “Priority Element” and has a 40% minimum threshold on all three categories i.e. Preferential Procurement, Supplier Development and Enterprise Development. Failure to achieve this minimum threshold will result in the overall achieved B-BBEE level being discounted.
ESD is also important because it is linked to the qualifying criterion for an “Empowering Supplier” i.e. companies must spend 12 days /96 working hours per annum productively deployed in up skilling their EME or QSE beneficiaries to increase their operationally or financially capacity (This can be outsourced to a 3rd party).
I can help you maximise your score for ESD and qualify as an “Empowering Supplier” at the same time. For Expert assistance call me on 073 880 2947.