Short Notes on:
ENTERPRISE AND SUPPLIER DEVELOPMENT UNDER THE BBBEE CODES
In the previous editions we dealt with the other two elements of the revised Broad-Based Black
Economic Empowerment (BBBEE) Codes (Codes), namely Ownership and Management and
Control. In this edition we deal with the so-called “new” element of the Codes: Enterprise and
Supplier Development (“ESD”).
ESD is not really a “new” element, but simply a merger between Preferential Procurement and also
Enterprise Development. The new element ESD is a simple combination of both elements. The
two previously were worth 35 points. This has now increased to 44 points (including the bonus
points). Without the bonus points, the new scorecard has 105 points and ESD accounts for 40 of
those points. No other element has as many points.
Measured enterprises are now required to spend 2% of their net profit after tax annually on
supplier development and a further 1% of the net profit after tax on enterprise development and
sector specific programmes. These two categories together make up the 15 points that was
previously attainable under Enterprise Development.
This element is also a “priority element, therefore the minimum threshold requirement ESD to be
met, so as to ensure that the discounting of BEE level status does not apply, is that the measured
entity must achieve a minimum of 40% on three of the specific sub-categories on this scorecard.
The element has three sub-categories namely, Preferential Procurement, Supplier Development
and Enterprise Development.
Preferential Procurement (25 + 2 Bonus Points)

Suppliers to a measured entity will now need to be an empowering supplier in order for that
supplier to contribute toward the measured entities Preferential Procurement score. An
“Empowering Supplier” refers to a category of persons who contribute to procurement score.

Exempt Micro Enterprises (“EMEs”) and Start-Up enterprises automatically qualify as
empowering suppliers.
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
Greater value in points for spending with Black Owned and Black Women Owned empowering
suppliers.

Enhanced recognition for spending with first time suppliers and Black Qualifying Small
Enterprises (“QSEs”) / EME’s or Supplier Development beneficiaries that are tied in with a 3
year contract

Imports are an allowable exclusion provided certain criteria are met.

Bonus points awarded for spend with suppliers that are owned by designated groups that are at
least 51% Black Owned.
Supplier Development (10 Points) and Enterprise Development (5 Points):

Beneficiaries of Supplier Development and Enterprise Development can only be EME’s or
QSE’s that are at least 51% black owned.

Measured entities are encouraged to develop and implement a supplier development plan.

Enterprise Development contributions in the form of shorter payment period limited to a
maximum of 15% of the invoice amount and 1.5 of the 10 points

2 bonus points are available for creating jobs through Supplier Development and Enterprise
Development initaitives.
ESD is primarily aimed at ensuring that big companies, as far as it is possible, procure their goods
and services from black-owned and managed businesses. Enterprise Development was always
aimed at ensuring that big companies not only procure from small black-owned businesses, but
also assist them to grow their businesses so that they can play a meaningful role in the economy.
One of the indicators on ESD element is for a company to spend at least 40% of its procurement
from empowering suppliers that are at least 51% black owned. It goes without saying that a
number of companies will need to start identifying black businesses who can supply them with
goods and services in order for those companies to score as many points as possible under this
element. Similarly, the increased need for black businesses that can supply goods and services
presents a wonderful opportunity for black entrepreneurs to position themselves so as to benefit
from the revised Codes.
Done properly, ESD is designed to ensure that the economy is as inclusive as possible by
ensuring that procurement spending is directed at promoting skills development and job creation. It
is a well-known fact that small businesses, particularly black-owned businesses, including a lack of
© Mzo Tshaka | Schoeman Tshaka Attorneys 2014
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track record, which big companies often insist on before they can engage the services of the small
business. Similarly, funding can also be an issue, making it difficult for the small businesses to
deliver on the orders placed by companies.
In order to effectively assist these small black owned companies and the economy as whole, big
companies need to take an all-inclusive approach that is deliberately aimed at ensuring growth
whilst also providing skills transfer, helping to achieve sustainability, skills development,
employment and job creation. There are various ways in which this can be achieved, for example:
the big companies can outsource some of their own competencies to small black owned
businesses; giving them access to the long-term business contracts they need to grow; mentoring
and general support, financial and otherwise.
Other strategies that have been proposed and used elsewhere include the giving of preferential
payment terms, enabling them to manage cash flow and not having to wait the usual 30-60,
sometimes even 90, days for payment. Small suppliers can also be given advice and access to
knowledge in areas where they may be lacking, such as sales, procurement and legal. Financial
support can be used to incubate small suppliers, ensuring that skills gaps within these businesses
are addressed, and enable the management teams to gain the right tools and knowledge to
become successful.
Conclusion
Ultimately creating a sustainable and economically sound future for South Africa is of benefit to
every business in the country, and should form part of responsible business strategy. ESD goes
beyond the traditional corporate social investment where companies typically just pumped money
in a black owned enterprise without really considering the effects of that investment in that entity.
© Mzo Tshaka | Schoeman Tshaka Attorneys 2014
t +27 (0) 21 425 5604 f +27 (0) 21 421 8913 e [email protected] w www.schoemanlaw.co.za