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Companies face BEE rating decrease: KPMG

KPMG survey shows BEE goals partially met and probes effects of revised codes.


Responses from survey participants reveal a year-on-year decrease in the average Broad-based Black Economic Empowerment (B-BBEE) score, in comparison to 2012. This is according to the recent findings of the annual 2013 KPMG BEE Survey.


The survey indicates that the average score obtained for 2013 was 52.53, when compared to the previous year’s score of 63.95 - resulting in a general drop in the BEE status level from level 5 to level 6 BEE contributor.


The decline can be explained by a few factors. Preferential Procurement has decreased by 2.79, Enterprise Development by 2.09 and Ownership by 1.98.


Management Control has also dipped from an average of 4.87 obtained in the 2012 results, to 4.28 in 2013. Similarly, Socio-economic Development fell from 4.92 points in 2012 to 3.75 points in 2013.


“Standardisation of the verification process is important to ensure consistent application and interpretation of code by verification agents. South African companies must review their transformation strategy if they are to achieve the goals of BEE - up-skilling and employment of black people, and the increased development of and procurement from black businesses,” says Boitumelo Ngutshane, Director, KPMG BEE Advisory. “The survey results support the compelling case for Revised Codes”.


Scores in comparison to the Revised Codes:

The KPMG Survey, now its 8th year, also investigated how organisations are likely to perform against the Revised Codes of Good Practice, which are intended to tighten compliance, and will be effective for all ratings from May 2015. The Revised Codes introduce three priority elements: Ownership, Skills Development and, Supplier and Enterprise Development; and minimum thresholds.


In response to the question “how companies will fair against the Revised Codes?” on the three priority elements, companies achieved: 44 percent against the target point of Ownership, 25 percent against Supplier and Enterprise Development, and 35 percent against Skills Development.


“This implies that most companies would be at risk of being discounted a level as the sub-minimum for Skills Development and Supplier and Enterprise development are not achieved,” says Ngutshane.


Entities need to achieve at least 40 percent of set targets for each of the elements.


The Revised Codes were gazetted in October 2013, in order to address the shortcomings in BEE compliance. “The revisions also bring about many positive changes. Companies with turnover below R10 million are now exempt from BEE provisions. Unemployed people are included as part of Skills Development initiatives – and companies will now be able to earn points from training individuals outside their organisations. New Enterprise Development criteria encourages entrepreneurship and innovation,” explains Ngutshane.


“One of the major advantages of the new codes is that the Supplier Enterprise Development element requires suppliers of services and products to ‘mentor’ smaller companies, including competitors in some instances. This means companies will need to be more innovative - without compromising on intellectual property - to comply or face a discounting of their rating,” says Ngutshane.


Reaction to the Revised Codes:

When asked what impact the Revised Codes will have on their BEE score, 75 percent of respondents indicated they anticipate a decrease in their rating, which is consistent with expectations in the face of increased requirements.


The survey reveals that 81 percent of respondents have taken measures to prepare for the new codes. The presentation of the survey, and Revised Codes coincide with the country’s ‘coming of age’ - the 20th anniversary of democracy. “The results suggest that the next 20 years in business will be even more crucial to redressing moral, social and financial inequalities,” believes Ngutshane. 


Find the full survey on www.kpmg.co.za.


About the KPMG BEE Survey:

The KPMG BEE Survey has been investigating the advancement of Black Economic Empowerment (BEE) in South Africa annually since 2006. Now in its in 8th year, the 2013 survey was sent to over 2 000 organisations operating across varying industries: state-owned companies, retail, mining, financial services, construction, pharmaceutical, ICT, manufacturing and property. These corporations are either JSE-listed, unlisted or state-owned enterprises.


The criteria employed in the survey measure respondents’ B-BBEE contributions by the 2006 and 2007– dti Codes of Good Practice and the 2013 Revised Codes of Good Practice; and 2008 to 2013– dti Codes of Good Practice, Industry Sector Codes and Charters.


This enables yearly comparisons to be drawn in the results obtained from 2006 to 2012, and beyond.

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