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Changes to BBBEE codes not conducive to growth of SMEs

Efforts to broaden the broad-based black economic empowerment (BBBEE) base could have a negative impact on small enterprises - including black-owned businesses - and limit opportunities for growth and jobs.
Proposed changes to the BBBEE Codes of Good Practice introduce stringent targets for qualifying small enterprises. Small businesses could drop two places in their ratings if they fail to meet minimum requirements.

"This will restrict their opportunities to obtain contracts that could boost their businesses and help drive employment," says Sandra Burmeister, CEO of the Landelahni Recruitment Group. In addition, under the new codes, 100% black-owned businesses are automatically granted level one BBBEE status. "This implies that they do not need to adhere to the other provisions of the codes."

Pool to bid for tenders is limited

"It prejudices 51% or higher black-owned and controlled companies, limiting the pool available to bid for government and corporate tenders. Unless the same recognition is given to all companies with majority black shareholding and management, the codes will mitigate the intention of BBBEE to engage as many black South Africans as possible in the economy."

On the positive side, the new codes have increased the revenue threshold for small enterprises to between R10 and R50 million a year. "This is a step in the right direction," says Burmeister. "However, it would be more realistic to raise the revenue threshold to between R25 and R75 million so as to encompass medium as well as small enterprises. It is acknowledged globally that small and medium enterprises (SMEs) are the engine of growth and employment and this would assist them in realising their full value.

Minimising regulations a pre-condition

"The challenge of how best to develop small businesses is not uniquely South African. Across the globe there is growing consensus that minimising regulations is a necessary pre-condition. The complexity of the new codes, and the onerous and costly process of achieving compliance is therefore a concern. The codes are, unfortunately, just another piece of legislation in a long line of regulation that does not assist small business," she continues.

"We hear a lot about government support for SMEs, and it is one of the objectives of the New Growth Path, but there is no integrated policy in place. We need a legislative framework that is conducive to the growth of small enterprise."

Research by UHY International indicates that the rate of new business start-ups is 40 times faster in BRIC nations (Brazil, Russia, India and China) than in other countries. BRIC nations are creating 18% new business each year, compared to less than 0.4% elsewhere.

Russia grows the fastest

"Surprisingly, the fastest increase is in Russia - not renowned for its liberal environment - which has seen a 25% annual increase in the rate of new business creation over the past five years," says Burmeister. "Nearly 3.2 million new businesses were registered in Russia in 2010 alone. India, where government has put immense resources into developing SMEs, is another success story. Today, SMEs contribute close to 50% of industrial output and between 50-60% of exports."

The National Treasury 2011 Budget Review shows that South African companies with fewer than 50 workers contribute about 70% of private employment and create 80% of all new jobs. "If this country can generate 100 000 new firms in the next decade, each employing 50 people, we will achieve government's target of five million new jobs. With an SME-friendly policy framework that integrates all our legislation, including BBBEE - this goal is surely within our grasp. That will demonstrate real economic empowerment," says Burmeister.

The proposed changes to the BBBEE Codes of Good Practice are on the Department of Trade and Industry's website and open for public comment until 2 December 2012.