Graduating an Enterprise Development Beneficiary to a Supplier Development Beneficiary

Reference documents:

B-BBEE Act, 2013 and as amended
Amended Codes of Good Practice, 2013

In this article we explain how two bonus points could be achieved by a Measured Entity when successfully aligning Enterprise Development and Supplier Development initiatives with their supply chain requirements.

First, some background information.

Requirements & identification of suitable beneficiaries

Enterprise Development (ED) and Supplier Development (SD) is one of the three Priority Elements of the Broad-Based Black Economic Empowerment (B-BBEE) Scorecard. An entity is required to achieve a 40% sub-minimum of each of the categories on the ED and SD Scorecard (excluding bonus points). SD 4 points out of 10 points and ED 2 points out of 5 points. Failure to comply with the 40% sub-minimum leads to a drop of one level on the B-BBEE scorecard. An Entity may make monetary or non-monetary contributions to a Beneficiary Entity. The requirements may differ if a company is subject to verification based on a specific Sector Code.

The ED and SD Beneficiaries must meet the following criteria:

The beneficiary is required to be at least 51% black owned.
The beneficiary must be an Exempt Micro Enterprise (EME Turnover under R10 million) or a Qualifying Small Enterprise (QSE); typical turnover is less than R50 million but subject to the specific Sector Code.

What is the difference between Enterprise and Supplier Development?

SD contributions are made to entities that already form part of the Measured Entity’s (ME) current supplier chain. ED contributions are made to entities that are not part of the ME supplier chain.

Section 4.9 of Statement 400 in the Amended Codes of Good Practice encourages organisations to align their Enterprise Development and Supplier Development initiatives with their supply chain requirements.

In return, successful alignment of these three sub-elements will allow an organisation to qualify for two Bonus Points under Enterprise & Supplier Development. These apply to all scorecards, namely Large Enterprises, QSEs and Specialised Enterprises.

The scorecard requirements are as follows:

Bonus Points

For graduation of one or more Enterprise Development Beneficiaries to Supplier Development. 1 point For creating one or more jobs directly as a result of Enterprise Development and Supplier Development initiatives by a Measured Entity. 1 point

The gazette allows for an active Enterprise Development Beneficiary that is an EME or QSE to continue as a Beneficiary when their annual turnover increases to elevate them to the Large Enterprise threshold. NOTE: an organisation may not support a Large Enterprise as an Enterprise Development Beneficiary unless they previously supported that Beneficiary when they were a QSE or EME and such recognition for those measured on the generic scorecard is for five years only from the first instance assistance was provided.

The introduction of this clause is a positive one as historically a QSE benefiting from being an Enterprise Development Beneficiary that went over the R50m threshold could no longer be a Beneficiary. Thus the support that assisted them in increasing their annual revenue was gone.

The practical implication of this is that if an organisation supports a 51% black owned EME, QSE or Large Enterprise as part of their Enterprise Development initiative, the organisation will be entitled to the Bonus Points on offer.

Further Bonus Points are available when an organisation incorporates an Enterprise Development Beneficiary into its supply chain by procuring from them. This would elevate them to Supplier Development status and not to that of a Supplier Development Beneficiary. NOTE: an Enterprise Development Beneficiary does not form part of an organisation’s supply chain, but a Supplier Development Beneficiary does.

To qualify for the Bonus Points on offer, an organisation must provide evidence that an Enterprise Development Beneficiary did not form part of its supply chain before becoming a Beneficiary.

Documentation required by the Verification Agency to evidence contributions for ED and SD:

The following documentation is required to evidence ED and SD contributions:

An ED or SD agreement between the ME and the ED or SD Beneficiary.
A letter from the ED or SD Beneficiary confirming the value and nature of the assistance received from the ME. Sworn EME Affidavit of the ED or SD Beneficiary or Sworn QSE Affidavit of the ED or SD Beneficiary.
A copy of the identity document of the owner of the ED or SD Beneficiary.
Proof of the contribution to the ED or SD Beneficiary, evidencing the support given (e.g. invoice and proof of payment of contribution)
Supplier invoice from the SD Beneficiary and proof of payment of items purchased (Required for SD only).

Types of contributions that the measured entity (ME) can make to ED or SD Beneficiaries

Below are the most common types of contributions that ME’s make to ED or SD Beneficiaries.

Grant Contribution
Direct costs incurred by the ME on behalf of the Beneficiary Entity, for example the purchase of a computer for the Beneficiary Entity.
Discounts in addition to normal business practice. Professional services rendered by the ME to the Beneficiary Entity at no cost. Overhead costs incurred by the ME on behalf of the Beneficiary Entity, for example providing free rental space to the Beneficiary Entity.
Loans on favourable terms.

Author Craig Tonkin

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