Caird Code Rule #1 – Is BEE applicable to you

A while ago I was doing a presentation to the American Chamber of Commerce on Equity Equivalents. One of the delegates was an apparel manufacturer who asked my why his company should consider the programme I was proposing. I was a little surprised that such a company would even consider equity equivalents as an option. Why would they need to, they sell takkies, T shirts and caps. Every single one of their products are sold to a consumer who is very unlikely to use BEE status in their decision to buy their product. Edgars etc might ask them for their BEE status but I have my gravest doubts that they will not stock those products in their stores because that company does not comply with their BEE wishes. And it is also unlikely that Edgars will incentivise their sales staff to push a local product over the imported one. Can you imagine the conversation

Consumer: I'd like to try on these Adidas shoes.

Sales assistant: Please sir would you consider these Dlaminis. They are locally manufactured and Edgars will get more BEE points if we sell these.

Consumer: No I will not you horrid sales assistant you. I'm off to Sportsman's Warehouse.

This fictitious interaction exposes the deepest flaw in the implementation of BEE viz if the average joe is the end user then BEE is not going to be very important. This means that BEE can really only be applicable when the consumer is some sort of a corporate or government entity.

The general rule here is that if your business caters for consumers then it is unlikely that BEE will ever affect you. This would include restaurants (that don't serve alcohol), shoe shops, clothes shops, plumbers, electricians, pool companies, record shops, news agents, retail jewellers. As with any rule there are exceptions.

1. Any restaurant, hotel, pub or anything that serves alcohol requires a liquor licence. And those licenses are handed out by the DTI. And the DTI asks a bunch of BEE questions in allocating these licenses. I have written countless BEE plans for liquors wholesalers and retailers that have to be submitted with each renewal.
2. Shops looking to rent in malls that are owned by parastatals like Transnet or Eskom. I have heard that your BEE status is important to these types. ACSA is another example – the annual tender for renewals for shops in the airports require BEE credentials. I don't know who drafted those BEE questionnaires but they are so badly written they are an embarrassment (mind you so is ACSA). I haven't come across private property owners asking for BEE credentials.
3. Manufacturing jewellers have to comply with the Mineral and Petroleum Resources Development Act of 2002, (MPRDA). The requirements for this are exactly the same as those for a mining licence. I won't comment on this right now but suffice to say – this abomination requires its own future post.
4. Anything that can be used under section 10 of the BEE Act. I haven't really seen this being used, although I have worked on PPPs where the legal advisors have anticipated it in the PPP agreement. The DTI has taken a cautious path when it comes to section 10 because I believe that they recognise that over-regulation will stifle the development of the South African economy (as if we aren't over-regulated already). Technically speaking they could shove section 10 in the way of almost everything to achieve the BEE Act's transformation goals.

What about those entities that think they might need a BEE scorecard but don't

Charities and other section 21 companies that are looking for SED money

Paragraph 5 of Code 000, statement 004 states very clearly that their BEE status is not a consideration in determining whether they will be beneficiaries of SED contributions

The status of Socio-Economic Development Contributions made to any of the types of entities in paragraphs 1 and 2 under Code series 700 is not dependent on such entity's scorecard result, but rather the nature of the contribution itself and the identity of that contribution's beneficiaries.

There are some NGOs/section 21s who provide certain types of services to corporates to raise money for their core activity. Under these circumstances they become a supplier to that corporate and might be required to produce a specialised enterprises BEE scorecard (statement 004).

Entities or companies providing enterprise development services

Now this is a very common occurrence. There are many private companies providing these services, Endeavor, Raizcorp and ED Alliances are three that I know rather well. This practice is contemplated by code 600, paragraph 3.2.5.12

payments made by the Measured Entity to third parties to perform enterprise development on the Measured Entity's behalf

However it does not appear that these companies actually need to produce a BEE scorecard to provide ED services. One of the exclusions under Code 500 (Preferential Procurement) is empowerment related procurement – more specifically (paragraph 6.5.2)

investments, loans or donations qualifying for recognition under any statement under Code series 600 or 700

This means that the expenditure is excluded and hence a BEE scorecard is not needed.