Enhanced Recognition WHAT DOES IT MEAN?

According to the Generic Codes of Good Practice (Codes), a

Qualifying Small Enterprise (QSE) is an organisation with an annual

turnover of between R10m and R50m. However, there are two

categories for QSEs based on the ownership structure.

A QSE that has:

> Less than 51% ‘Black’ Ownership must be measured

against the QSE Scorecard by a SANAS accredited

B-BBEE Rating Agency.

> More than 51% ‘Black’ Ownership can claim Enhanced

Recognition, thus only has to confirm its Ownership and the

annual financial total revenue in an Affidavit.

There are only two Status Level categories a QSE with Enhanced

Recognition can fall under:

> At least 51% ‘Black’ Ownership equates to a Status Level 2

with a corresponding Preferential Procurement Recognition

level of 125%.

> 100% ‘Black’ Ownership equates to a Status Level 1, with

a corresponding Preferential Procurement Recognition

level of 135%.

It is, therefore, understood that a QSE with Enhanced Recognition

does have leverage over its counterparts that have less than 51%

‘Black’ Ownership. Consequently, a QSE with Enhanced Recognition

must qualify to claim this status. B-BBEE Credentials in the form of

an Affidavit confirm that a QSE with Enhanced Recognition is indeed

entitled to claim this status. The information captured in an Affidavit

confirms its annual turnover and Ownership status by applying the

‘Flow-Through’ Principle (FTP).

> Confirming annual total revenue

The latest financials produced by QSEs confirm whether or not

they qualify to be measured under this threshold.

> Confirming Ownership

Confirming Ownership against the scorecard is not always cut

and dry when applying the FTP. It was introduced to trace and

measure the chain of Ownership until it ultimately ends in the

hands of a ’Black’ natural person. It traces ‘Black’ Participants

that own a business through the shareholding in another

business. It essentially identifies the overall percentage of ‘Black’

Ownership through a chain of Ownership. To mitigate any

risk, a B-BBEE Rating Agency may require further evidence to

substantiate that the FTP has been correctly applied.

The FTP concept was introduced to encourage organisations to

change their procurement patterns and focus on procuring from

‘Black’-owned businesses with more than 51% ‘Black’ Ownership.

Apart from the favourable Preferential Procurement Recognition, an

organisation can apply a 1.2 multiplier for every Rand spent. It means

that for every R100,00 paid on an invoice, R120.00 can be claimed in

Procurement Recognition.

Other benefits for QSEs with Enhanced Recognition

A QSE with Enhanced Recognition qualifies as an Enterprise

Development and Supplier Development Beneficiary. By design,

QSE’s with less than 51% ‘Black’ Ownership and Large Enterprises

are encouraged to engage with QSEs with Enhanced Recognition to

earn points on their scorecard.

All sub-elements of Enterprise & Supplier Development, namely

Preferential Procurement, Enterprise Development and Supplier

Development, play a part in Large Enterprises and QSEs with less

than 51% ‘Black’ Ownership meeting their scorecard requirements.

The core aim is to encourage larger businesses to grow the footprint

of smaller ones over a given financial period.

A QSE with Enhanced Recognition is in a position to receive the

following assistance from a Large Enterprise or QSE with less than

51% ‘Black’ Ownership:

> Direct cost related to a specific cost object, such as stock

purchases.

> Overhead costs – those associated with the day-to-day

operations of a Beneficiary.

> Discounts.

> Loans and related costs:

o Interest-free loan;

o Standard loan;

o Guarantees on behalf of the QSE with Enhanced

Recognition; and

o Loans at lower interest rates.

> Equity Investments: o Minority investments; and o Investments with a lower dividend to the financier. > Human Resource Contributions: o Professional Services rendered at no cost to QSEs with Enhanced Recognition; o Professional Services rendered at a discounted rate to QSEs with Enhanced Recognition; and o Time spent by employees of a QSE with less than 51% ‘Black’ Ownership productively assisting a QSE with Enhanced Recognition. > Shorter payment terms for Supplier Development Beneficiaries.

Enhanced Recognition Sector Codes

Construction Sector Code

The financial threshold for a QSE with Enhanced Recognition per

annum is between R6m and R25m

Full points, excluding the Bonus Points for Skills Development as

per paragraphs 1.1, 1.2 and 1.3 of Statement CSC603. A QSE with

Enhanced Recognition must achieve:

> 40% of the Skills Development Scorecard target to avoid the

application of the Discounting Principle;

> Or meet the requirement of Supplier Development, which

features in paragraphs 1.1, 1.2, 1.3 and 2.1 of CSC604.

Tourism Sector Code

The financial threshold for a QSE with Enhanced Recognition per

annum is between R5m and R45m per annum.

Transport Sector Code

The amendments to this sector code do not align with the 2019

amendments to the Codes; therefore, it does not recognise

Enhanced Recognition. In conclusion, over the past few years, I have seen many fake

Affidavits and ones not signed by a Commissioner of Oaths on

the same day, which renders them invalid. Affidavits as B-BBEE

Credentials are here to stay and must be taken at face value unless

there are apparent discrepancies. As a SANAS accredited B-BBEE

Rating Agency, we have to mitigate risk continuously. The

Affidavits can pose a huge risk to the verification process.

Enhanced Recognition is a huge advantage for smaller businesses

and may contribute to their growth. However, with no regulator for

Affidavits, the onus is on the owner, member or director signing

the Affidavit to be truthful.