BEE: the do’s, the don’ts and the maybe’s

The five-year process of drafting the AgriBEE Charter is nearing completion and it could be finalised and gazetted in the next three months. Wilma den Hartigh asked Tobias Doyer, CEO of the Agricultural Business Chamber, to clarify a few uncertainties about BEE in agriculture and explain how farmers can make it work for them.

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There is a lot of confusion around AgriBEE . Who should comply with BEE requirements?
All businesses, black- or white-owned, will be affected by BEE legislation. The generic Codes of Good Practice were published in February 2007 and must be implemented in all businesses by February 2008. Only businesses below the annual turnover threshold of R5 million, or industries with their own codes such as mining, are exempt.

Will specific codes for agriculture be published, and what do farmers have to comply with – the Codes of Good Practice published in the Government Gazette earlier this year or the new AgriBEE Charter?
One must distinguish between a charter and a code. Currently, agriculture wants to publish a charter, which is a political statement of intent by all parties involved. Even if agriculture publishes a charter, it must still comply with the generic Codes of Good Practice. Agriculture will only be exempt from complying with generic codes if we publish our own codes.

Will agriculture publish its own codes?
This may or may not happen. To avoid confusion, the Department of Trade and Industry does not allow substantial deviations from the generic codes. Any deviation must be well motivated. Agriculture has unique realities such as the land issue, and their BEE codes should constitute an agreement of cooperation between government and business on the land issue. To date this has proved very challenging. When the agriculturespecific codes (not charter) are published, farmers will have to comply with these instead of the generic national codes.

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Explain the annual turnover threshold.
The generic Codes of Good Practice were originally designed for big corporate businesses, therefore the first draft did not apply to all businesses. This created the need for a different regime for small and microbusinesses. Large businesses have to comply with all the requirements, while small businesses can choose which requirements to comply with to a certain extent. A business with R35 million or more annual turnover is classified as a large business. A business with a turnover between R5 million and R35 million is a small business. Any business with a turnover lower than R5 million is a microenterprise and exempt from compliance.

Will businesses with a turnover of more than R35 million therefore have to comply fully with each and every requirement of the scorecard?
Although a business will be measured according to all the criteria on the scorecard, this is a measurement of achievement and you don’t have to score 100%. A business can therefore choose to score higher on some elements and lower on others to reach the required score.

Will a farmer have to sell 30% of his land?
As I have indicated, you don’t have to score 100% . There is leeway to decide if you want to avoid certain elements of the scorecard. Land is classified under the equity target and to score points under the equity indicator a land transaction is necessary. If you don’t sell land you will have to make up points somewhere else.

Do you advise farmers to try and comply with as much as possible on the scorecard? The scorecard is balanced to ensure that enterprises contribute to BEE on a broad base. Selling your land won’t exempt you from BEE. You will have to participate in the other elements of the scorecard as well to achieve your target score.

What is the required score?
Government doesn’t dictate a specific target, but does require businesses to achieve about 65 BEE points. This is a stretch target, which is why businesses should start sooner rather than later to build their BEE compliance. However, because the preferential procurement system (for government contracts) uses the BEE score alongside the tendered price, BEE points will be beneficial when in competition with other businesses. You therefore have to compete on more than just price – you would be well advised to keep an eye on your BEE score when doing business with government.

Will a farmer be discriminated against in preferential procurement if he falls within the exempt microenterprise category?
No. All microenterprises will have automatic BEE recognition so they can participate in preferential procurement.

Why are microenterprises exempted?
Government wants to relieve the administrative burden on these enterprises. These enterprises are often run by soleproprietors or families and their business structures are much simpler, which makes compliance difficult. Microenterprises are still the growth engine in South Africa and government wants to reduce all limiting factors on these businesses.

What is required from a farmer who runs a Qualifying Small Enterprise (turnover between R5 and R35 million)?
There are seven elements on the BEE scorecard: ownership, management control, employment equity, preferential procurement and skills, enterprise and socioeconomic development. A farmer can choose any four of these elements for compliance and scoring BEE points.

Would you then advise farmers to subdivide their farming operation into units of R5 million turnover each to be exempt from compliance?
Doing this can be compared to the situation with tax legislation. Avoidance is within your rights but evasion is illegal. Misrepresenting your true business structure will result in punitive action in the verification process.
You could lose your BEE score.

Will BEE ever end?
There is no end date to BEE because government wants BEE to become the way of doing business in South Africa. The argument is that it won’t be necessary to remove legislation because everyone will be compliant.

Will the goalposts be moved?
Bearing in mind that we have a majority party in government, any goalpost can be moved depending on policy decisions made by that party. Goalposts could be moved if there is a substantial change in the current ANC leadership. Government will also review BEE 10 years after the implementation date (in other words, in February 2018) to determine the way forward.

How do you suggest a farmer approaches BEE on the farm?
Decide if your enterprise needs to be BEE compliant. For example, do you need government contracts or licensing? Do your clients require BEE compliance, or is it just the right thing to do? At the end of the day it is an economic decision. To an extent it also depends on what your competition is doing and what you need to do to get a contract. In future, BEE scores will affect your ability to trade and may determine whether or not you will be able to obtain water, import or export licenses.

What first steps can the farmer take to participate in BEE ?
Start with the easy things and build towards full compliance. In skills development you can train black managers, which will help you achieve employment equity targets. In enterprise development, build up relationships with potential business partners. Any help given to an emerging farmer, new land beneficiary or mentorship will also count towards your score.