Although the year is 2021, the debris of 2020 still stands and is evident throughout all aspects and types of business in South Africa. The impact of COVID-19 and the ongoing lockdown is immense and a very prominent question stands: What is the current state of our economy and what has been the impact of COVID-19 on B-BBEE?
In March of last year, our country, like many others, had to endure a ‘hard-lockdown. This lockdown lasted a few weeks for some industries and has continued into 2021 for others. We can only individually imagine what damage this has caused for business and the economy as a whole, not to mention the average worker. Many companies have seen substantial declines in their profits, some with large losses, leading many to buckling down on spending in an effort to preserve cash and liquidity. What does this mean for B-BBEE?
Since some BEE elements are measured based on net profit after tax, some may believe that its all relative, however, with many businesses making marginal profits or actual losses, BEE targets may be set based on a calculated indicative profit margin (albeit at one of the lowest points we’ve seen in recent years). What hasn’t changed as much for companies, is their payroll costs, and this is where Skills Development spend enters the equation. For companies with low relative profits, Skills Development often becomes the most expensive element to comply with, if companies target the full 6% target that applies to the generic Code and most of the Sector Codes. While some clients are determined to continue to maintain their current BEE scoring, we see some others taking a renewed interest in saving costs and reconsidering their BEE compliance.
An option for companies who are worried about the effect on their B-BBEE score, is to turn their focus to an initiative such as the Youth Employment Service Initiative (Y.E.S). This initiative aims at placing one million young Black South Africans in employment for at least a year in efforts to upskill them and provide experience that could improve their chances of finding work in the future. An initiative such as this as well as a constant valuation of the company’s efforts with regards to tracking B-BBEE programs and better spend allocation can assist in retaining a B-BBEE score and compliance as a whole. An interesting consideration will be if the dti is willing to consider the damage which COVID and the lockdown has inflicted on businesses as a reasonable reason to drop compliance and use the YES initiative to improve BEE levels.
In our current economy, with so many lost jobs already, we certainly think it should. Perhaps as a nation, now is a good time for us to rethink where our BEE money goes, what impact it has, an redirect it into initiatives which truly support saving and then growing small businesses, developing young people meaningfully, and contributing to job creation as much as possible.
For suggestions on how to do this, and ways in which your company can contribute to youth development and job creation, get in touch with our BEE team.
Sources: https://www.bowmanslaw.com/insights/b-bbee/covid-19-impact-of-the-pandemic-on-b-bbee-in-south-africa/; Simanye analysis