The Impact a strategic Enterprise Development Initiative can Have on your Business

Posted by Trevor Tshabangu
Tuesday, 3 March 2009  |  1 comments
Trevor is a director at Transcend Corporate Advisors.
Read all of Trevor Tshabangu's Posts

When the B-BBEE codes of good practice were finally released on the 7th of February, 2007, some organisations did not comprehend what this meant for them and hence the sometimes perplexed conversations in office corridors, at golf courses and even at team build sessions. Some thought that it was time to do something, but what? Some thought it was the right time to start manipulating the system because the narrow based model of BEE was considered a failure. In some cases and more positively, where Transcend got drawn in, most of the corporates realized that it was the time to begin the real conversations on transformation which would hopefully align their business strategies to the development and growth of South Africa.

In this blog, I would like to discuss the relationship between three elements on the scorecard, namely: Preferential procurement, Enterprise development and Socio-economic development. This article will further discuss the linkages between these three fundamentals based on a given scenario.

Simply put, Preferential procurement in B-BBEE measures the percentage of total measured procurement expenditure going to enterprises that are B-BBEE compliant. Strategic Enterprise development (ED) relates to the development of mostly small businesses known as Exempted Micro Enterprises (EMEs) and Qualifying Small Enterprises (QSEs). Socio-economic development (SED) is the B-BBEE element which talks to the “have nots”. These are mostly charity related contributions where the donating organisation does not necessarily expect a return. ED and SED spend can either be monetary or non-monetary.

Further detailed definitions of these three elements can be obtained here.

Scenario:

Enterprise development
Company ABC, a large company, decides to have a canteen service in their business and they acquire the services of a registered small black-woman owned EME, namely Thuli’s canteen. As per the contract between ABC and Thuli’s, ABC agrees to purchase all the equipment and stock required to set up the business in ABC’s premises. ABC incurs all the setup costs including the cost of space, water, lights training and development of Thuli’s staff. As per the codes of good practice, these costs constitute ED spend for ABC. Further, assuming that the preferential procurement policy of ABC promotes early payments to QSEs and EMEs, early payment to Thuli’s contributes to ABC’s ED score because the codes allow for a percentage of the invoice amount to be recognised as such.

Impact: Enterprise development points. The impact will be dependant on ABC’s 3% of Net profit after tax target.

Preferential procurement:
Considering that Thuli’s canteen supplies services to ABC, an invoice for payment is generated by Thuli’s canteen. This constitutes preferential procurement from a black woman owned business.

Impact: Preferential procurement points generated from three areas from within the procurement scorecard, namely: black ownership, contribution level and size of business.

Socio-economic development
ABC realizes that there is a need to assist homeless street kids in the streets of Hillbrow in Johannesburg. A decision is taken to use the services of Thuli’s canteen to feed these homeless children. The services offered in this case are in the form of food parcels that are delivered to the recipients on a regular basis. The cost of the food parcels, delivery and any other associated costs constitute SED. The percentage of black beneficiaries must be measured so as to maximise the B-BBEE points in this area.

Impact: ABC earns points in the area of SED due to the direct cost incurred in supporting the “have nots”. Again, as in ED, the impact is dependant on the 1% of Net profit after tax target.

So, as the conversations continue in the corporate buildings and the smoking areas, plug these thoughts in.

In the next blog, this discussion will be taken further to other elements of the scorecard.

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