There are major opportunities for UK firms, but before bidding for work they need to understand South Africa's complex equality legislation

Having recovered from recession after almost 17 years, the South African government has launched several major public works projects to build and improve infrastructure for the energy, transport, manufacturing, housing, agriculture and communications industries.

These projects are aimed at growing an economy and making South Africa a safer, healthier country that is able to create and sustain more jobs.

Other major aims are to improve education, enhance skills and improve the provision of healthcare; the development of rural areas and assistance in overcoming crime and corruption are also key government objectives.

Plans include the construction of power stations, expansion of the waterways department and targets have now extended to create 4.5 million jobs by 2014.

Fantastic opportunities exist for local and non-domicile businesses across many sectors, to bid on a wide range of major public and private construction projects.

Understanding equality legislation

But with such opportunities become challenges regarding legislation surrounding Broad Based Black Economic Empowerment (BBBEE).

This legislation is designed to empower the black population of South Africa in business and provide for a better future for all.

BBBEE verification is an essential first step in tendering for any government contracts, whether doing so directly, indirectly or as a joint venture.

Durban International airport

Each separate government contract will require bidders to prove a minimum BBBEE recognition percentage, according to the predetermined criteria set by whichever particular government agency is responsible.

In order to ensure Qualifying Smaller Enterprises (QSEs), businesses with turnovers of between R5million and R35million, and larger Generic Enterprises (GEs), businesses with turnovers in excess of R35million, maintain compliance, they are required to pass an annual BBBEE Verification Agency Audit.

BBBEE is now an everyday part of business life in South Africa, and the many regulations have resulted in most large corporate businesses adding BBBEE departments to their corporate structures. Some even have BBBEE directors sitting on their boards.

To ensure that they comply with the necessary scorecard targets, many smaller organisations outsource these essential activities to verification consultancies.

Good practice of BBBEE is based around seven key elements:

  • Ownership: the financial stakes, (target 25%) and the voting rights (target 25% + 1 vote) of black people; a Flow-through Principle traces the ultimate individuals that hold control of shares and membership interests.
  • Management Control: black participation at board level of any company; an Adjusted Recognition for Gender (ARG) formula is applied aimed at sexual equality especially encouraging companies to have black women at this level.
  • Employment Equity: the number or black people across all levels of company management and also encourages the employment of disabled black people.
  • Skills development: various forms of skills development and training for black employees, including any adult basic education programmes in place for black employees and disabled employees; these include learning Programmes and learnerships, such as apprenticeships and in-service trainee schemes and specific training for disabled employees.
  • Preferential procurement: an organisation’s total-spend with suppliers who are also BBBEE compliant; percentage targets for operational expenses, cost of sales and capital expenditure eixist according to the size of the supplier businesses (based on their respective annual turnovers) with an emphasis on using smaller businesses as suppliers as well as using suppliers that are at least 50% black owned and/or 30% black women owned.
  • Enterprise development: the assistance provided to other black-owned businesses to assist in their development and growth, especially Exempt Micro Enterprises (EMEs), which are businesses with turnovers less than R5million, and QSEs) in terms of finance, materials or human resources.
  • Socio-economic development (SED): the assistance an organisation provides to SED beneficiaries in terms of finance, materials or human resources in order to gain access to the economy.

Each of these key elements carries a weighted scorecard, according to the class of enterprise, BBBEE verification requires GEs to be assessed on all seven, whilst QSEs are assessed on the best four scores attained.

With such criteria and such complex scorecard formulae, UK organisations that wish to open new markets in South Africa must first understand the BBBEE process before preparing for verification and, finally, bidding for projects.

Non-domicile organisations should then enter joint ventures and partner with approved and BBBEE-verified local companies.

Pre-verification of your organisation will save time, make it easier to gain compliance and provide access to resources and a wide range of government sponsored projects.

Independent pre-verification consultancies help you understand the process of verification and offer essential services based on an analysis of immediate requirements.

Tailor-made seminars and workshops explain the process, strategic advice helps with the preparation of corporate policies, and registration of minority Employee Ownership Schemes contributes to the scorecard.

Matchmaking with appropriate, credible, local black partners is vital as is liaison with official verification agencies; self-assessment scorecards prepared by qualified BBBEE consultants ensures accuracy, and advice on equity equivalent programs minimises risk.

Strategic business processes such as financial management accountancy, human resourcing and corporate litigation and labour law should all be considered to ensure the highest possible recognition percentage.