A proposal by the Department of Trade and Industry to take over the verification process in the Broad-Based Black Economic Empowerment (BEE) space could make starting a business easier and cheaper.
The proposal, which forms part of the amendments to the act – signed into law earlier this year – will see the department take over some aspects of the BEE verification process from the verification industry and do these in-house.
Small businesses that have a lower annual turnover threshold would, should the proposal be approved and implemented, be exempt from a costly verification process – saving them thousands of rands in verification fees.
Small Business Connect spoke to Trade and Industry Ministry spokesman Sidwell Medupe who said that the department is still exploring a way forward on the proposal and no decision had been made yet.
But, Nomzamo Xaba, general manager at the BEE rating agency Empowerdex, say after consultations with the department, her firm welcomes the proposal.
“There is still a process of communication but from our understanding, we are not opposed to them taking it in-house for start-ups.
For start-up businesses, it will make access much easier, it will make coming into the market much easier because you can get your company registration documents as well as your BEE certification in one go,” says Xaba.
In her view, she says, this would mean that small business development would move forward and that the proposal was good for economic growth.
“Eliminating things that small businesses are required to do so that you reduce the amount of red tape is good. If you can find ways for small businesses to have better access to the economy, then we must explore those ways,” she says.
Under the new proposal, small businesses with an annual turnover of below R10 million will be classified as Exempted Micro Enterprises (EMEs) and they are not subjected to the BEE verification process. These business owners would only need to submit an affidavit to the department that includes the business’s turnover and its BEE status.
The same applies to small businesses that are 100% black-owned.
Currently, small businesses with an annual turnover of R5 million or less are required to get a verification certificate from an independent agency that can cost anything from R500.
Should a business be less than a year old, it will also be exempted from BEE verification and the owners will only have to submit a sworn affidavit testifying to their BEE status regardless of their expected revenue.
Small businesses that could expect to save thousands of rands in verification costs are businesses that have an annual turnover between R10 million and R50 million per year, and are classified as Qualifying Small Enterprises (QSE).
This means that a QSE will be exempt from BEE verification and will only be required to submit an affidavit confirming its annual revenue and its level of black ownership.
Under the current law – before the codes come into effect – QSEs are required to obtain a verification certificate from an independent agency in an exercise that could cost between R4 000 and R15 000.
Or, even more, depending on the nature of the business.
The proposal has drawn mixed reactions from the verification agencies.
While some agencies declined to comment, Jacqi Bowman, the operations manager for the KwaZulu-Natal’s award-winning AQRate Verifications Services, says the proposal will, if implemented, wipe away two thirds of clients from affected agencies.
“The advantage is that it is supposed to take away the cost to small business.
However, in reality all small businesses will have to ensure that they now submit their annual returns, and the fee for this will be higher than the fee of a current EME certificate,” she says.
She believes that it will be an advantage to small business owners.
David Ndou, the chairman of the Association of BEE Verification Agencies (ABVA), said the proposal initially took them by surprise.
He says after being granted a meeting with the department’s BEE unit, the direction that the DTI was planning on taking became clearer.
“On that point, the proposal is nothing new as it has been in the public domain from last year already when the revised codes were revealed.
Since last year already, we knew they (EMEs, QSEs and start-ups) were going to be exempted and that they were not going to be part of the verification process,” he said.
Ndou questioned, however, how the department would verify whether the affidavits were legitimate.
He says agencies whose business models target the affected small businesses and enterprises would need to review their strategies to survive.