Deon Oberholzer, noted BEE strategy and compliance expert and co-owner of Gestalt Growth Strategies poses an interesting hypothesis to South African leaders. He asks, “could we help solve South Africa’s unemployment issues by rethinking the role that EME’s (exempt micro enterprises) can play in our economy?”
To understand his hypothesis, we will recap a few basics for those who aren’t as au fait with the legislation as Oberholzer is. First of all, we need to state that his solution speaks to EME’s who have an affidavit or certificate to prove their BEE exemption status or exemption. These are businesses that turnover less than R10 million per year and are not black-owned in any fashion – generally ranking at a level 4 or “BEE neutral” in their count to procurement spend. (Note: Current corporates require or at least desire BEE procurement spend which is positive to their BEE ranking for their concomitant procurement opportunities with Government or SOC’s). Black-owned EMEs are given an automatic BEE level 1 or 2 status under this regime and are able to accrue positive BEE points to their contracting corporates. This allows them to have preferential participation and in turn grow through greater access to procurement opportunities. This economic system therefore favours businesses that have a higher ranking or BEE score. Other lower compliant, level 4 exempted EME’s, are recognised but for reasons stated above are also negatively affected in their ability to rely on procurement opportunities due to their BEE neutral procurement count and are prevented from achieving sustained growth unless they graduate up the BEE scorecard ladder by introducing shareholding or at a cost submit themselves to the full compliance regime to achieve a higher score by investing in audit and compliance activities to increase their score. This is the first point that Oberholzer makes. There are many businesses that could benefit from gaining some level BEE compliance without being black-owned.
The second point Oberholzer makes is that we have a glaring unemployment issue in this country. South Africa’s unemployment is at an 11-year high, sitting just under 30% and even more worryingly our youth unemployment is just shy of 56%, this is untenable to an inclusive society and does not bode well for the future. The creation of the YES (Youth Employment Service) programme is an attempt to mitigate this. But with an under-performing economy, Oberholzer feels it is unlikely that the jobs will appear overnight unless we consider a novel approach to the problem. And therein lies his proposed solution.
Oberholzer suggests that the BEE codes could be amended to address youth unemployment by allowing currently exempted EME’s the opportunity to earn BEE points and subsequently increase their BEE rating for hiring and training young previously disadvantaged individuals.
And the numbers make sense. If you consider the 2018 SARS and Treasury report, there are over 3.7 million companies registered for CIT (company income tax) as at 31 March 2017. Of these, 993 069 companies were active and expected to submit income tax returns. There are effectively only 773 784 companies that are registered for VAT and just 434 981 of these are active. Of this, there are about 240 000 companies are between R500k and R10m in size. We could consider this our EME base.
The novel idea poses: if we amend the codes to allow these EME’s to employ 1 person from the YES programme, per BEE level (Oberholzer recommends that 2 levels maximum can be earned by EME’s); this is the same as what larger companies can earn from participating in the YES programme. The net result would be the potential employment of 500 000 people in small companies if each EME had to go-up 2 BEE levels. Thus, we would have 250 000 EME’s who are currently excluded from participating and benefiting from the YES programme, back as active and growing players with a beneficial BEE status.
Some may argue that the potential Level 2 recognition level for EMEs would be too close to that of Black owned companies, but that is just not so, Oberholzer says. The BEE Codes include specific BEE scorecard targets for procurement from black owned and black women owned companies, so there will be limited negative impact on our growing list of black owned companies.
Oberholzer is a keen proponent of innovative thinking to not only help eradicate unemployment but to stimulate South Africa’s small business economy. These are the types of incentivisation approaches required in this business unusual state of our economy.
A big believer in the concept “that unusual problems, require unusual solutions”, Oberholzer’s idea might just be the one thing that can help turn our country around. If you’re in need of a novel BEE strategy from the minds of experts, like Deon, contact Gestalt Growth Strategies today.