Understanding ESD

Enterprise and SUPPLIER DEVELOPMENT is now the most significant element on the scorecard

The revised Codes of Good Practice of 2015 changed the way B-BBEE scorecards are calculated by increasing the number of points required to achieve each level. The majority of corporates suffered an automatic downgrade to their B-BBEE ratings by at least one level.

The updated Codes’ consolidation of the Enterprise Development (ED) and Preferential Procurement (PP) elements into a single, new Enterprise and Supplier Development (ESD) pillar has been the primary cause of this points downgrade. Accounting for 40 of the total 107 points available, with measured entities required to achieve a minimum of 40% of the total targets of the 3 subcategories of ED, PP and Supplier Development (SD), ESD is now the most significant element on the scorecard. Furthermore, the criteria, weightings and targets applied to the revised scoring system are explicit and stringent, and companies scoring below the 40% threshold for ESD will be penalised an additional level.


FAQs (Frequently asked Questions)

What is ESD?

Enterprise and Supplier Development (“ESD”) is not a South African concept, but rather a global movement that has proven its ability to stimulate economies, diversify supplier chains and create jobs.

Is Incubation The Best Way That A Business Can Assist An SME Reach Its Potential?

As incubation means different things to different people, we prefer to not get caught up in terminology or semantics. However, it is our belief that the best way to help an SME to reach is growth potential is to systematically provide holistic support over the appropriate period of time. The order and timing of the support is vital, as is its duration, and all obstacles faced by the SME need to be addressed in order for the support to be truly meaningful.

Does Any Form Of Contribution To Any SME Count Towards My ESD Points?

No. In order for a business to earn ESD points, it must make what is defined as an ESD Contribution to an ESD Beneficiary. An ESD Contribution comes in many forms, and an SME qualifies as an ESD Beneficiary based on its annual turnover, black ownership and its capacity to be operationally and financially independent (see Code 400 page 87 for more details).

What Is The Most Efficient Way To Get My ESD Points?

ESD points can be earned in numerous ways. Historically, preferential payment terms were regarded as the most efficient way of claiming ESD points, but with the recent change in the Codes to prevent abuse of these terms, the most efficient way to gain points would arguably be to give unsecured, interest-free loans to qualifying ESD beneficiaries.

Does Every Business Have To Do ESD To Score Well On The B-BBEE Scorecard?

No. If your business turnover is less than R10m, you are regarded as an EME (Exempt Micro Enterprise) and your business does not need to do comply to the codes and will automatically achieve a level four rating. In the event that your business generates turnover between R10m and R50m you are classed as a QSE (Qualifying Small Enterprise), and you are scored against all five pillars.

Two of the five pillars have a 40% subminimum requirement; Ownership being one and either Skills Development or Enterprise and Supplier Development being the other. Businesses with a turnover in excess of R50m will be scored against all pillars (including Enterprise and Supplier Development). That said, based on the immediacy and efficiency of ESD points versus most of the other pillars, as well as the genuine social impact it can create, the majority of businesses still elect to work on this pillar.

Is Compliance To The B-BBEE Codes Compulsory?

No, compliance to the B-BBEE Codes is not compulsory. But your positive performance on the B-BBEE scorecard will act as an incentive to gain you further business. The incentive begins with government and parastatal procurement, which is largely based on the compliance of suppliers. These suppliers in turn procure from companies that will boost their own scorecard. As such, even though being compliant is not compulsory, the reality is that unless a business offers a completely unique product or service, large corporate or government contracts will be hard to secure without enforcing B-BBEE Codes.


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