Chinese South Africans now Black – What impact will this have on your BBBEE Score?
Time to recalculate your scorecard! In a landmark decision, the Pretoria High Court has ruled that South Africans of Chinese descent qualify for the full benefits of the country’s Black Economic Empowerment (BEE) and Employment Equity (EE) legislation. The Pretoria High Court found in favour of an application by the Chinese Association of South Africa (CASA) who has been struggling since 2000 to get the Chinese business community to benefit from affirmative action and empowerment programmes.
Confusion started to arise with the inception of the EE Act in December 1999, which defines ‘black people’ as a generic term for ‘Africans, Coloureds and Indians’. The same definition was subsequently used in the BEE Act which came into effect in April 2004. “As Chinese South Africans we were officially classified as ‘coloured’ during the Apartheid era and suffered under the same discriminatory laws prior to 1994. The logical inference was thus that Chinese South Africans would automatically qualify for the same benefits afforded to the ‘Coloured’ group, post 1994,” Patrick Chong, CASA Chairperson, argued. However, this was not the case and Chinese South Africans suffered a second round of unfair discrimination by not being sure of their status under the two Acts – even though the laws did not specifically preclude them. The court action was in part intended to clear up this confusion.
The departments of Labour, Trade and Industry, Justice and Constitutional Development initially filed a notice to oppose CASA’s application to the courts. However, they conceded to the merits of the case in April this year. In answer to Chong’s statement, the Minister of Labour, Membathisi Mdladlana, said that he believed “the Chinese who brought forward the application were targeting the benefits of BEE”.
In terms of the practical implications of this ruling, black business and professional organisations – lead by the National African Federated Chamber of Commerce (NAFCOC), and including the Black IT Forum (BITF), Black Management Forum (BMF) and the Black Lawyers Association (BLA) – commented that “the Pretoria High Court ruling is an incorrect interpretation of policy and legislation, and will ultimately have very negative implications for the transformation programme in our country”. This statement was explained by NAFCOC Gauteng Treasurer, Kganare Lefoka: “Equity legislation is not aimed at all who faced discrimination, it is informed by socio-economic conditions, and who suffered the most. Therefore we cannot open the floodgates as this will undermine both the historical and the current meaning of the transformation agenda. For example, now the Jewish and Hispanic people can claim they are entitled to qualify for BEE too”.
In terms of legislation a Chinese person will still need to be a South African citizen or became a South African citizen before 27 April 1994.
How does this affect companies? “In the past the scorecard would regard Chinese people as non-black and as a result no BEE points would accrue. Many scorecards will now increase with the inclusion of Chinese South Africans and this will in general cause the average score of all companies to rise because of Preferential Procurement and the flow through BEE scores”, Jan Munnik, Managing Director of EES-Siyakha told SmartProcurement. Examples, according to Munnik, of how your scorecard can increase, include:
- If you are Chinese owned / managed and have a turnover of less than R5 million then you are a level 3 EME, instead of a level 4.
- If you have Chinese employees your employment equity score may increase.
- Your skills development score will also increase if you have trained Chinese employees.
- If you procure from a Chinese owned company you could even earn an extra 5 points for black ownership.
“The DTI will need to issue a gazette before Chinese people should be counted as Black under the BEE Codes of Good Practice, but a number of Verification Agencies indicated that they would accept Chinese people as black immediately”, Andrew Bizzell, Chairman of the BEESA Group told SmartProcurement.
ABVA (the Association of BEE Verification Agencies) is still to provide an official comment but the NABC (National Association of BEE Consultants) has issued a letter to BEE consultants warning that caution should be observed when including Chinese people in BEE figures until there is a gazetted statement issued by the DTI. Any enterprise wishing to include Chinese people in their BEE figures for verification purposes before such a statement is issued should consult their appointed verification agency to ensure they will accept their claims. It should also be noted that even though the court decision does not mention skills development, the principle implies that this will also be impacted.