08 April 2022

Thina Hlophe, Black Umbrellas Stakeholder and Engagement Manager 

When the Broad-Based Black Economic Empowerment (B-BBEE) Act was introduced in 2003, the goal was to meet specific economic transformation goals by creating an environment where more Black persons could be part of the ownership, management, procurement and skills development process to drive socio-economic development.

There are two benefits to this system. First, entities of all sizes can participate in B-BBEE compliance to enjoy tax benefits as well as the advantages of securing new business contracts. The second benefit is that entities are actively helping and supporting individuals who can continue to contribute to economic growth, whether it is through employment opportunities, skills development or supporting a small, Black-owned business.

It is important to note here the role of small businesses in South Africa’s economy. They are the drivers of economic growth because they are the majority of formalised businesses in operation in South Africa. SMME’s employ approximately 60% of the country’s work force and are responsible for around 34% of the GDP. Supporting a small, Black-owned business not only uplifts the entrepreneurs’ family, but also their community and directly contribute to economic growth.

Small businesses face many challenges and entrepreneurs often need guidance on how to manage their enterprise to be efficient and profitable. It also helps to educate entrepreneurs on how to comply with the administrative requirements from various government departments as well as the best strategies for marketing their business and becoming part of the supply chain of larger enterprises.

Business incubation seeks to develop businesses to a level where they can gain meaningful access to markets, finance and networks and then facilitate access to these opportunities. Black Umbrellas, a partner entity of Cyril Ramaphosa Foundation, is a non-profit organisation that enables 100% Black-owned small businesses to participate in holistic business incubation and, has created valuable investment products. These products allow investor entities to use their Enterprise and Supplier Development (ESD) budget to maximise compliance, de-risk their ESD and develop current and future ESD suppliers.

No one wants B-BBEE compliance and ESD strategy to be a box-ticking exercise. Ideally, a successful strategy should not only offer good return on investment for the financial contribution from the business, but it should also add value to socio-economic development by helping a small enterprise get the best chance for survival.

Black Umbrellas offers the chance to do both through meaningful partnership. The B-BBEE scorecard is the perfect opportunity for businesses to support and grow equal opportunity and participation within the value chains of the South African economy. The investment will give these businesses access to Black Umbrellas’ virtual incubation programmes which includes mentorship, increasing their chance of becoming economically and socially sustainable businesses, and ultimately enable them to change the business landscape of this country.

What investor businesses must know is that the key components for a successful ESD strategy are that the beneficiary is required to be at least 51% black owned and must be an Exempt Micro Enterprise (EME). To earn the maximum number of points, there must be a recognisable contribution and that could be in any of the following:

  • Grant Contribution
  • Direct costs incurred on behalf of beneficiary entity
  • Professional services rendered to the beneficiary at no cost
  • Overheads costs incurred on behalf of the beneficiary entity e.g., office rental
  • Loans on favourable terms
  • Early payment of EME supplier

Keeping track of or managing these types of contributions can be challenging in an already busy business operation. There are good intentions to help a small business with any of these actions, but it requires dedication to implement and record.

With a business incubator like Black Umbrellas, all these opportunities are available with some additional benefits. What the investor business gets in return includes:

  • Black Umbrellas sources qualifying businesses for ESD programmes
  • Black Umbrellas develops qualifying businesses to a level where they are supply chain ready
  • Black Umbrellas provides assistance in developing the ESD strategy and de-risking the implementation of the strategy. In so doing investors can make an ever-increasing number of procurement opportunities available to businesses in their ESD programme and increase the number of businesses within the programme

Nurturing the SMME ecosystem is beneficial for everyone. Corporate South Africa achieving the empowerment targets and points on the B-BBEE scorecard is often painted as actions fuelled by greed and wanting to narrow the competitive field to secure lucrative business relationships. In truth, the system is geared towards creating more successful small businesses who benefit from the relationships built with other enterprises. These actions lead to job creation, a decrease in crime, more independent women able to provide food, education and security for their families and more taxable income to improve health, safety and infrastructure budgets.