The enterprise and supplier development (ESD) pillar of the B-BBEE codes is intended to stimulate the economy by growing small black-owned businesses that in turn will create jobs for South Africa.
In part one of this blog, we talked about how quick ESD hacks might get your company up and running with the B-BBEE codes. However, your ESD strategy should also be focused on financial efficiency and social impact, not just compliance. Executives in the transformation space are often in the position of not knowing exactly what to ask for when attempting to secure adequate budget for ESD and often implement quick hacks.
Make sure that you have done your homework when it comes to due diligence, a compliance lens that focuses on impact and your year-end rating periods (see Help we need an ESD strategy).
As you formulate your ESD strategy, here are some other common hacks with their pros and cons.
|Hacks||+ Pros||– Cons|
|Doing things that are “easier” and does not require cash outlay, for example; offering space for SMEs, disbursement of existing assets, preferential payment terms, etc.||Financially efficient points.||Poor matching of resources to SME needs result in hurting the SME’s business.|
|Employee hours to do BDS||Financial saving on external consulting services for the provision of BDS.||Employees already have work commitments, often the SME BDS needs fall by the way-side due to capacity constraints.
The expertise that the employees may have do not always meet the needs of the beneficiary, leaving a skills gap in the provision of BDS.
|ESD Funds provide immediate points||The corporate earns ESD points as soon as funds enter the account of the fund (not relevant to a Section 12J).||Without the execution of real ESD support (both financial or other) being provided, the fund is ‘fronting’.|
|Corporates set up their own fund vehicle or ESD company and allocate their ESD budget to the fund vehicle/company.||Financially efficient solution, as the allocation of funds are seen to be inter-company transactions, having minimal impact on the financial statements.
Full brand ownership.
|Often, the internal team dedicated to the ESD vehicle do not have the expertise required to deploy funds or provide BDS and tend to procure the services of an external service provide or fund manager.|
Take the time to research and set up your ESD strategy properly. Supplier and enterprise development can bring substantial benefits to your organisation if ESD is done well.
At Edge Growth, we believe that ESD is vital to strengthen our nation’s economy. While quick onboarding “hacks” do have some pros, make sure that the cons won’t trip you up in the longer term.