Understanding BEE

BEE Legislation and Legal Framework in South Africa

Broad-Based Black Economic Empowerment (B-BBEE) plays a critical role in South Africa’s drive for socioeconomic redress. When properly implemented, it is a key mechanism for fostering transformation and inclusive growth. For businesses operating locally, understanding the legal foundations of B-BBEE is vital to ensure alignment with policy and compliance requirements.

Core BBBEE Legislation in South Africa

BBBEE is guided by several significant pieces of legislation, each contributing to addressing historical economic inequalities and encouraging meaningful participation of black South Africans (including African, Coloured, and Indian, including Chinese since 2008 who are citizens by birth, descent and naturalisations as black persons for purpose of B-BBEE Act and related legislations and regulations.) in the mainstream economy. Together, these laws promote equitable access, skills growth, fair employment practices, and inclusive procurement.

The 5 Acts of Parliament Shaping B-BBEE

The following acts of parliament serve as the core foundation of BEE legislation and laws:

Employment Equity Act, 1998 (as amended in 2023)
Skills Development Act, 1998 (last amended in 2011)
Skills Development Levies Act, 1998 (amended in 2010)
Preferential Procurement Policy Framework Act (PPPFA), 2000 (updated in 2023)
Broad-Based Black Economic Empowerment Act (B-BBEEA), 2003 (amended in 2023)

Codes of Good Practice & Sector Codes Governing B-BBEE

In addition to these core Acts, the B-BBEE framework is governed by the Generic Codes of Good Practice, alongside industry-specific sector codes. These sectoral guidelines outline tailored compliance measures, targets, and reporting standards that reflect the unique characteristics and transformation needs of different industries. The Department of Trade, Industry and Competition regularly reviews these codes to keep them aligned with the overarching B-BBEE principles and changing industry landscapes.

Employment Equity Act

A cornerstone of South Africa’s transformation journey, the Employment Equity Act aims to eliminate workplace discrimination and foster equal representation for historically disadvantaged groups, which include black Africans, Coloureds, and Indians. The Act obligates employers to implement affirmative action measures, set diversity targets, and regularly report progress towards equitable workforce representation.

Employment Equity Act Amendments

In April 2023, the Employment Equity Amendment Bill of 2020 was enacted, bringing important changes. One key shift is that companies with over 50 employees now fall under the definition of “designated employers,” regardless of turnover, and must submit Employment Equity plans and reports. Over the years, the Act has evolved through amendments that strengthened reporting duties, established oversight bodies such as the Commission for Employment Equity (CEE), and introduced equal pay for work of equal value provisions.

The Skills Development Act

Complementing the Employment Equity Act, the Skills Development Act of 1998 promotes upskilling and continuous learning across the workforce. It provides for the creation of Sector Education and Training Authorities (SETAs), which channel employer-paid levies into training and development initiatives. This helps build a competitive workforce equipped with the skills needed to drive economic growth.

Skills Development Act Amendments

Amendments to this Act have refined how skills initiatives are governed, including the formation of the Quality Council for Trades and Occupations (QCTO) and updates to SETA governance rules. These refinements aim to better align skills training with industry needs and national growth objectives.

Skills Development Levies Act

Under this Act, employers must contribute a levy dedicated to funding training programmes in line with the Skills Development Act. The levy ensures that businesses actively invest in upskilling their employees, helping to grow South Africa’s talent pipeline and enhance economic competitiveness.

Preferential Procurement Policy Framework Act (PPPFA)

Enacted in 2000, the PPPFA provides a structure for government procurement policies that give preference to businesses owned by historically disadvantaged individuals. This supports broader economic participation and opens access to state contracts for black-owned enterprises and other designated groups.

Preferential Procurement Policy Act Amendments

The latest proposed amendments, published in 2013, aim to expand preference points for designated groups, strengthen supplier development obligations, and simplify compliance processes to make it easier for qualifying businesses to benefit.

Broad-Based Black Economic Empowerment Act

At the heart of South Africa’s transformation laws is the B-BBEE Act of 2003. It provides the policy foundation for all related Acts and Codes, driving inclusive growth, fair representation, and economic redress. The Act encourages companies to contribute to transformation through initiatives spanning employment equity, skills development, and preferential procurement — all of which directly influence a business’s B-BBEE scorecard and, in turn, its competitive positioning.

B-BBEE Amendments

Since its inception, the Broad-Based Black Economic Empowerment Act has seen several amendments to adapt to evolving socio-economic circumstances in South Africa.

Major BBBEE amendments instated by the South African government include:

Employment Equity Act, 1998 (as amended in 2023)
Skills Development Act, 1998 (last amended in 2011)
Skills Development Levies Act, 1998 (amended in 2010)
Preferential Procurement Policy Framework Act (PPPFA), 2000 (updated in 2023)
Broad-Based Black Economic Empowerment Act (B-BBEEA), 2003 (amended in 2023)

Overall, the Employment Equity Act, Skills Development Act, and the Preferential Procurement Policy Framework Act underpin BBBEE, driving both compliance and conscious efforts to redress historical inequalities. These laws collectively shape an economic landscape that has the potential to be more dynamic, diverse, and prosperous, reflecting South Africa’s ongoing commitment to creating an inclusive and equitable society.

General Amended BEE Recognition Levels

Your BBBEE status level is determined by the number of points your business receives across the five B-BBEE elements. The higher your status level, the more procurement recognition your company will receive

BBBEE Rating	BBBEE Points	Procurement Recognition Level
BEE Level 1	100+	135%
BEE Level 2	95 – 99	125%
BEE Level 3	90 – 94	110%
BEE Level 4	80 – 89	100%
BEE Level 5	75 – 79	80%
BEE Level 6	70 – 74	60%
BEE Level 7	55 – 69	50%
BEE Level 8	40 – 54	10%
Non-Compliance	0 – 39	0%

Amended General Generic BEE Scorecard

BBBEE Scorecard Element	Description	Available Points
Ownership	Ownership measures the unencumbered economic interest, voting rights and net value of shares held by black people.	25
Management Control	Evaluates the percentage of executive boards, senior, middle and junior management positions held by black members.	19
Skills Development	The amount of money spent on skills development initiatives and training for employees, and the amount made available for bursaries, apprenticeships.	20 (+5 bonus points)
Enterprise and Supplier Development (ESD)	Measures the level of spend on preferential procurement, enterprise development and supplier development. Preferential procurement is the amount of goods and services procured from empowering suppliers and companies with high BBBEE ratings. Enterprise development is the amount spent on developing small black-owned enterprises. Supplier development refers to monetary, training and equipment contributions made to black-owned suppliers to help grow their own businesses.	40 (+4 bonus points)
Socio-Economic Development (SED)	Refers to a business’ overall CSI contributions.	5
TOTAL		118

BBBEE Fronting

BEE fronting is a tactic to bypass the B-BBEE Act and the Codes while claiming you adhere to them. Being found guilty of BEE fronting can result in fines, imprisonment, and reputational damage.

Understanding BEE Fronting: Risks, Examples, and Legal Implications

Broad-Based Black Economic Empowerment (B-BBEE), when properly implemented, serves as a powerful mechanism to promote economic inclusion in South Africa. However, BEE fronting threatens the credibility of this initiative by undermining its intended outcomes.

In response to rising concerns about fronting, the Employment Equity Amendment Bill was introduced in 2018 to strengthen enforcement. Companies or individuals found guilty of fronting face serious consequences, including hefty fines, imprisonment, and reputational harm that can significantly impact their ability to do business in the country.

This guide provides insight into what BEE fronting entails, the potential long-term effects, and how to identify and address it effectively.

What Is BEE Fronting?

According to the Department of Trade, Industry and Competition (DTIC), fronting involves intentionally attempting to bypass the B-BBEE Act and associated Codes. Simply put, fronting occurs when businesses falsely present themselves as compliant with BEE requirements to gain a competitive or financial advantage. It is a form of fraud, and claiming ignorance is not considered a valid defense.

Anyone who knowingly engages in, is aware of, or fails to report fronting can be held legally accountable. Even those who should reasonably have known about such activities may be liable if they neglect to investigate or take corrective action.

The consequences are far-reaching—not just for the businesses involved, but also for their stakeholders and the broader economy. Fronting undermines the effectiveness of true empowerment efforts, and companies found guilty may suffer long-term reputational and financial losses.

Common Types of BEE Fronting

1. Window Dressing

This tactic involves appointing Black individuals to senior roles (e.g., director, executive) without granting them actual authority or involvement in the business. While they may hold a title on paper, they are excluded from key decision-making processes.

Examples include:

Listing junior Black staff as executives without their knowledge
Paying Black executives significantly less than their peers
Preventing appointed Black directors from exercising their full responsibilities

2. Diversion of Benefits

This form occurs when the economic advantages that should flow to Black stakeholders are withheld or redirected elsewhere.

Examples include:

A Black shareholder owning 51% of a business but being excluded from dividends or shareholder meetings
Using an NPC or NPO to claim 51% Black ownership, without meeting the compliance standards for actual ownership structures (like BBOS or ESOP)
Creating a company where Black partners have ownership on paper, but the structure ensures minimal profit and no real benefit

2. Diversion of Benefits

This form occurs when the economic advantages that should flow to Black stakeholders are withheld or redirected elsewhere.

Examples include:

A Black shareholder owning 51% of a business but being excluded from dividends or shareholder meetings
Using an NPC or NPO to claim 51% Black ownership, without meeting the compliance standards for actual ownership structures (like BBOS or ESOP)
Creating a company where Black partners have ownership on paper, but the structure ensures minimal profit and no real benefit

3. Opportunistic Intermediaries

These are third parties who exploit legitimate B-BBEE partnerships for their own gain, often under the guise of collaboration.

Red flags include:

Agreements that unfairly limit suppliers or service providers
Unbalanced contractual terms that weren’t properly negotiated
Partnerships formed under suspicious or irrelevant circumstances

Legal Consequences of BEE Fronting

The B-BBEE Amendment Act (Section 130(3)(a)) criminalizes fronting. Key penalties include:

Individuals may face up to 10 years in prison and/or substantial fines
Companies can be fined up to 10% of annual turnover
B-BBEE professionals, procurement officers, or public officials who are complicit or negligent may be imprisoned for up to 12 months
Offenders may be barred from doing business with government departments for up to a decade

Legal repercussions can also include civil claims to recover any ill-gotten financial gains. Beyond court actions, reputational damage can lead to lost clients, partnerships, and business opportunities.

How to Report Suspected BEE Fronting

All individuals and entities have a duty to report signs of fronting. Reports should be submitted in writing to the BBBEE Commission. If deemed credible, the Commission will initiate an investigation and may escalate the matter to the National Prosecuting Authority (NPA) for criminal proceedings.

If a business is found guilty, its B-BBEE status may be suspended until corrective measures are taken. Offending parties will also be listed in a DTIC database.

Final Thoughts

BEE fronting is a serious violation of South African law and goes against the spirit of economic transformation. It is not just a regulatory risk—it’s a criminal act with real-world consequences for companies and individuals alike.

To ensure authentic compliance, businesses should work closely with reputable BEE verification professionals. This not only helps avoid legal pitfalls but also contributes meaningfully to a more inclusive and fair economy.