Breaking down socio-economic development

November 23, 2016
Socio-Economic Development (SED) is identified as Series 500, being the 5th and last element within the Amended Codes of Good Practice. Although it does not form part of the priority elements, this component is vital to the empowerment of many South Africans. In addition, it may be critical to improving an overall B-BBEE score, with five allocated weighting points, says Eric Ackroyd, Verification Director at EmpowerLogic.

SED contributions are measured on an annual basis. The Amended Codes of Good Practice only allow contributions made in the measurement period under review. Contributions to this element are quantifiable as a monetary value, using a Standard Valuation Method.

The target SED spend, to receive maximum allocated points, is 1% of a company's Net Profit After Tax (NPAT).

  • This target applies unless a company did not make a profit within the past financial year; or, on average over the past five years; or if the net profit margin (NPAT/ Turnover) of a company is less than a quarter of the industry norm, which is based on information released by STATS SA, every quarter.
  • This being the case, the target measurement for SED spend is set at
1% x Indicative Profit Margin (NPAT/ Turnover) x Turnover. An indicative profit margin is the profit margin of the previous year, where the company's profit margin equals at least one quarter of the industry norm.
  • In the event of a company not having
a quarter of the Net Profit Margin benchmark, a quarter of the industry norm profit margin will be utilised as the Indicative Profit Margin.

The full allocation of SED contributions will only be recognised if the beneficiaries reflect in excess of 75% black people directly benefitting. Should the representation of black people fall under this threshold, contributions will be adjusted at a prorate rate determined by the percentage of black people directly benefiting from the donation.

Contributions to this element comprise of both monetary and non-monetary contributions. These must be formulated and executed with the core aim of developing activities that will ultimately generate an income for the beneficiaries.

Non-exhaustive list of contributions which qualify as SED contributions:

  • Grant contributions to qualifying beneficiaries
  • Guarantees in lieu of, or security provided for, beneficiaries
  • Payments to third parties to perform SED development on the Measured Entity's behalf
  • Preferential payment terms for the supply of goods or services to beneficiary communities
  • Overheads, and/or direct costs, directly attributable to beneficiaries and /or their communities
  • Development capital in lieu of beneficiary communities
  • Payments on behalf of beneficiaries to suitably qualified and experienced third parties to provide SED services
  • Training and/or mentorship to beneficiary communities, in line with a company's core services, by it employees or management. These contributions are calculated by consulting cost per hour. Supporting documentation must substantiate time costs incurred, as well as the appropriate expertise of the trainer or mentor. These costs must be calculated at a rate in line with industry norm
  • Travel costs may be included as a direct cost. However, time spent commuting may not be included
  • Only a portion of salaries can be attributed to the maintenance of an SED initiative, as well as costs incurred, in relation to promotion and implementation.

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