CRA Business News – South Africa
By Bekezela Phakathi
Published in BusinessDay on 05 November 2020
EU investors have expressed concern about SA’s black empowerment policies, saying the cost of implementing them has affected the bottom line of many businesses.
Broad-based Black Economic Empowerment (BBBEE) is contentious in SA. The DA, the country’s main opposition party, has rejected it in its current form, saying the ANC is using it to enrich a few of the politically connected elite at the cost of job creation and investment.
The EU is SA’s largest trading partner and a major source of foreign direct investment for the country. More than 1,000 EU companies operate in SA.
According to a study by EU-funded EU-SA Partners for Growth, an organisation that aims to maximise bilateral trade and investment flows between the two, some requirements of BBBEE have far-reaching effects and may deter investment. It did not quantify losses due to BEE.
Eight companies were directly interviewed for the study and an EU business chamber representing 50 firms operating in SA. While the study did not quantify the exact costs of implementing BEE policies, it highlighted that some companies were spending at least R300,000 per year on advisory services on empowerment legislation.
The study was based on in-depth interviews with EU companies that collectively have nearly 1,000 employees, mostly locals, and have a combined turnover of about R2bn. It found that most EU investors were calling for an emphasis on skills development, which they say should be better rewarded while reducing the emphasis on ownership. This would boost SA’s drive to attract more investors.
Empowerment laws were introduced as part of efforts to address racial inequality dating back to the apartheid and colonial eras. BEE initially emphasised “passive shareholding” in a company, with the beneficiaries waiting for their dividends. The emphasis has evolved in recent years to focus more on developing black industrialists and empowering workers to get ownership in acquisitions.
Feroza Samaai-Abader, a researcher at EU-SA Partners for Growth, said while EU firms remain both accepting and embracing of the imperatives of economic transformation in SA, “there is a level of angst among investors which can only be alleviated through a recalibration of the current B-BBEE policy”.
“The concrete, measurable costs of managing B-BBEE compliance and implementation are high, affecting significantly on the business bottom line and causing them to question the ROI (return on investment) of their business actions,” said Samaai-Abader.
She said EU companies were calling for skills development initiatives to be given more prominence.
“These skills initiatives add significant value to the respective learning candidates as well as to the respective industries. However, these initiatives are not always acknowledged through the current B-BBEE policy.”
Some of the recommendations in the study include increasing the weighting points and related targets of the skills development element.
“The reviewed criteria would only be applicable as an option for foreign-owned businesses, as a good-faith measure to attract and protect FDI,” said Samaai-Abader.
Riina Kionka, the EU’s ambassador to SA, said European companies were complying with SA’s empowerment laws. But the companies found it difficult to achieve the ownership target. On average they reached 48% of the maximum.
Kionka said this was partly because many EU firms were owned by families and unable to transfer shares to external parties. This hampered many businesses despite their commitment to contribute to skills development and job creation.
The EU had approached the SA government to engage on some of these concerns about BEE.
“EU businesses and the EU at large are committed to collaborating with the SA government and stakeholders to make this policy work. It’s a win-win. Our investors want to invest here, so we are looking to unblock these issues,” Kionka said.
Article Credit to NEASA.